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Mortgage Lending: 5.4.4 Remedies

Some state high-cost loan laws provide their own remedies. Other states incorporate their existing usury remedies for violations of state high-cost loan statutes.

Mortgage Lending: 11.2.3 Comparison to Seller-Financed Mortgages

Most commonly, buyers arrange for third-party financing to purchase a home. But when this proves difficult, buyers may be drawn into a seller-financed transaction, whether as a land installment contract or a seller-financed mortgage. Land installment contracts have been described as the “poor man’s mortgage.”57

Mortgage Lending: 11.3.3 Risk of Loss

Under the doctrine of equitable conversion, the buyer is treated as the owner of the property and, as such, bears the risk of loss, unless the contract states otherwise.78 The Uniform Vendor and Purchaser Risk Act provides, however, that the seller retains the risk of loss until the buyer takes possession or title has passed.79 Only thirteen states have adopted this Act, but practitioners should check the law of their state.80 Some courts hol

Mortgage Lending: 11.4.4 Assignment of the Buyer’s Interest

The buyer is generally free to transfer their rights under an installment land contract without the prior consent of the seller, unless the contract states otherwise.119 Although some courts will give effect to a contract clause forbidding assignment, the seller’s acceptance of payments from the assignee may operate as a waiver of the prohibition.120

Mortgage Lending: 11.5.1 Seller’s Breach of Contract and Failure to Provide Deed

When the buyer has performed all obligations under the land installment contract and the seller fails or refuses to convey legal title, the buyer may sue for specific performance. To prevail in such a case the buyer must show the existence of the contract, performance on the buyer’s part, and the seller’s non-performance.126 Alternatively, the buyer can sue for contract damages or to rescind the contract and seek a return to the position they were in before the contract.

Mortgage Lending: 11.5.3 Seller’s Failure to Act in Good Faith

The law implies a covenant of good faith and fair dealing in every contract, including a land installment contract.136 Both buyers and sellers may breach this covenant.137 A breach of this covenant will not trigger punitive damages, absent breach of a special relationship, because the cause of action sounds in contract, not tort.138

Mortgage Lending: 11.6.3 Suits for Breach of Contract

If the borrower fails to perform any of the covenants under the contract—such as maintaining insurance on the property, avoiding waste, or failing to make the installment payments promptly—the seller may sue for breach of contract. There are two standard contract remedies: money damages and specific performance.

Mortgage Lending: 11.7.2 Disclosure Requirements

Some general state residential property disclosure laws specifically include land installment contracts in their definitions or otherwise make specific reference to such contracts.158 In addition, a number of state statutes dealing exclusively with land installment sale contracts contain disclosure requirements. This section describes these statutes, which have been enacted in California, the District of Columbia, Illinois, Indiana, Iowa, Maine, Maryland, Minnesota, Nevada, North Carolina, Ohio, and Texas.

Mortgage Lending: 11.7.3.1 States That Have Enacted the Uniform Consumer Credit Code

The Uniform Consumer Credit Code (UCCC) includes limitations on finance charges, late fees, attorney fees, and other terms.179 It defines “consumer credit sale” to include the sale of an interest in land that is payable in installments or is subject to a finance charge.180 Twelve states have adopted some form of the UCCC: Colorado, Idaho, Indiana, Iowa, Kansas, Maine, Oklahoma, South Carolina, Utah, West Virginia, Wisconsin, and Wyoming.

Mortgage Lending: 11.7.6.2 Title Reports

A Minnesota provision mandates that covered sellers give buyers a notice recommending that the buyer purchase title insurance or ask a real estate lawyer for a “title opinion,” and check with a title company or the county where the property is located to find out if there is a mortgage or other lien on the property.240

Mortgage Lending: 11.7.7.1 Introduction

The general rule is that both sellers and buyers have a recognizable interest in the title to the property, which may be encumbered. Some state statutes expressly address this question.

Mortgage Lending: 11.7.7.2 The Seller’s Liens and Marketable Title

North Carolina, Ohio, Pennsylvania, and Texas explicitly require that the seller in a land installment contract possess title to the property being conveyed under a land installment contract.256 Oregon provides special protections for homeowners who buy under an installment contract from a subdivision developer, including mandating the use of an escrow agent for the title.257

Mortgage Lending: 11.7.7.3 The Buyer’s Right to Encumber Title

In Michigan, if the buyer mortgages an interest in the land installment contract, the seller must extend certain rights under the contract to the buyer’s mortgagee.268 South Dakota provides that a buyer’s interest in the real property during the term of the contract is an interest that the buyer may mortgage and to which a judgment lien can attach by operation of law.269

Mortgage Lending: 11.7.10.1 Right to Cure

Some states require that the buyer be provided a certain window of time to cure and reinstate the contract prior to the seller either declaring the contract forfeit or proceeding with a foreclosure (when required). The time to cure may run from the date of default299 or from the sending of a statutory notice of default and right to cure.300