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When The Buyer Misses A Land Contract Payment

In Ohio, a land contract, also called a land installment contract,  is an agreement by a seller to sell you land and a house on that land for an agreed price.  You, the buyer, agree to make monthly installment payments directly to the seller, plus interest, until paid in full.  The seller agrees to transfer the deed (ownership) to you after all of the payments have been made.  Legally, when the buyer misses a payment, regardless of the reason the payment was missed, the buyer has breached his agreement under the land contract and the seller can take certain actions allowed by statute.

  1. What Happens If I Miss A Land Contract Payment?
  2. What If I Am Not Able To Make My Land Contract Payment Within 30 Days?
  3. What Must The Written Notice Say?
  4. What Happens At The End Of The Ten Days If I Have Not Made My Payment?
  5. What If The Buyer Has Neither Paid For Five Years Nor Paid 20% Of The Purchase Price?
  6. What If The Buyer Has Paid For Five Years Or Paid 20% Of The Purchase Price?
  7. What If I Made Improvements Or Repairs to the Property?
  8. Resources


WHAT HAPPENS IF I MISS A LAND CONTRACT PAYMENT?

Ohio law provides that a buyer who misses a land contract payment has a 30 day grace period to make the payment before the seller can begin legal action against the buyer.  The Ohio Revised Code § 5313.05 states that a buyer who misses a land contract payment has 30 days to bring his account current by making all payments currently due under the contract and by paying any additional late fees or other charges for which he is liable under the contract.  If the buyer makes all such payments within the 30 day period, then the seller cannot initiate forfeiture of the buyer's interest under the land contract.

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WHAT IF I AM NOT ABLE TO MAKE MY LAND CONTRACT PAYMENT WITHIN 30 DAYS?

Once 30 days has passed from the date the land contract payment was due and the buyer has failed to bring his account current, the seller can begin the legal process required to force the buyer to forfeit his interest in the land contract.  This process begins with the seller serving a written notice on the buyer by

 
  • Handing the buyer a written copy of the notice in person, or

  • Leaving it where the buyer lives, or

  • Leaving it at the house being purchased by the land contract, or

  • Sending it by registered or certified mail to the buyer's last known address.

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WHAT MUST THE WRITTEN NOTICE SAY?

Ohio law requires that the written notice contain four items: 

 
  • A reasonable description of the land contract and the property being purchased by the buyer,

  • The terms and conditions of the contract which have not been complied with,

  • A notification that the buyer will forfeit his interest in the property unless he brings his account current within ten days of the completed service of the notice, which means within 10 days of the above notice being left at either house, handed to the buyer or delivered by certified mail and signed for by the buyer, and

  • A notification that the buyer must vacate the property at the end of the ten days if he has not brought his account current.

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WHAT HAPPENS AT THE END OF THE TEN DAYS IF I HAVE NOT MADE MY PAYMENT?

At this point, in order for the seller to legally cancel the land contract and force the buyer to vacate the property, the seller must bring an action in court for forfeiture of the buyer's rights in the land contract.  The type of legal action the seller must bring depends on whether the buyer has met either of the criteria below: 

 
  • Paid in accordance with the terms of the contract for a period of five years or more from the date of the first payment or

  • Paid at least 20% of the purchase price. 
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WHAT IF THE BUYER HAS NEITHER PAID FOR FIVE YEARS NOR PAID 20% OF THE PURCHASE PRICE?

If the buyer has neither paid for five years nor paid 20% of the land contract purchase price, then the buyer is treated legally more like a renter or tenant who failed to pay his rent.  In order for the seller to legally cancel the land contract, the seller must bring an action in court for forfeiture of the buyer's rights in the land contract and for restitution of the property.  If the court finds in favor of the seller, that the buyer was not current on his payments, then the court will cancel the land contract and order the buyer to leave the property.  The court order cancelling the land contract must then be filed in the office of the county recorder of the county where the property is located.

More importantly, the buyer whose rights in the land installment contract are forfeited, will loose everything he has paid under the land contract including the down payment, the monthly payments, the homeowners insurance premiums and the real estate taxes.  The seller's action for forfeiture of the buyer's rights in the land installment contract is an exclusive remedy which bars further action on the contract by the seller unless the buyer has paid an amount less than the fair rental value plus deterioration or destruction of the property caused by the buyer.  In such a case, the seller may also recover the difference between the amount paid by the buyer on the contract and the fair rental value of the property plus an amount for the deterioration or destruction of the property caused by the buyer. 

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WHAT IF THE BUYER HAS PAID FOR FIVE YEARS OR PAID 20% OF THE PURCHASE PRICE?

If the buyer meets either the five year or 20% test, then the buyer is treated legally like a homeowner with a mortgage.  In order for the seller to legally cancel the land contract in this situation, the seller must bring an action in court for foreclosure and judicial sale of the foreclosed property.  This means that if the court finds in favor of the seller, that the buyer was not current on his payments, then the court will cancel the land contract and order the property sold at a sheriff's sale.  The sale proceeds will be used to pay for court costs, taxes and other fees and the amount still owed to the seller on the land contract.  The remaining amount, if any, will be paid to the land contract buyer.

As an alternative to foreclosure, the seller may bring an action for only unpaid installments against the buyer, but this will only result in a money judgment for the seller and will not force the buyer to vacate the property nor restore possession of the property to the seller. 

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WHAT IF I MADE IMPROVEMENTS OR REPAIRS TO THE PROPERTY?

The buyer may be entitled to be reimbursed for improvements or repairs made to the property.  First read the land contract to see if it contains any provisions that deal with this topic.  If this topic is covered in your land contract then whatever it states is what you agreed to.  If it is not mentioned in your land contract, then the buyer may have a claim of unjust enrichment against the seller.  If the buyer has such a claim, it must be presented to the court as a counterclaim to the seller's court action.  The buyer must prove the value of the improvement or repair, so keep all receipts for materials and labor.

When dealing with legal issues it is always recommended that buyers consult an attorney for legal advice.  If you cannot afford an attorney call 1-866-Law-Ohio or visit OhioLegalServices.org for your closest legal aid office.

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RESOURCES

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This website provides general legal information and not legal advice.  The law is complex and changes frequently. 
Before you apply any general legal information to a particular situation, consult an attorney. 
If you cannot afford an attorney call 1-866-Law-Ohio (1-866-529-6446) or visit OhioLegalServices.org for your closest legal aid office.

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