Default
If the Borrower fails to perform any
significant part of the contract, the Seller may have the right, after
notifying the Borrower in writing of the exact nature of the default, to
take legal action. If the default continues, the Seller probably has
the right to declare the remaining balance due and payable and, if the
default is not then cleared up or the loan is not paid in full, the
Seller can begin foreclosing.
Defaults by the Borrower may include
failure to properly maintain the property, failure to adequately insure
the property, or failure to pay taxes on the property as they become
due.
The way Borrowers most commonly default
is, as you would expect, by failing to make timely payments. If a
payment is ever late, we recommend taking the following steps: (1)
Check the contract to see if a “grace” period exists. If so, you must
honor it. (2) If no grace period exists or if it has expired, phone the
Borrower and ask about the payment. Insist upon payment, make a note of
the date and time of the call and keep this information with your land
contract. (3) On the same day as the above phone call, write a letter
that identifies the default and summarizes any action the Purchaser has
promised to perform and mail it, certified mail, return receipt
requested. (4) If the above steps do not produce the desired results,
contact an attorney immediately. Trying to cure a default by yourself
can cause problems for you, the Seller.
--------------------------------------------------------------------------------------------
Helpful Hint
If legal action is required, a Seller
has the right to initiate foreclosure proceedings. Find an attorney
with experience in the area of real estate foreclosure.
Also, because your attorney may be
required to appear in court, it is best to hire one who lives near the
property in question. This will save you from paying travel time and
other unnecessary expenses.
--------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------
Helpful Hint
Declaring a loan to be in default and
starting the foreclosure process is a serious matter and should be
handled by an attorney familiar with the laws of the state in which the
property is located. The biggest mistake made by Sellers in this area
is (1) trying to take matters into their own hands, and (2) delaying the
exercise of their rights. Begin to think in terms of foreclosure when
the Borrower is one month behind, not three or four months.
--------------------------------------------------------------------------------------------
Remember, you are not the “bad guy”…the
Borrower is the one not making payments. They can sell the property,
refinance the property or bring payments current. The ball is in their
court, so to speak. Explain the available options and tell the Borrower
you are prepared to bring legal action. After an initial phone call and
a certified letter, only swift and decisive action taken with the
assistance of legal counsel is likely to cause them to act. Be honest,
firm and considerate. Don’t harass and don’t delay!
--------------------------------------------------------------------------------------------
Helpful Hint
Keep records of all written and spoken
conversations with the Borrower, including dates, times, and what was
discussed. You’ll never know how or when these records will come in
handy until you need them but don’t have them. Then it’s too late!
--------------------------------------------------------------------------------------------
A failure to enforce any clause in your
contract can, over time, establish the precedent that the clause is not
binding and has no effect. In other words, actions speak louder than
words. Consistent conduct over a period of time, in fact, can take
precedence over the actual wording on your contract in a court of law!
In short, stick to the contract or be prepared to find it difficult to
enforce in court.
