Also known as: real estate installment contracts · installment land contract · contract for deed
Written by attorneys · grounded in primary & secondary sources — see below
A security device by which a seller of real property retains legal title until the buyer completes payment of the purchase price in installments. The buyer obtains equitable title and possession upon execution of the contract. Default by the buyer may trigger remedies including forfeiture or foreclosure depending on state law.
Roland Rhodes sold land to Regal Apparel under an unrecorded agreement. Regal Apparel later entered a recorded installment land contract with Ravi Reddy, who paid half the price before discovering the earlier claim. The court awarded title to Roland Rhodes but imposed a lien on the property securing the remaining installments owed by Regal Apparel.
Rajesh Rao contracted to sell a warehouse to Rising Sun Electronics under an installment land contract requiring monthly payments over ten years. Rising Sun Electronics took possession and began renovations while Rajesh Rao retained the deed. When Rising Sun Electronics defaulted after three years, Rajesh Rao pursued forfeiture under the contract terms permitted by state law.
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Ruby Rivera sold property to Royal Crest Hotels under an unrecorded contract. Royal Crest Hotels later executed a recorded installment land contract with Renee Rogers, who paid forty percent of the price and made improvements before learning of the prior claim. The court awarded title to Ruby Rivera but granted Renee Rogers an equitable lien measured by the installments already paid.
Upon default the seller may pursue forfeiture in some jurisdictions or foreclosure in others. State law determines whether the contract receives mortgage-like protections that require a foreclosure sale rather than summary cancellation of the buyer's interest.
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Courts may award title to the prior claimant while granting the later installment purchaser an equitable lien measured by payments already made. This approach treats the purchaser as a bona fide purchaser only to the extent of actual performance.
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Substantial payment and accumulated equity often lead courts to require foreclosure instead of forfeiture. Equity protects the buyer's interest when the arrears represent only a small fraction of the contract price after years of performance.
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…Appeals affirmed. We granted discretionary review to consider the validity of the forfeiture clause. We reverse. When a typical installment land contract is used as the means of financing the purchase of property, legal title to the property remains in the seller until the buyer has paid the entire contract price or some agreed-upon portion…