LawRefs Customized Legal Information
Attorney Renee C. Walsh

Bankruptcy and Land Contract Forfeiture

Inquiry: What does a land contract vendor (seller) do when he has served an eviction notice upon the buyer for non-payment of rent, and the vendee (buyer) responds by filing for bankruptcy?

Response:The bankruptcy filing puts a temporary stop on the eviction proceeding and places an automatic stay to prevent the seller creditor from proceeding with or continuing legal action against the buyer debtor. While the automatic stay of bankruptcy can stall eviction proceedings, the stay is not permanent as the seller can ask the court to “lift” the automatic stay. The courts usually grant such requests, which means that eviction proceedings can resume. Now the seller is a creditor and must act as any creditor in a bankruptcy case does and file proof of a claim. The issue then arises as to whether the land contract may be rejected as an executory contract by the bankrupt vendee.

What is an executory contract? In the context of bankruptcy, this is a contract that has not as yet been fully performed and is so far unperformed that failure to complete performance constitutes a material breach excusing either party’s performance. 11 USC 365 provides that the land contract can be construed as an executory contract that can be assumed, assigned or rejected by the trustee in bankruptcy or debtor in possession.

In the case of Terrell v Albaugh, (In re Terrell) 892 F.2d 469 (6th Cir. 1989), the Sixth Circuit Bankruptcy Court of Appeals found that a land contract was an executory contract because there were material obligations left to be performed by the parties to the contract. Since there were such obligations, the failure of either to perform them would constitute a material breach of the contract and therefore allow the other party to avoid continued performance.

The alternative is that the contract would be treated like a mortgage securing the vendor’s claim. Rather than an executory contract, the land contract is a sale with a continuing security interest with material obligations to be performed other than delivery of the deed upon payment of the purchase price.

Executory contracts are important in bankruptcy. They must be listed separately in the bankruptcy schedules and are not treated as any other unsecured claim in bankruptcy. Under 11 USC 365, the debtor or bankruptcy trustee may elect to assume (perform) or reject (refuse to perform) the contract within a certain time period, which is 60 days from filing in a Chapter 7 case. Furthermore, the vendor must perform as if no bankruptcy had been filed unless the court grants relief. If the contract is assumed, the debtor or bankruptcy trustee has to pay in full any outstanding payments and prove it can pay in the future too.

The bottom line is that the vendor’s only recourse is to request the court to lift the stay to proceed with the eviction proceedings. However, since the law does allow the debtor to assume the contract by paying up, it seems likely that the court would allow the debtor the time allotted to assume. The creditor should file a motion to compel the debtor to make payments under the contract in accordance with the terms thereof, and force the debtor to assume or reject within a certain time period.


  1. I allowed my child to place a mobile home on my property. I did not sign over any portion of the property to him; only allowed the placement of the home on my property. He has filed Chapter 13 bankruptcy and is telling me I cannot force him to remove the home from my property because of it. Is that true? He has no ownership rights to the property the home sits on.

  2. In 2007, my wife and I leased a home with the option to purchase, and with a deposit of $5,000, and stated our intentions to purchase. In 2009, we signed a land contract for the purchase of the home, and put another $8,000 down towards the purchase. In 2015, we received a call from the seller informing us they were going bankrupt. We have discovered that the seller did not “own” the home they sold. The seller told us the original owner signed the home over to them via quit claim deed. We spoke to the original owner. She is now attempting to evict us. We’ve made the payments for over 8 years with deposits of $13,000 towards the purchase.

    • Dear CJ:

      It sounds like the original owner gave up any right she had to the home if she signed a Quit Claim Deed because a Quit Claim Deed gives whatever rights the conveyor has. Therefore, she transferred her right to the seller you bought the home from. The original owner should have no claim on the property that you are in and cannot evict you. In this scenario, consideration may be given to notifying the original seller that she has no rights with regard to the property and if she takes you to court, you will ask for court costs and attorney fees and any other damages applicable to her frivolous matter.

      Land Contract buyers can protect their rights from bankrupt sellers by notifying the court that they are a creditor and then appearing in bankruptcy court to state their case.

  3. I entered into a Michigan land contract with one-year balloon, in 2014. I have never missed a payment or been late. I am having trouble getting financing, due to having made my payments to his bank in cash. The mortgage guy I’ve been working with said he needs proof of my payment history because my name is on the title, which he cannot provide due to my making cash payments to the Seller’s account. My credit score qualifies me for the loan, along with my proof of income, but the lack of tangible payment history is holding me up. I put 20k down against principal. The mortgage company recommended asking Seller to extend the contract one year, so that I can start making payments via check from my bank, rather than the cash payments I have been making. The seller told me he is only willing to sign a three month extension and that he would have to put the house back on the market if I can’t finance within those three months. My question is, what can I do to keep the house? And, if he does file a forfeiture, can I get my down payment back? The mortgage company said I would qualify for any other home, but not the one in which my name is on the title and yet, I can’t provide proof of payment history. I have put over 20k into the property in improvements.

    • Dear Derek A.:

      Posit the idea to your mortgage broker that payment history could be provided in other creative ways such as: Seller could provide an Affidavit of Service Provider attesting to the details of payment history, how much principle has been paid, and the remaining balance of the loan. Also, consider providing tax form, IRS Form 1098: Mortgage Interest Statement, which must have been furnished by the Seller, to you, if payments were more than $600 a year. If Seller does not cooperate in this process, given the circumstances, a lack of cooperation could be used against him in defending your claim to the property in a court of law. Finally, if the broker is not able to think outside the box, consider shopping around for a different mortgage broker. I have heard good things about Mario Flores at VanDyk Mortgage, 5906 Commerce Centre Dr., Muskegon MI 49444, 231-332-6500.

  4. I, a Michigan Seller have a land contract with a Michigan Buyer. I went to in November 2014 for forfeiture of Land Contract for failure to make the mortgage and tax payment. The judge gave the Buyer 90 days and she paid that Judgment. I went back to court in April 2015, again for failure to make the mortgage and tax payments. I did not ask for money, but for eviction and possession. The judge ordered forfeiture with monetary but no eviction and possession. Again, I have to wait 90 days. I told the judge that insurance was due on the 4/16, so the judge ordered proof of insurance by the 16th. The Buyer did not comply and I had to get binder insurance. The insurance company requires photos of inside and outside of home in order to provide coverage, however, the Buyer will not oblige. I filed a Motion and Notice of Hearing with a date set for a month from now. The judge is requiring me to file a brief on why this individual should be evicted. Can you provide any information?

    • Dear Althea:

      It is typical for a motion to require a supporting brief. A brief can be thought of as a layout of the basis of the motion. It can show the history of the case, summarizing to the judge how the parties got to the present. For example, it could state that the defendant was notified concerning the property that they were in default because of nonpayment of installments of principal and/or interest, and also because of unpaid taxes; an order was entered to make payment along along with payment of insurance on X date. The Order stated that if such payment was not made, within the time stated, the land contract will be forfeited, as provided in the contract, and Buyer would be required to move out and give up the property without further notice. Buyer did not make payment by X date and should now be required to move out and give up the property without further notice. Therefore, the court is requested to enter an order to that effect together with reimbursement of all costs along with any other remedy appropriate under the law.

  5. In November of 2007, my wife and I seller financed some property, for $1000 per month for ten years. The buyers started out making timely payments, but as time went by they became more and more delinquent on payments, and made no payment at all in Oct. or Nov. 2014. In November of 2014, the buyers filed Chapter 13 bankruptcy. They agreed ( in the bankruptcy) to continue paying us $1000 per month as well as catching up on the two months that they were in arrears. We have received one payment in Dec 2014 of $1000 and one payment in March 2015 of $1025 ( $1000 plus $25 late fee). They are now $7000 in arrears and still are not making timely payments every month as they said in their chapter 13 case. Is it legal for us to contact them directly asking for payment, or should we request relief from the automatic bankruptcy stay and foreclose… let the system take care of it, so to speak?

    • Dear Toby P.:

      Is the bankruptcy case still open, and did your buyer sign a Reaffirmation Agreement?

      • The case is still open. I am not sure if they signed a reaffirmation agreement. How do I determine if they did or not?

        • Dear Toby P.:

          As the seller, you would know if they signed a reaffirmation agreement because they would have to communicate with you to do that.

          Consider contacting the court, letting them know you are a creditor and want to find out how you can access the debtor’s file.

          As a creditor, you should be listed on the debtor’s matrix and should be receiving important communications / notices from the court.

          A motion to lift the automatic stay would have to be filed in order to proceed against the buyer.