If you are looking to sell Michigan real estate on a land contract, or considering it, you need to understand how these agreements work. A land contract can be a smart tool: the seller finances the sale, the buyer moves in and pays over time, and both sides get a deal the bank wouldn’t make. But the same law that makes land contracts flexible also draws hard lines around them, and the parties who learn those lines in a courtroom rather than through contract review pay dearly for the education. Land contract defaults are a steady source of the real estate disputes we handle in West Michigan, and most of them trace back to terms nobody read closely at signing.
Before you sign, make sure you are doing it right.
What a Land Contract Is
A land contract is a seller-financed sale of real estate, and it works for a house, a duplex, a cottage, a farm, or bare land. Instead of paying the full price at closing with a lender’s money, the buyer pays the seller directly in installments until the price is paid in full. Until then, the seller keeps legal title, which means the deed stays in the seller’s name. Sellers should note that the buyer holds equitable title: the present right to possess, use, and improve the property, along with the right to receive the deed once the final payment clears. Michigan law requires a seller to deliver that deed when the buyer finishes performing.
While most of the terms are up to the parties, one requirement is not negotiable. The agreement must be in writing. Under Michigan’s statute of frauds, MCL 566.108, a contract for the sale of land or any interest in land is void unless it is in writing and signed. A handshake is not a contract, and a shoebox of payment receipts is not a substitute for one. Put every term on paper, have everyone sign, and record the contract or a memorandum of it with the register of deeds so the buyer’s interest is a matter of public record.
What You Can Do With One
Much of the appeal comes down to flexibility. The parties, not an underwriting department, set the down payment, the monthly amount, the length of the term, and whether a balloon payment comes due at the end. Interest is negotiable up to a legal ceiling discussed below. The contract also decides who carries the insurance, who pays the taxes, and who fixes the furnace, and in most Michigan land contracts those responsibilities belong to the buyer.
As a seller, especially one who owns the property free and clear, a land contract turns a house into a stream of monthly income with the property itself as security. For a buyer, it offers a workable path to ownership when self-employment income, a bruised credit history, or an unusual property makes conventional financing hard to get. Both sides keep options along the way, since a buyer can generally assign the contract or resell the property unless the agreement forbids it, and either party may borrow against its own interest in the deal.
What You Cannot Do
While land contracts offer a lot of freedom, there are limits.
The first is the interest rate. As a private seller, the rate on a Michigan land contract cannot exceed 11 percent per year, and that ceiling includes the add-on fees a lender would call finance charges. If you bought your first house when mortgage rates ran into the double digits, 11 percent may not sound like a limit at all, but it is one, and the penalty for crossing it is severe. Under MCL 438.32, a seller who charges an illegal rate is barred from collecting any interest, late fees, collection charges, or attorney fees, and the payments the buyer already made are reapplied to principal. The interest income you thought you were earning becomes a paydown of the balance instead, and that reshuffling can even erase the default itself, since a buyer whose payments all count toward principal may turn out not to be behind at all. Above the civil ceiling sits a second, harder line: knowingly charging more than 25 percent is criminal usury, a felony carrying up to five years in prison. No seller sets out to commit a felony with a real estate contract, but when late charges and fees pile on top of a high rate, the effective number can climb faster than you would think. You can’t draft your way around any of this, either. The Michigan Supreme Court has held that a savings clause, language promising the rate will drop to a legal one if it is ever challenged, will not rescue a contract written with an illegal rate. Homemade contracts flunk this test all the time, and the mistake surfaces at the worst possible moment, when the seller tries to enforce the deal.
The second limit is self-help. A frustrated seller cannot change the locks, shut off the utilities, or set the buyer’s belongings on the curb. A land contract buyer is an owner in equity, not a lodger, and removing one requires a court.
The third involves your own mortgage. A land contract is a transfer of an interest in the property, and most mortgages contain a due-on-sale clause letting the lender call the entire loan when that happens. If you still owe money on the home, read your mortgage before you sell on a land contract, not after.
Forfeiture: How a Seller Takes the Property Back
Forfeiture is Michigan’s streamlined remedy for a defaulting land contract, governed by the summary proceedings statute, MCL 600.5726 et seq. It exists only if the parties wrote it into the agreement, so if the contract doesn’t provide for forfeiture, the remedy isn’t available at all.
The process begins with a written notice of forfeiture identifying the parties, the contract, the property, and the amounts unpaid, and declaring the contract forfeited unless the default is cured. The buyer must be given at least 15 days to catch up, and that is a minimum. While the contract can promise the buyer a longer cure window, and a well-drafted one often does, it can never give the seller a shorter one. The seller’s claim is limited to what is actually past due, because the statute does not allow a demand for the entire accelerated balance in a forfeiture. If the default is not cured, the seller may file in district court, where these cases move quickly, and a seller who prevails receives a judgment for possession stating the amount the buyer must pay to keep the property. The procedure is technical enough that notice defects sink otherwise solid cases, so this is not a do-it-yourself project.
One more feature of forfeiture deserves attention: there is no appraisal, no sale, and no accounting between the parties. If the property has gained value over the years, or the buyer has paid the balance far down, all of that built-up equity returns to the seller along with the keys, and the statute does not require the seller to write the buyer a check for the difference. A buyer who has paid 60 percent of the price on a house that has doubled in value can lose every dollar of that position by ignoring a forfeiture case. The buyer’s protection is the redemption period discussed next, and a buyer with real equity should treat it as the time to act: redeem, refinance, or sell while the right still exists.
The Redemption Period: The Buyer’s Second Chance
A judgment for possession is not the end of the story. Michigan gives the buyer a statutory redemption period: 90 days from the judgment if less than half of the purchase price has been paid, and six months if half or more has been paid. For this purpose the purchase price means the number on the face of the contract, not a running tally of taxes and insurance.
This is the part that surprises people. The buyer keeps the property by paying the amount stated in the judgment, the arrears plus costs, not the whole remaining balance, and that right is absolute. Courts have even held that a buyer need not make the new installments that come due during the redemption window in order to redeem, although those amounts remain part of the contract debt going forward. Only when the period expires without payment can the court issue the order of eviction, and once that order issues, the right to redeem is gone for good. The practical lesson is that the redemption period is not a formality. It is a buyer’s last clear chance and should be treated that way from day one.
Forfeiture vs. Foreclosure: They Are Not Interchangeable
Many sellers treat forfeiture and foreclosure as two names for the same remedy. They are not, and choosing the wrong one can make or break your recovery.
Forfeiture is fast and final. The seller takes the property back, keeps every payment made to date along with whatever equity the buyer built up, and gives up the rest of the debt, so a seller who completes a forfeiture cannot chase the buyer for the shortfall. Foreclosure runs the other direction. It is filed in circuit court; it takes longer and costs more, but where the contract terms allow it, the seller can accelerate the full balance, sell the property, and pursue the buyer for any deficiency, with the buyer’s redemption running six months from the sale at the price bid plus interest. So before choosing, run the numbers. If the property is worth more than the balance owed, forfeiture usually makes sense, while a property worth less than the balance favors foreclosure and its deficiency claim.
Here’s the critical issue: sending a notice of forfeiture does not lock you in. Until the case is carried through to judgment, a seller can still change course and foreclose instead. So before you start down either road, decide what you actually want out of the deal, the property back or the money owed, and pick the remedy that matches. As a seller facing a default, you should get advice before sending anything, since the notices are technical and the choice becomes final at judgment.
When the Buyer Is Destroying the Property
The redemption periods assume the property is being lived in, not torn apart, so for the ugly cases the statute contains a safety valve. On conditions the court sets, and on proper pleading and proof, a court may order possession immediately after judgment where the occupant is willfully or negligently causing a serious and continuing health hazard, or extensive and continuing injury to the premises, and refuses either to surrender possession after demand or to repair the damage. That said, this provision is not a magic shield. Its language reads most naturally as aimed at tenants, and its use against a land contract buyer is not settled law, so it is better treated as an argument to raise than a result to count on. The seller also holds a separate damages claim for harm done to the property after the buyer received the forfeiture notice, and where the damage is severe, foreclosure may simply be the better tool.
The Bottom Line
If you are considering selling the house you have owned for twenty years, a land contract is a real sale governed by real statutes, and every term in it carries legal weight. Each term will matter someday, whether it is the interest rate, the forfeiture clause, the cure period, or the tax and insurance obligations, and the day it matters is a bad day to be reading it for the first time. The good news is that nearly every problem in this article is avoidable at the drafting table. A land contract is not a form to pull off the internet. Have a real estate attorney draft the agreement before anyone signs, because a brief conversation at that stage is far less expensive than a lawsuit after.
Todd Stuart is the Chair of the Litigation Practice Group at SBS Law, with offices serving the West Michigan community. SBS Law handles nearly every type of real estate dispute, including land contract forfeitures and foreclosures, seller disclosure litigation, property damage claims, commercial real estate matters, lease disputes, evictions, construction lien claims, and neighbor disputes. Todd also drafts and structures land contracts and seller-financing arrangements for property owners, and he serves as an affiliate professor at Grand Valley State University’s Seidman College of Business.
This article is for general informational purposes only and does not constitute legal advice. For guidance specific to your situation, please consult a qualified attorney.
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