SELLERFINANCING In past years, low interest rates and ever increasing home values all but eliminatedtheuseoflandcontractsandpurchasemoneymortgagesinmichigan.however, nowthatmanybuyerscannotqualifyforconventionalfinancingandmanyhomeswillnot appraiseforthepurchasepriceamount,thefocushasagainturnedtosellerfinancing.with sellerfinancing,realtors mustrecognizethefactthatthesellerandbuyerareentering intoalong termrelationship. The use of seller financing adds a number of additional factors which a REALTOR mustconsiderwhenassistingasellerorabuyer.inthecaseofaseller,therearea numberofnewissuesuponwhichaclientmayseekadvice.first,whatdoestheseller need asafinancialreturnfromthepropertyonalong termbasisandwhattermswillmostlikely generatethatfinancialreturn?second,whataretheseller sstandardsgoingtobeastothe creditworthiness of a prospective buyer? (If a buyer cannot qualify for a conventional mortgage, what assurance will the seller require that the buyer will perform on the land contract?)third,thesellerwillbetakingontheroleofalenderandwillwanttounderstand themethodsofenforcementofthetermsofthelandcontractorpurchasemoneymortgageand thecostsassociatedwiththatenforcement.fourth,thesellerwillwishtoknowwhetherthe saleonalandcontractorconveyancesubjecttoapurchasemoneymortgagewillcauseany legalorpracticalproblemswiththeseller sownlender,whosemortgagewillremainonthe property. Finally, the seller must consider the pros and cons of a land contract versus a purchasemoneymortgage. Inworkingwithbuyers,aREALTOR mustfacemanyofthesameissues.first, the buyers will need to determine what they can afford to pay as a down payment and thereafterinmonthlyinstallments.inthepast,aconventionallenderdeterminedhowmuch buyerscouldpaybasedonahugelyoptimisticassumption(e.g.neverendingincreasesinvalue ofproperty).second,thebuyerswillprobablyhavetodealwithasellerwhodoesnotwanta long termfinancialrelationship.accordingly,thebuyerswillneedtoconsiderwhetherthey willbeinapositiontoperform,ifinfacttheyenterintoalandcontractwithathree(3)year balloon.ifthebuyerscannotqualifyforaconventionalmortgageatthetimeofclosing,whatis goingtochangetoenablethemtoqualifyforaconventionalloanthree(3)yearslater?third, thebuyersneedtogenerallyunderstandthedifferentlegalremediesthatareavailableifthe sellerdeclaresthebuyerstobeindefault.finally,iftheunderlyingmortgagegivenbythe sellerisgoingtoremainontheproperty,thebuyerswillcertainlywishtounderstandwhat,if any, legal issues can arise between the sellers and the sellers lender. In the event of an acceleration of the indebtedness owed by the sellers to their lender, the buyers will be requiredtoimmediatelyobtainconventionalfinancingtoprotecttheinvestmenttheyhavein theproperty. MICHIGANLANDCONTRACTS InordertoworkwithlandcontractsinMichigan,itisessentialthatREALTORS understandthebasicprinciplesthatdistinguishmichiganlandcontractsfromexecutory contracts(e.g.,purchaseagreements)andlandcontractsusedindifferentstates.inmany 2
respects,michiganlandcontractsaremoreakintoamortgagethanapurchasecontract. First and foremost, it is well settled in this State that the vendee in a land contract(thebuyer)isvestedwithequitabletitleinthelandandthatlegaltitleremainsinthe vendorassecurityforthepaymentofthepurchaseprice.uponpaymentofthepurchaseprice, thevendeeisentitledtoconveyanceofthelegaltitle.barkervklingler,302mich282,288 (1942). Whilelegaltitleisheldbythesellerassecurityforpaymentsonlandcontract, equitabletitlepassestothebuyer/vendeeuponproperexecutionofthecontract. Zurcherv Herveat,238MichApp267,291(1999). In determining whether land contract buyers have property within the meaningofaconstitutionalprovisiongoverningcertainvotingrights,themichigansupreme Courthasheld: Within the broad spectrum of rights included in the term property istheinterestofalandcontractvendee,accordingto commonusage.suchaninterestusuallycarrieswithitvaluable rightsordinarilyunderstoodtobepropertyrights,suchasthe right of possession, control and disposition. Hence, to have property withinconstitutionalmeaning,maybesaidtoembrace havingavendee sinterestinalandcontract. GoldsmithvAlbionPublicSchools,373Mich397,402(1964). REALTORS should understand that there is very little difference between holdingequitabletitletopropertyandholdinglegaltitletoproperty.thisisdemonstratedby thetreatmentofanumberofissueswithrespecttolandcontracts. First,equitabletitleobtainedbyabuyerthroughalandcontractcanbesoldby thebuyerandpurchasedbyathirdparty.thus,intheabsenceofadue on saleclause,aclause prohibitingprepaymentoraclauserequiringconsentbythevendortoanysale,thebuyermay sellthepropertyonasecondlandcontractorsimplysellthepropertyandpayoffthefirstland contract. Second,equitabletitleobtainedbyabuyerthroughalandcontractcanbeused asasecurityforamortgage.thisrightisnowgrantedtoabuyerbystatute.mcl565.357. Third,thelandcontractormemorandumoflandcontractcanberecordedwith theregisterofdeeds.therecordingofalandcontractormemorandumoflandcontracthas thesameforceandeffectastherecordingofdeedsandmortgages.mcl656.354. Fourth,abuyeronalandcontracthasaninsurableinterestintheproperty. Landcontractsellersassume thesamepositionandstatusasamortgageeforpurposesof applyingamortgageclausetogoverntherightsofthevendorunderaninsurancepolicyissued tothelandcontractvendee. SingervAmericanStatesIns,245MichApp370,378(2001). Finally,theprocedureforforeclosingadefaultedlandcontractisnearlyidentical tothatforforeclosingamortgagebyjudicialaction.mcl600.3101etseq. Insummary,landcontractstypicallygrantpurchasersimmediatepossessionand controlofthepropertyandthepurchasersimmediatelyobtainequitabletitle.equitabletitle 3
tothepropertyislittledifferentfromlegaltitle:thepropertycanbebought,sold,insured, recorded,andencumberedandcanbethesubjectoftaxliensandforeclosure. BASICLANDCONTRACTPROVISIONS Indealingwithlandcontracts,thefirstdocumentinwhichREALTORS willdeal with the subject is the purchase agreement. There is no standard land contract form in Michigan.Ifapurchaseagreementsimplyprovidesthatabuyerwillbuyapropertyonland contract,andnothingmore,thepurchaseagreementcouldverywellbedeemedtobetoo open ended to be enforceable. A land contract must contain various terms that are not typicallyincludedinapurchaseagreement.thus,whendraftingapurchaseagreementfora landcontractsale,arealtor shoulddomorethansimplyprovidefora landcontract purchase. Asonealternative,thepurchaseagreementcanreferenceaspecificformofland contract. If a local association of REALTORS has a form of land contract which the REALTOR findsappropriate,aspecificreferencecouldbemadeinthepurchaseagreementto the localassociation scurrentformoflandcontract. Alternatively,aREALTOR mayhave someotherformoflandcontractwithwhichheiswell acquaintedandcomfortablewithits terms.assumingitisappropriatefortheclientorcustomer,theformoflandcontractcouldbe incorporatedintothepurchaseagreementasanexhibit,i.e., purchasershallpurchasethe propertyontheattachedlandcontractform. There are a number of terms in a land contract that a REALTOR should understand.asamplelandcontractisattachedtothisarticleasexhibita.thesampleis providedforpurposesofdiscussionandshouldnotbeusedbyarealtor inatransaction unlessitstermsspecificallyfittheneedsandrequirementsofthepartiestothattransaction. First,allpaymenttermsmustbeinthelandcontract.Thisincludesthedown payment,remainingbalance,amountofmonthlyinstallments,theinterestrate,thenumberof yearsofthelandcontractandanyspecificdateforaballoonpayment. Second,aprovisionmustbeincludedthatgivesthebuyerpossessionofthe propertyduringthetermofthelandcontract.ifthelandcontractissilentastopossession, thenpossessionremainswiththeseller. Third,thelandcontractshouldcontainaprovisioncoveringpropertytaxes.It mustbedeterminedwhowillberesponsibleforpayingpropertytaxesduringthetermofthe landcontract.somecontractshavethebuyerpaythetaxesdirectly;othershavetheseller collecttheestimatedtaxamountfromthebuyerwitheachlandcontractpayment.iftheseller isgoingtoberesponsibleforpayingpropertytaxes,thenthereisthequestionastohowthe taxpaymentamountscollectedwillbehandled.somecontractssimplyhavethesellerholdthe moneyinescrowuntilthetaxesarepaid.inothercontracts,thesellerappliesthesemonthly paymentsagainsttheprincipalbalanceastheyarereceived.atthetimethesellerpaysthe propertytaxes,theprincipalbalanceofthelandcontractisincreasedbytheamountofthe taxespaid.further,realtors shouldconsiderwhetherthepartypayingthetaxesshould berequiredtoprovideevidencetotheotherpartythatthetaxeshavebeenpaid. Fourth,thelandcontractmustcontainaprovisionrequiringthesellertodeliver awarrantydeedtothebuyeruponthebuyer sperformancetothetermsofthelandcontract. 4
Generally, the provision will specify that the seller may only except from the warranty restrictions,rightsandeasementsofrecordasofthedateofthelandcontract.inotherwords, thesellerisgenerallynotpermittedtoplaceadditionaleasementsorotherrestrictionsagainst thepropertyduringthetermofthelandcontract.obviously,thesellermayalsoexceptfrom thewarrantyanylienscausedbytheactsoromissionsofthebuyerduringthetermoftheland contract. Fifth,thelandcontractshouldspecificallyprovidethattransfertaxesshouldbe paidbythesellerwhenthesellerdeliversthedeedtothebuyer.alternatively,theprovision could provide that the buyer will deduct the amount of the transfer taxes from the final installment(s)onthelandcontractandpaythetransfertaxeswhenthebuyerrecordsthe deed. Sixth,thelandcontractshouldcontainprovisionswithrespecttoliabilityand casualtyinsuranceintheeventofanydamageduringthetermofthecontract.thesellerwill certainlywantinsuranceinplaceonthepropertyduringthetermofthelandcontractto assurepaymentifthepropertyisdamaged,e.g.,thehouseburnsdown.thelandcontract shouldprovidewhowillpayfortheinsurance(thesellerorbuyer)andwhat,ifany,evidence thepartypayingfortheinsuranceshallprovidetotheotherparty.thepartynotpayingfor theinsurancemayrequesttobeanadditionalinsuredonthepolicyand/ortoreceivenoticein theeventofcancellationofthepolicy.thenoticeofcancellationwould,forexample,protecta sellerifabuyerfailedtopayforinsuranceontheproperty,sinceitwouldgivetheselleran opportunitytopurchasehisowninsurance. Seventh,aprovisionshouldbeincludedinthelandcontractwhichspecifies whetherthebuyercanorcannottransferitsinterestinthelandcontractwithouttheprior consentoftheseller.asimportantly,thisprovisionshouldspecifywhetherthebuyerwillor willnotremainliableunderthelandcontractafterthetransfer. Theprovisionsforpaymentonalandcontractshouldspecifywhetherthebuyer canprepayinstallmentsowedonthelandcontractand/orprepaythelandcontractinfull.ifa buyer wishes to be able to prepay installments, the words or more should follow the statementoftheamountofthemonthlypayment,e.g., theremainingbalanceof dollarsto bepaidinmonthlyinstallmentsof dollarsormore. Eighth,inrepresentingaseller,aREALTOR maywanttoobtainaprovision whichpreventsabuyerfrommakinganysubstantialchangestothepropertywithouttheprior consentoftheseller.thereasonsellerswouldwantthisprovisionisfairlystraightforward.if thesellershavesoldtheirresidenceonlandcontractfor$100,000,andthebuyerseeksto rebuildtheentireinterioroftheresidence,thesellerswouldhavegreatinterestinmaking certainthatthevalueofthepropertydidnotendupdiminishedbythebuyer sactions.onthe otherhand,abuyermayresistsuchaprovisionifitisbelievedthatthesellermaynotbe reasonableingrantingconsenttoanysubstantialchangestotheproperty,particularlyifitisa long termcontract.asacorollary,asellerwillalsowishaprovisionrequiringthebuyerto maintainthepropertyingoodcondition,reasonablewearandtearexcepted,andtoagreenot tocommit waste ontheproperty. Ninth,aprovisionshouldbeincludedinthelandcontractregardingtheseller s righttoplacemortgagesontheproperty.itmustberememberedthatthesellerstillhaslegal 5
titletotheproperty.ifthesellerisgoingtobepermittedtoplaceamortgageontheproperty, thecontracttypicallyprovidesthatthemortgageamountshallnotexceedthebalanceowed under the land contract. In addition, the contract typically provides that the amount of monthlypaymentsofinterestandprincipalonthemortgagecannotexceedtheamountof monthlypaymentsrequiredunderthelandcontract.theseprovisionsareessentialinthe eventthatthebuyerwishestoassumetheseller smortgageorisrequiredtostepintothe shoesofthesellerwithrespecttothatmortgage. Tenth,thebuyerwillobviouslywanttomakecertainthatthesellercanprovide marketable title to the property after the buyer s performance of the terms of the land contract.thus,thepurchaseagreementwouldrequirethesellertoprovideatitlecommitment evidencingmarketabletitleand,thereafter,atitleinsurancepolicy.thelandcontractwould then contain a provision indicating that the buyer had received a title insurance policy coveringthepropertyandthatthebuyeracceptstheconditionofthetitleasdisclosedinthe policy. Eleventh,thelandcontractshouldcontainaprovisiongrantingthesellerthe righttoprovideawrittennoticeofforfeitureintheeventthebuyerdefaultsunderthetermsof thelandcontractandgrantingthesellertherighttoforfeitthelandcontract.thisprovision shouldalsopermitthesellertoexerciseanyotherlegalremediesavailable.remediesinthe eventofdefaultwillbediscussedmorefullybelow. REALTORS representingsellersmaywishtomakecertainthataprovisionis includedinthelandcontractacknowledgingthatthebuyerhaspurchasedthepropertyinits asis condition.thisclausecouldbeveryhelpfulforasellerintheeventadisputearises duringthetermofthelandcontractwithrespecttotheconditionoftheproperty.unlikea situationwhereabuyerpurchasesapropertyandreceivesadeedatclosing,thebuyerdoes nothavetogotocourttotrytoobtainfinancialleverageontheseller.instead,thebuyermay simply withhold or claim to deduct from installment payments on the land contract, the amountofanyclaimeddamages. Finally,aprovisionshouldbeincludedinthelandcontractindicatingthata memorandumoflandcontractwillorwillnotberecordedwiththeregisterofdeedsuponthe executionofthelandcontract. MEMORANDUMOFLANDCONTRACT Asindicatedabove,landcontractsandmemorandumsoflandcontractscanbe recordedwiththeregisterofdeeds.typically,itisnotintheinterestofeitherthesellerorthe buyertohavetheactuallandcontractrecordedwiththeregisterofdeeds,thusmakingthe termsofthelandcontractavailabletotheentireworld.analternativeisamemorandumof landcontract.asampleformofmemorandumoflandcontractisattachedtothisarticleas ExhibitB.Ascanbeseen,thememorandumoflandcontractdoesnotdiscloseanyofthe financialtermsofthelandcontract.however,therecanbecompetinginterestsbetweenthe sellerandabuyerastowhetherevenamemorandumoflandcontractshouldberecorded. Asimplehypotheticalwilldemonstratewhyattimessellerswillfiercelyresist therecordingofmemorandumoflandcontract.assumesellerbrownsellsherpropertyon landcontracttobuyergreen.thelandcontractcallsforatermoffive(5)years,atwhichtime 6
theremainingbalanceshallbepaidintheballoonpayment.inthemiddleofthethirdyear, SellerBrowndoesnotreceiveapaymentfromBuyerGreen.SellerBrownhasbeenrelyingon thosepaymentstopaytheunderlyingmortgageonthepropertysoldtobuyergreen.seller Brownvisitsthepropertyandfindsthatitisvacant.BuyerGreenhasleftanoteinthekitchen indicating that he is moving out, leaving the country and will not be making any further paymentsonthelandcontract.sellerbrownimmediatelyliststhepropertyforsale.anew buyer is found for the property who will purchase it using conventional financing. Unfortunately, the sale cannot proceed forward promptly, as the title company lists, as a requirementinatitlecommitment,thatthememorandumoflandcontractmemorializingthe saleofapropertyofbuyergreen,eitherbedischargedoranactiontoforfeitbuyergreen s interest or quiet title action be prosecuted to eliminate the interest reflected in the memorandumoflandcontract. Asimplehypotheticalwillalsodemonstratewhybuyersshouldinsistthata memorandumoflandcontractberecordedevidencingtheirequitabletitleintheproperty. AssumeBuyerGreenpurchasespropertyfromSellerBrownonthelandcontract,whichcalls forthree(3)yearsofinstallmentpaymentsandthenaballoonpayment.amemorandumof landcontractisrecordedwiththeregisterofdeedstoevidencebuyergreen sinterestinthe property.buyergreenfaithfullymakesinstallmentpaymentsforthree(3)yearsandarranges forconventionalfinancingtopaytheballoon.immediatelypriortoclosing,itisdiscovered thatduringthesecondyearofthelandcontract,ajudgmentwasenteredagainstsellerbrown and the judgment now appears to be a lien on the legal title of Seller Brown. Since a memorandum of land contract was recorded, the judgment lien is subordinate to Buyer Green sinterestintherealestate.hemaypurchasethepropertyfreeclearofthejudgment lien. In the absence of the memorandum of land contract, Buyer Green s interest in the propertywouldbesubordinatetothejudgmentlien.thiswouldbeaseriousproblemifthe balanceowedonthelandcontractwaslessthanthejudgmentlienamount.(ifthejudgment lienwassmallerthanthebalanceowed,buyergreencouldcommencealegalactionagainst thejudgmentlienorandthesellertoobtaindirectionfromacourtastowhoshouldreceive whatpartoftheballoonpayment.) It should be noted that tax liens generated by a seller asserted against the property after the date of recording of the memorandum of land contract would also be subordinatetobuyergreen sinterestintheproperty.again,buyergreenwouldtypically handlethissituationbycommencinglitigationtoobtaindirectionfromthecourtastowho shouldbepaidwhatpartoftheballoonpaymentowedtosellerbrown. REMEDIESFORDEFAULTBYBUYER Ifbuyersfallbehindontheinstallmentpaymentsontheirlandcontract,failto timelypaypropertytaxes(asrequiredtodounderthecontract)orotherwisedefaultonthe landcontract,thereareessentiallythree(3)remediesavailabletotheseller.eachofthese remediesdiffersbothintermsoftimeandcosttopursueandpossibleoutcomes. 1. ForeclosurethroughtheCircuitCourt. Ifthesellerdefinitivelywishestoendtherelationshipwiththebuyer,i.e.,cause thebuyertoeitherpayoffthelandcontractinfullorterminatethelandcontract,thenthe 7
sellerwillhavetopursueforeclosureproceedingsthroughthecircuitcourt.moreover,this remedyistheonlyremedythatwillpermitasellertoobtainadeficiencyintheeventthatthe propertyvalueislessthanthebalanceowedonthelandcontract.unfortunately,unlikewitha mortgage, a land contract seller cannot pursue the foreclosure of the land contract by advertisement(i.e.,publishanoticeofforeclosureforfourweeksinacountywidenewspaper andthenholdaforeclosuresale),assuchaprocessisnotauthorizedundermichiganlaw. Thepursuitofforeclosureonalandcontractinthecircuitcourtisextremely costlyandtimeconsuming.itshouldbepursuedonlyifasellerhasdeterminedthatthebuyer iscollectibleforanydeficiencyjudgmentand/orhastheabilitytopayofftheentirebalanceof thelandcontract.evenifthebuyerdoesnotchoosetoeffectivelydefendtheforeclosure actioninthecircuitcourt,itwilltakeaminimumoftenmonthstoforeclosethelandcontract andobtainpossessionoftheproperty.michiganlawprovidesthatacircuitjudgeshallnot orderpropertywhichissubjecttothelandcontracttobesoldforatleastthree(3)months afterthefilingofthecomplaintforforeclosureofalandcontract.mcl600.3115.thereafter, assumingthepropertyisatypicalsinglefamilyresidence,thereisasix(6)monthredemption periodduringwhichthebuyermaycontinuetooccupythepropertywithoutpaymentofany kindtotheseller. Ifthebuyerchoosestocontesttheforeclosureofthelandcontract,itistypically throughtheassertionofacounterclaiminthecircuitcourtallegingthatthesellerusedfraudto inducethebuyertoenterintothelandcontractand/orthesellerisotherwisenotentitledto foreclosetheproperty.ifthisoccurs,itisnotpossibletopredicthowlongthelitigationwould last.thelengthofthelitigationwouldbedependentinlargepartonthedocketofthespecific court,theattitudesofthespecificjudge,andtheresourcesofthebuyeravailabletoprolongthe litigation. Forthesereasons,itisextremelyseldomthatasellerseekstoforeclosealand contractinthecircuitcourt.again,typicallythiscourseofactiononlyoccurswhenthebuyer iseithercollectibleforanydeficiencyand/oritisanticipatedthatthebuyerwillhavethe desireandthewherewithaltoobtainamortgageandpayoffthelandcontract. 2. ForfeiturethroughtheDistrictCourt. Theproceduregenerallyfollowedbysellersistheforfeitureprocessthrougha Michigandistrictcourt.Theforfeitureprocessallowsthepurchasertostoptheprocessby simplypayingpastdueinstallmentsandanyotherpastdueobligations.ifthebuyerdoesnot cure the default, the buyer s interest in the property is forfeited and the seller regains possession.thesellerisnotentitledtoanymoneyjudgment.thisprocedureisonlyavailable tosellersiftheirlandcontractspecificallyprovidesforforfeiture,i.e.,givesthesellerstheright todeclareforfeitureintheeventofthenon paymentofmoniesrequiredtobepaidunderthe contractoranyothermaterialbreachofthecontract.asellerbeginstheforfeitureprocessin thedistrictcourtbysendingawrittennoticeofforfeiture.thestateofmichiganprovidesa specificformforthisnotice.thenoticeofforfeituremaybeeitherpersonallydeliveredtothe buyerormailedtothebuyerbyfirstclassmailaddressedtothelastknownaddressofthe buyer. Acomplaintisthenfiledwiththedistrictcourt,againonaformprovidedbythe StateofMichigan.Thereafter,underMichiganlaw,theproceedingistobeheldwithinfifteen 8
(15)daystoforfeitthelandcontract,providedthatthesummonsisservedonthebuyernot lessthanten(10)daysbeforethedatesetfortrial.asapracticalmatter,mostdistrictcourts aresimplytoobusytoscheduleatrialdatewithinfifteen(15)daysfromthedateofissuanceof asummons. Buyerscandemandatrialbyjuryifthereisanythingtoargueaboutandifthey havetheresourcestodoso.ultimately,thecourtwilldetermineanypastdueamountsowed by the buyers under the terms of the land contract. In most instances, the judgment for possessionwillbeenforcedbyawritofrestitution,whichshallnotbeissueduntilninety(90) daysaftertheentryofthejudgment,assumingmorethan50%ofthepurchasepriceinthe landcontractremainstobepaid.(iflessthen50%ofthepurchasepriceofthelandcontract remainstobepaid,thenthewritofrestitutionwillissuesix(6)monthsafterthedateofentry ofthejudgmentforpossession.)ifthebuyerpaystheamountsetforthinthejudgmentof possessionduringthe90 dayperiod,plusanyamountsaccruingonthelandcontractduring the90 dayperiod,thenthelandcontractcontinuesinfullforceandeffect. Ifthebuyerfailstopaytheamountsetforthinthejudgmentofpossession duringthetypicalninety(90)dayperiod,uponissuanceofthewritofrestitution,theland contractisforfeitedandthesellermayregainpossessionofthepremises.however,itis importantforasellertounderstandthatthebuyerhasnofurtherfinancialobligationtothe seller.inotherwords,ifatthetimethejudgmentofpossessionwasentered,thebuyerowed $4,000intheformoffour(4)unpaidmonthlyinstallmentsof$1,000andthebuyerremained inthepossessionofthepropertyduringtheninety(90)dayperiod,thesellerisnotentitledto $7,000.Insum,underMichiganlaw,aforfeitureactionisdesignedtoprovidegreaterspeedin pursuingadefaultingbuyer,butlesspotentialfinancialgainfortheseller. 3. BreachofContractintheCircuitCourt. Uponthedefaultbyabuyerinalandcontract,asellermaydecidenottopursue eitherforeclosureorforfeiture.instead,thesellermaydecidetosimplysuethebuyerfor breachofcontract.inthisinstance,thesellerwillnotpursueanyclaimtothepropertysubject tothelandcontract,butinsteadwillaskforthemoneyowed.asimplehypotheticalwill demonstratehowthiscouldoccur. AssumeSellerBrownsells123ElmStreettoBuyerGreenonlandcontractfor $125,000with$20,000downandtheremainderinmonthlypaymentsamortizedoverthirty (30)yearswithafive(5)yearballoon.Uponclosing,SellerBrownmovestoFlorida.During thethirdyearofthelandcontract,thepaymentsfrombuyergreencease.sellerbrown,being unable to get in touch with Buyer Green, travels back to Michigan. When she arrives in Michigan,shediscoversthatherhouseat123ElmStreetisnowavacantlot.Shewasunaware thatthepropertyhadbeentaggedbythecityandeventuallytorndownbythecity.theland subjecttothelandcontractisnowworthonlyafewthousanddollars. IfSellerBrowndeterminesthatBuyerGreeniscollectibleatleastinpart,she mayinitiateanactioninthecircuitcourtformoneydamages. DUE ON SALECLAUSES A due on sale clause is a clause in a mortgage which permits the lender to declareadefault,acceleratethedebtandforeclosethemortgageintheeventtheseller 9
conveysortransfersaninterestinthepropertysubjecttothemortgagewithouttheprior writtenconsentofthelender.untilotherwiseadvisedbyalawyerfortheseller,realtors should always assume that a mortgage on the seller s property has a due on sale clause. Further,itshouldbeunderstoodthatasaleonlandcontract,withouttheconsentofthelender, wouldpermitalendertoexerciseitsrightsunderthedue on saleclause.thus,sellersseeking toselltheirpropertyonlandcontractsubjecttoanexistingmortgageshouldseektoobtainthe consentoftheirlender. Intheearly80s,therewasasignificantdisputecarriedoutinthecourts,in Congress and in the executive branch as to the enforceability of due on sale clauses. Ultimately,theuncertaintywasresolvedanddue on saleclausesarenowclearlyenforceable. ThiswasaccomplishedthroughlegislationpassedbytheMichiganLegislature.MCL445.1627 provides: Each contract for the sale or transfer of residential property which is subject to a mortgage shall provide in boldface type substantiallyasfollows: Sellerunderstandsthatconsummationofthesaleortransferof the property described in this agreement shall not relieve the sellerofanyliabilitythatsellermayhaveunderthemortgage(s) towhichthepropertyissubject,unlessotherwiseagreedtoby thelenderorrequiredbylaworregulation. MostformsofpurchaseagreementsnolongercontainthelanguagespecifiedinMCL445.1627, simplybecausedue on saleclauseenforcementhasbeenanon issueforovertwenty(20) years.itmaybetimetoputtheclausebackinpurchaseagreementsasrequiredbylaw. MCL445.1628provides: (1)Alenderwhoknowinglyenforcesorattemptstoenforcea due on saleclauseinviolationofthisactshallbeliableforacivil fine not to exceed $5,000.00 for each offense. The attorney generaloraprosecutingattorneymaybringanactiontorecover acivilfineunderthissection. (2)Anypersonlicensedtodobusinessinthisstatewho,while carryingonthatbusiness,knowinglyadvisesapersonsellingor transferringpropertysecuringaresidentialwindowperiodloan nottonotifyalenderasrequiredbysection3orwhoknowingly otherwiseaidsorassistsapersoninevadingtheenforcementofa due on saleclauseenforceableunderthisactshallbeliablefora civilfinenottoexceed$5,000.00foreachoffenseandshallbe subjecttorevocationofhisorherlicense. (3)Theattorneygeneral,aprosecutingattorney,oranyother personmaybringanactionfor1orbothofthefollowing: 10
(a)adeclaratoryjudgmentthatamethod,act,orpracticeviolates thisact. (b)aninjunctiontoenjoinalender,realestatebroker,orreal estatesalespersonwhichisengagingorisabouttoengageina method,act,orpracticewhichviolatesorwouldviolatethisact. (4)Inadditiontoanyotherremedyprovidedbythisact,aperson whosufferslossasaresultofaviolationofthisactmaybringan action to recover actual damages or $250.00, whichever is greater,togetherwithreasonableattorneys'fees. Subsection(2)specifiesthatanylicensee whoknowinglyotherwiseaidsorassistsapersonin evadingtheenforcementofadue on saleclauseenforceableunderthisactshallbeliablefora civilfinenottoexceed$5,000.00foreachoffenseandshallbesubjecttorevocationofhisor herlicense. ThisprovisiondoesnotrequireREALTORS toactasthedue on saleclause police.thereisnoaffirmativeobligationonthepartofarealtor tocontactthesellers lender to make sure it has been provided notice or to otherwise coerce the sellers into contactingtheirlendertoobtainconsenttoalandcontractsale.arealtor simplymust notaidorassistapersoninevadingenforcementofadue on saleclause. Itisrecommendedthatanysellerscontemplatingasaleonlandcontractora conveyancesubjecttoapurchasemoneymortgagebeadvisedinwritingthattheyshould notifytheirlendertoseekconsenttothesale.thiswritingshouldbeinaformsuchthatthe REALTOR candemonstrate,ifevernecessary,thatheorshespecificallyadvisedthesellers thattheirmortgagemaycontainadue on saleclauseandthattheyshouldcontacttheirlender toobtainconsenttothesale. PURCHASEMONEYMORTGAGEMORTGAGES Bystatute,apurchasemoneymortgagemeansamortgagesecuredbyafirstor juniorlienretainedbyasellerofrealpropertytosecureallorpartofthepurchasepriceofthe property.mcl438.31c(7)(a). A form of purchase money mortgage is attached to this article as Exhibit C. Optionally,anysellertakingapurchasemoneymortgagetosecurepaymentofthepurchase pricebybuyershouldhaveamortgageformreviewedbyhisorherlawyer.itisessentialfor the protection of the seller that the purchase money mortgage contain many of the key provisionsdiscussedabovewithrespecttolandcontracts.inaddition,apurchasemoney mortgageshouldalsocontainaprovisiongrantingthesellertherighttoforeclosetheproperty byadvertisement. Thefundamentaldifferencebetweenalandcontractandapurchasemoney mortgageisthatthebuyerreceiveslegaltitleatclosingandtheamountowedtotheselleris securedbythemortgage.withapurchasemoneymortgage,thedebtowedtotheselleris evidencedbyapromissorynote.asampleformofnoteisattachedasexhibitd. Withapurchasemoneymortgage,thereisnoremedyavailabletoasellersimilar 11
totheforfeitureproceedingsforalandcontract.theremediesavailabletothesellerwitha purchasemoneymortgagearethesameasthoseavailabletoanyconventionallender.the sellermayforeclosethepropertybyadvertisementandthensuethebuyerforanydeficiency, i.e., where the amount is bid at the foreclosure sale is less than the amount owed. Alternatively,thesellermayforeclosethemortgageinthecircuitcourt.Thisisnottypically done,asitrequirestoomuchtimeandexpense. USURY Withsellerfinancing,therewillalwaysbeanissueastowhatinterestratethe seller will charge on the indebtedness, whether it is evidenced by a land contract or a promissorynotesecuredbyamortgage.specificlimitationsareimposedonhowmuchaseller may charge as interest in those situations. REALTORS should not attempt to provide expertiseoninterestlimitationsasthecivilpenaltyforaviolationisextremelyonerous,i.e.,a lossofpaymentofanyinterestontheremainingindebtedness.thus,anyquestionsonusury orthepermissibleinterestrateshouldbereferredtoanattorney. Thereareafew safeharbors whichareavailable: First,thereisnoquestionthatanindividualselleronlandcontractcanchargea rateofinterestnottoexceedelevenpercent(11%)percentperannum.mcl438.31c(6). Further,asellertakingapurchasemoneymortgagemayalsochargearateofinterestnotto exceedelevenpercent(11%)perannum.mcl438.31c(7). Second,thepartiestoalandcontractormortgagemayprovideforanadjustable rate of interest up to eleven percent (11%). However, as a practical matter, this is not recommended.fiercebattleshavebeenfoughtovertheyearstryingtodecipherandapply variableinterestrateformulasgeneratedbysellersandbuyers. Third,thepartiestoindebtednessof$100,000ormore,thebonafideprimary securityforwhichisalienagainstrealpropertyotherthanasinglefamilyresidence,ortoa landcontractofthesameamountandnature;mayagreeinwritingforthepaymentofanyrate ofinterest.obviously,therecanbesomedisputeoverwhichtypeofrealpropertywouldbe covered.realtors involved,forexample,inasaleonlandcontractofa200 acrefarm, uponwhichthereisatwo storyfarmhouse,wouldbewelladvisedtoseekanopinionofa lawyerifarateofinterestinexcessofelevenpercent(11%)isgoingtobecharged. There are other rules regarding usury which apply to interests on a land contract.ifarealtor findshimselfinasituationwhereinterestisgoingtobecalculated andadjustedbasedonsomeunconventionalmethod,heshouldseekguidancefromsomeone knowledgeableinthisarea.forexample,ifthelandcontractprovidedforarateofinterest addedinadvanceorcalledforthecalculationofinterestonthelandcontracttobecomputed on some basis other than unpaid balance, it is most likely that the land contract and the calculationofinterestwillviolatethelaw.mcl438.31c(9). LEASESWITHOPTIONSTOPURCHASE Leasewithoptionstopurchaseareanothermethodforsellerfinancing.MAR previouslyprovidedanarticleonleaseswithoptionstopurchasein2008.thecontentsofthat articlearereprintedhereforeaseofreferenceandtomakesurethatalltypesofseller 12
financingtoolsareincludedwithinthisarticle. A. CraftingaProperOptiontoPurchase Anoptiontopurchasegivestheholdertherighttoelecttopurchasea propertyataparticularprice.inotherwords,anoptionisanirrevocableoffertosella propertyforaparticularperiodoftime.iftheoptionisexercised,itmustbeexecutedprior toitsstatedexpirationdate.unliketimedeadlinesinothercontracts,traditionally Michigancourtshavestrictlyenforcedtimedeadlinesinoptioncontracts.Thisistruefor theothertermsofanoptioncontractaswell.so,forexample,ifanoptionprovidesthat youmustexercisetheoptionbyhanddeliveringwrittennoticetotheseller,donotattempt toexerciseyouroptionviaemail. Anoptionshouldbeeffectiveuponitsexercise.Itshouldnotrequireparties toexecuteaseparatepurchaseagreement.becauseofthis,anoptioncontractshouldspell outtheessentialtermsofthepurchase e.g.,titleinsurancerequirements,commission obligations,inspectionrequirements,taxprorationmethods,etc.withouttheseprovisions, theoptionmaybedifficulttoenforce.if,forexample,ihaveanoptiontobuyyourhome for$200,000,butwehavenotagreedupontheotheressentialtermsofpurchase,then ratherthanattempttodrafttheseadditionaltermsonourbehalf,acourtmaysimplyfind theagreementtobeunenforceable.asampleformofoptionclauseforaleaseagreementis attachedasexhibite. Itistypical,butnotnecessary,forsomeportionoftherentalpayments receivedduringthetermoftheleasetobeappliedtowardthepurchasepriceintheevent theoptionisexercised.optionfeesaretypicallyforfeitedintheeventtheoptionisnot exercised.again,however,thisisamattersubjecttonegotiation. Inordertoencourageatenanttomaketimelyrentalpaymentsduringthe termofthelease,asellermaywishtoconsiderincludingaclausethatprovidesthatthe tenant spurchaserightswillautomaticallyterminateintheeventofadefault(oraseriesof defaults)underthelease. B. Memorandums/Recording Toprotecttheirrightsinahomeasagainstsubsequentpurchasers,persons holdinganoptiontopurchasewillwanttohaveaninterestofrecordwiththeappropriate registerofdeeds.whiletheoptionitselfmayberecorded,oftentimespartiespreferto recordamemorandumwhichsimplyacknowledgestheexistenceoftheoption,butdoes notmakethetermsofsuchcontractamatterofpublicrecord.asamplememorandumof optionisattachedasexhibitf.apartymaywishtoomitnotaryblocksfromtheoption agreementitselfinordertopreventtheotherpartyfromlaterrecordingtheinstrument. C. Due on SaleIssues Most,ifnotall,residentialmortgagescontainadue on saleclausewhich requiresthatamortgagebepaidoffifthereisachangeinownership.federallaw specificallyprovidesthatdue on saleclausesareenforceablebyfederallyregulated lenders.otherlendersaregovernedbythesomewhatmorecomplicatedmichiganstatute. Asageneralrule,REALTORS shouldassumethatamortgagecontainsadue on sale clauseandthatitisenforceable. 13
Atypicaldue on saleclauseprovidessomethinglikethis: Ifalloranypartofthepropertyistransferredwithoutthe lender spriorwrittenconsent,thelendermayrequireallsums securedtherebyimmediatelydueandpayable. Whetheradue on saleclauseistriggeredbyalease/optionmaydependon thespecificlanguageofthedue on saleclauseand/orthetermsofthelease/optionitself. Manymortgagesexpresslyprovidethatspecifictypesofleasesand/orleases/optionswill triggerthedue on saleclause.othersprovidegenerallythattheclauseappliesintheevent ofatransferofanyinterestintheproperty. Commentatorsoftenpointoutthattherearenofederalorstatestatutesthat makeitacrimetoviolateadue on saleclause.itissimplyacontractualobligation pursuanttowhichifthelenderdiscoversthetransfer,itmaychoosetocalltheloan.while thisiscertainlytrue,realtors shouldneveradviseaclientastowhetheraparticular due on saleclausecoversleaseoptionsorwhetheritislikelythatthelenderwilldiscover thetransferandcalltheloan.whileitisnotagainstthelawtoviolateadue on saleclause, itisagainstthelawforapersonwhoislicensedtodobusinessinthisstatetoknowingly assistapersoninevadingtheenforcementofadue on saleclause.mcl445.1628(2).a realestatelicenseecanbefinedupto$5,000foreachoffenseandbesubjecttorevocation ofhislicenseforaviolationofthislaw.sellersshouldbeadvisedthatitisalmostcertain thattheirmortgagecontainssuchaclauseandthattheyshoulddiscussthismatterwithan attorneybeforeproceedingforwardwithalease/optionagreement. D. PrincipalResidenceExemptionandOtherPropertyTaxIssues Ahomethatisleaseddoesnotqualifyfortheprincipalresidenceexemption (previouslyknownasa homesteadexemption ).Asaresult,ahomeownerwholeaseshis homemayexperienceasignificantpropertytaxincrease. Moreover,aleaseoptionwillbeatransfersubjecttothe popup taxifthe leaseisformorethan35years(includingallrenewaloptions)oriftheoptionpriceisnot morethan80%oftheproperty sprojectedvalueattheendofthelease. Ifthetenantdefaultsandtheleaseisterminated,thehomeownerwillnotbe abletoresurrecthishomesteadexemption.oncethehomeisleased,thehomestead exemptionisforeverlostunlessahomeownermovesbackintohishomeandreestablishes itashisprincipalresidence.returningtothehomewillnot,however,helpahomeowner whosetaxablevaluehasbeenadjustedasaresultofalease/option.ahomeownerwho movesbackintohishouseaftersufferingthroughabadtenantmay,withtime,beableto reestablishhishomesteadexemption,butwillnotbeabletoreestablishthetaxablevalue asthevaluethatwasinplacepriortothelease/option. E. LocalRentalOrdinanceIssues/Restrictions Personswhowishtorenttheirhomesshouldcheckwiththeirlocal governmenttodeterminewhetherthereareanyrequiredpermits,licenses,inspectionsor fees.theremayalsobeapplicablesubdivisionorcondominiumrestrictionsofrecordthat prohibitorrestrictrentals.andtheremaybeuniqueissuesdependinguponthelocationof theproperty.forexample,thecityofeastlansinghasanordinancepursuanttowhich 14
rentalsareprohibitedincertainareaswithinthecity.overtheyears,thecityofeast Lansinghasalsosettledmanycodeviolationmattersbyimposinga consensual deed restrictionwhichprohibitsanyfuturerentalsofthatparticularhome.theonlywayto knowaboutleasingrestrictionsistocontactthemunicipalityandalsotoobtainatitle search. F. InsuranceIssues Manyinsurancepoliciesrequirecontinuedowneroccupancy.While obviouslytherearepoliciesavailableforleasedhomes,thepremiumistypicallyhigher. Homeownersshoulddiscussthisissuewiththeirinsuranceagentbeforetheyleasethe home.asellerwhodoesnotaddressthisissuewhosuffersafireorothercasualtymayend upwithadeniedclaim.whilethecostofinsurancemaybepassedontoatenant,the homeownerwillwanttomakesurethatheisprotectedbyobtainingthecoveragehimself andcollectingreimbursementfromthistenant. G. FinancialRiskstoOwnersandTenants Atenantwithanoptiontopurchasewillwanttomakecertainthatthe homeownerdoesnotowemoreonhishousethantheoptionprice.similarly,ifthe homeowner/landownerisresponsibleforpayingtaxesandinsurance,thetenantwillwant tomakecertainthattheseitemsarecurrent.theseconcernsareparticularlyimportant wherethetenantwillhaveasignificantinvestmentinthepropertybythetimetheoption isexercised. Thehomeowner,ontheotherhand,willwanttotakestepstoprotecthis investmentshouldthetenantbeunwillingorunabletoexercisetheoptiontopurchase.a homeownertypicallywillwantcontrolovertheextentandnatureofanyrenovationsmade tothehomebeforethehomeisactuallysold.likewise,thehomeownerwillwantcontrol oversubletsandassignmentsofthelease/optionrights. CONCLUSION REALTORS whowereinthebusinessintheearly1980swerewellacquainted withthesellerfinancingtoolsdescribedinthisarticle.fortunatelyorunfortunately,therehas beenlittlereasonforthatknowledgetobepasseddownoverthepasttwentyyears.itwould nowappearincumbentuponallrealtors tobecomeacquaintedwiththesetoolsasit wouldappearthattheywillreceivewidespreaduseatleastuntillendersbeginlendingmoney againbaseduponreasonabletermsandreasonableappraisals. 15
EXHIBITA LANDCONTRACT THISLANDCONTRACTismadeasofthe dayof,20,between ( Seller ),whose addressis,and ( Purchaser ),whoseaddressis. Inconsiderationofthemutualcovenantshereincontained,itisherebyagreedas follows: 1. Property.SellerherebyagreestosellandconveytoPurchaseracertainparcel ofland(the Premises ),locatedinthetownship/cityof, Countyof,StateofMichigan,commonlydescribedas andlegallydescribedonattachedexhibita. 2. PriceandTermsofPayment.PurchaseragreestobuythePremisesandtopay Sellerthesumof$ (the PurchasePrice )asfollows:$ onsigningthis Contract,thereceiptofwhichisacknowledged,andtheremainingbalanceof$ tobe paidinmonthlyinstallmentsof$ ormore,includinginterestwhichshallaccrueatthe rate of percent ( %) per annum over ( ) years commencing on,200 andonthefirstdayofeachmonththereafteruntil, 20,atwhichtimetheentirebalanceofprincipalandaccruedinterestshallbedueand payable. PurchasermayprepaythisContractinwholeorinpartatanytime.Partial prepaymentsshallbeappliedtopaymentsduehereunderintheinverseorderoftheir maturity. 3. LatePayments.Anypaymentofprincipalandinterestnotpaidwhendueshall beassessedaone timelatechargeoffivepercent(5%)andinadditionshallbearinterestat therateof percent( %)perannum. 4. Possession. Possession of the Premises shall be delivered to Purchaser at Closing,subjectonlyto:. 5. ConditionofPremises/Repairs/Improvements.Purchaserhasexaminedthe Premisesandisacceptingsuchintheir asis condition.purchasercovenantstomaintainthe Premisesinagoodconditionastheyareatthedatehereof,reasonablewearandtearexcepted, and not to commit waste, remove or demolish any improvements thereon or otherwise diminishthevalueofseller ssecurity,withoutthewrittenconsentofseller. 16
6. ConditionofTitle.Purchaserhasreceivedatitleinsurancepolicycoveringthe Premisesandagreestoacceptasmarketablethetitledisclosedthereby. 7. Insurance. Purchaser shall carry liability and casualty insurance on the PremiseswithcompaniesandinamountsacceptabletoSeller,namingSellerasadditional insuredandshallprovidesellerwithevidencethereof.anysuchpolicyshallrequireten(10) days priorwrittennoticeofcancellationtoseller. 8. Taxes.PurchasershallenterthePremisesfortaxationinitsnameandshallpay, priortotheimpositionofanyinterestorpenalty,alltaxesandassessmentswhichbecomea lienonthepremisesafterthedatehereof.anyspecialassessmentmaybepaidininstallments ifpermittedbythetaxingauthority. 9. Insuranceand/orTaxDefault.IfPurchaserdefaultsinmakinganyrequired paymentsoftaxes,assessmentsorinsurancepremiumswithinten(10)daysafterseller s writtendemand,sellermaypaysame,includinganyinterestorpenalty,andtheamountso paidshallbedueatonce,shallbeaddedtotheunpaidbalanceofthiscontract,andshallbea lienonthepremises. 10. DispositionofInsuranceProceeds.DuringthisContract,anyproceedsfroma hazardinsurancepolicyshallfirstbeusedtorepairthedamageandrestorethepremises.if theinsuranceproceedsexceedtheamountrequiredforrepairingorrebuilding,theexcess shallbeappliedfirsttowardthesatisfactionofanyexistingdefaultsunderthetermsofthis Contract and then as a prepayment upon the principal balance owing, without penalty, notwithstandinganyotherprovisionhereintothecontrary.theprepaymentshallnotdefer thetimeofpaymentofanyremainingpaymentsrequiredunderparagraph2hereof. 11. Conveyance.UponfullperformanceofPurchaser scovenantshereunder,seller shalldelivertopurchaserawarrantydeed,exceptingonlyfromthewarranty,restrictions, rightsandeasementsofrecordonthedatehereof,taxeswhichpurchaserisobligatedtopay and defects of title due to the acts or omissions of Purchaser. The deed shall convey the Premises to Purchaser or, at its option, to such other entity as Purchaser may designate. TransfertaxesdueandowingshallbepaidbySeller. 12. Assignment.PurchasermaynottransferitsinterestinthisContractorthe PremiseswithoutthepriorwrittenconsentofSeller.Furthermore,notransferofthePremises by Purchaser shall release Purchaser from liability to Seller except in the case of explicit writtenreleasebyseller. 13. Seller srighttomortgage.sellerreservestherighttoconveyitsinterestin thiscontract.inaddition,sellermayplaceoneormoremortgagesonthepremises,provided thatatnotimeshallthetotalamountsecuredbysuchmortgage(s)securemorethanthe 17
balanceowingunderthiscontract,norshallthetotalamountofthepaymentsofinterestand principalonsuchdebt(s)exceedthepaymentamountshereunder. 14. EnforcementonDefault. a. If Purchaser defaults in making any payment required hereunder or commitsanyothermaterialdefaultofthiscontract,sellermaygivepurchaserwritten noticeofforfeitureofthiscontractinthemannerprescribedbylaw.ifdefaultisnot curedwithinsuchtimeasispermittedbylaw,saidcontractshallbeforfeitedtoseller. AllpaymentsmadeonsaidContractshallbelongtoSellerasstipulateddamagesfor breachofsaidcontractandpurchaserandallpersonsholdingpossessionunderitshall beliabletoberemovedfrompossessionofthepremisesinanymannerprovidedby law. b. Notwithstandingtheprovisionsoftheprecedingparagraph14(a),Seller may elect to pursue any other legal or equitable remedy which Seller may have availabletoitinconsequenceofpurchaser sdefaulthereunder.selleralsohastheright todeclaretheentirebalanceofprincipalandinterestimmediatelydueandpayable afterdefaultbypurchaser. 15. TimeisoftheEssence/Notice.Itisherebyexpresslyagreedthattimeisofthe very essence of this Contract. It is further agreed that all notices shall be conclusively presumedtobeserveduponthepartiesheretowhendepositedintheunitedstatesmail, enclosedinanenvelopewithpostagefullyprepaidthereon,addressedtosuchpartyatthe addressgivenintheheadingofthiscontractoratsuchotheraddressasmaybespecifiedin writing,fromtimetotime. 16. Compliance/Indemnification. Purchaser will comply with all laws and regulationsapplicabletothepremisesandwillpromptlynotifysellerofreceiptofanynotice ofaviolationofanysuchlaworregulation.purchaserwillindemnifyandholdsellerharmless fromandagainstanyandallclaims,lossesandliabilitiescausedbypurchaser sbreachofthis paragraph. 17. RecordInterest.NeitherpartymayrecordthisContract.Attherequestof Purchaser,SellerwillexecuteaMemorandumofLandContractforthepurposeofproviding recordnoticeofpurchaser sinterestinthepremises. 18. AdditionalProvisions. 18
INWITNESSWHEREOF,thesaidpartieshaveexecutedthisLandContractasofthe dayandyearfirstwrittenabove. PURCHASER: SELLER: 19
20
ExhibitA tolandcontract LEGALDESCRIPTION 21
22
EXHIBITB MEMORANDUMOFLANDCONTRACT THISMEMORANDUMOFLANDCONTRACTisenteredintoasofthis dayof 20,byandbetween, whoseaddressis ( Seller )and,whoseaddressis ( Purchaser ). WITNESSETH: WHEREAS,PurchaserandSellerhaveenteredintoaLandContractanddesireto enterintothismemorandumoflandcontracttogiverecordnoticeoftheexistenceofthe LandContract. NOW,THEREFORE,INCONSIDERATIONofthepremisesandothergoodand valuableconsideration,theselleracknowledgesandagreesthatthefollowingdescribed PropertysituatedintheCity/Townshipof,Countyof,StateofMichigan,wassoldtothePurchaseronlandcontract. LEGALDESCRIPTION ThepurposeofthisMemorandumofLandContractistogivetherecordnoticeof theexistenceoftheaforesaidlandcontract. 23
INWITNESSWHEREOF,thepartieshaveenteredintothisMemorandumofLand Contractasofthedayandyearfirstabovewritten. SELLER: STATEOFMICHIGAN ) )ss. COUNTYOF ) Acknowledgedbeforeme,in County,Michiganonthis dayof 2009,by.,NotaryPublic County,Michigan MyCommissionExpires: PURCHASER: STATEOFMICHIGAN ) )ss. COUNTYOF ) Acknowledgedbeforeme,in County,Michiganonthis dayof 2009,by.,NotaryPublic County,Michigan MyCommissionExpires: Draftedbyandwhenrecordedreturnto: 24
EXHIBITC PURCHASEMONEYMORTGAGE 1. Date.ThedateofthisMortgageis. 2. Parties. Mortgagor shallmeanthebuyers, and,husbandandwife,whoseaddressis. Mortgagee shallmeanthesellers, and,husbandandwife,whoseaddressis. 3. MortgageandWarrantyofProperty.Mortgagormortgagesandwarrantsto Mortgageethe Property describedonattachedexhibita.thepropertyshallincludeland togetherwithalloftheimprovementsnoworhereaftererectedontheland. 4. DebtSecured.ThisMortgagesecuresrepaymentofapurchasemoneynote givenbymortgagorintheamountof Dollars($ )(the Note )whichshallbereferredtointhismortgageasthe Debt. 5. TitletoProperty.MortgagorcovenantsthatMortgagoristhelawfulownerof thepropertyandhastherighttomortgage,grantandconveytheproperty,andthatmortgagor willwarrantanddefendthetitletothepropertyagainstallclaimsanddemands. 6. PaymentofDebtandPerformanceofObligations.Mortgagorshallpromptlypay thedebtwhendue,whetherbyaccelerationorotherwise.mortgagorshallpromptlyperform allobligationstowhichithasagreed. 7. Taxes,Assessments,Charges.Mortgagorshallpaywhendue,andbeforeany interest,collectionfeesorpenaltiesshallaccrue,allrealestatetaxes,specialassessments, waterandsewercharges,orothergovernmentalchargesandimpositionsleviedorassessed withrespecttotheproperty. 8. Insurance.UntiltheDebtisfullypaid,Mortgagorshallkeepthebuildingsand otherpropertyimprovementsconstantlyinsuredformortgagee=sbenefitagainstfireand otherhazardsandriskscustomarilycoveredbythestandardsformofextendedcoverage endorsementavailableinmichigan,andagainstotherhazardsasthemortgageemayrequire fromtimetotime.theamountofinsuranceshallbesufficienttopayoffthedebtintheevent 25
ofalossrequiringtheinsurancecompanytopaythepolicylimit.allinsurancepoliciesshall includethemortgageeasnamedinsureds,shallincludelosspayableclausesinfavorofthe Mortgagee,andshallbenoncancellableexceptupongivingtheMortgageeatleastthirty(30) days priorwrittennotice.ifthemortgagorfailstopayinsurancepremiums,themortgageeat itsoptionmaypaythepremiumsandtheamountspaidshallbecomeapartofthedebt.inthe eventoflossordamage,insuranceproceedsshallbepaidonlytothemortgagee.nosuchloss ordamageshallitselfreducethedebt. 9. Waste.TheMortgagorshallkeepthePropertyingoodorderandrepair,andthe MortgagorexpresslyagreesthatitwillnotdoorpermitwasteonthePropertynotdoany otheractwherebythepropertywillbecomelessvaluable,orthelienofthismortgagemaybe impaired. Failure of the Mortgagor to pay any taxes or assessments assessed against the PropertyoranypremiumspayablewithrespecttoanyinsurancepolicycoveringtheProperty, shallconstitutewaste,asprovidedbyactno.236ofthemichiganpublicactsof1961,as amended(mcl600.2927). 10. ReimbursementofMortgagee sadvances.ifthemortgagorfailstoperformits obligationsunderthismortgage,orifanyactionorproceedingiscommencedwhichmaterially affectsthemortgagee sinterestintheproperty,thenthemortgagee,atitssoleoption,may makeappearances,disbursesums,andtakeactionastheydeemnecessarytoprotecttheir interest(including,butnotlimitedto,disbursementofreasonableattorneys feesandentry uponthepropertytomakerepairs).anyamountsdisbursedpursuanttothisparagraphshall becomeadditionaldebt. 11. Condemnation.MortgagorassignstoMortgageeallsumsatanytimeawardedto MortgagorinconnectionwithanycondemnationorothertakingoftheProperty,oranypartof theproperty,orforaconveyanceinlieuofcondemnation.thesesumswillbecreditedtothe Debtandwillbeappliedtothelastmaturinginstallments. 12. Default,PowerofSale,Remedies.UpondefaultinpaymentoftheDebt,orupon defaultbythemortgagorinanypromiseoragreementinthismortgage,themortgageeshall haveallremediesaffordedbylawandequity,including,butnotlimitedto,thepowertosell thepropertyatpublicauctionpursuanttolaw,andoutoftheproceedstoretainallsumsdue themortgagee,includingthecostsofthesaleandreasonableattorneys fees,renderingany surplustothemortgagor.allrightsandremediesaredistinctandcumulativetoanyother rightorremedyunderthismortgage,oraffordedbylaworequity,andmaybeexercised concurrently,independently,orsuccessively. WARNING:THISMORTGAGECONTAINSAPOWEROFSALEANDUPONDEFAULTMAY BEFORECLOSEDBYADVERTISEMENT.INFORECLSOUREBYADVERTISEMENTANDTHE SALE OF THE MORTGAGED PREMISES IN CONNECTION THEREWITH, NO HEARING IS REQUIREDANDTHEONLYNOTICEREQUIREDISTHEPUBLCIATIONOFNOTICEINALOCAL NEWSPAPERANDTHEPOSTINGOFACOPYOFTHENOTICEONTHEMORTGAGEDPREMISES. 26
WAIVER:MORTGAGORHEREBYWAIVESALLRIGHTUNDERTHECONSTITITUION ANDLAWSOFTHEUNITEDSTATESANDUNDERTHECONSTITITUIONANDLAWSOFTHE STATEOFMICHIGANTOAHEARINGPRIORTOSALEINCONNECTIONWITHTHEABOVE MENTIONEDFORECLOSUREBYADVERTISEMENTANDALLNOTICEREQUIREMENTSEXCEPT AS SET FORTH IN THE MICHIGAN STATUTE PROVIDING FOR FORECLSOURE BY ADVERTISEMENT. 13. DueonSale.IfalloranypartofthePropertyoranyinterestinthePropertyis transferredwithoutthemortgagee spriorwrittenconsent,themortgageemay,atitssole option: (a) declare the Debt to be immediately due and payable; and/or (b) deal with a successor in interest with reference to this Mortgage in the same manner as with the Mortgagor,withoutinanymannerdischargingorotherwiseaffectingtheMortgagor sliability underthismortgage,orthemortgagor sliabilityuponthedebt. 14. ChangeinLaw.Iftheenactmentorexpirationofanylawhastheeffectofeither renderingthismortgageorthedebtunenforceableaccordingtotheirterms,orrenderingallor partofthedebtuncollectible,ordiminishingthevalueofthemortgagee ssecurity,thenthe MortgageeatitssoleoptionmaydeclaretheDebttobeimmediatelydueandpayable. 15. Miscellaneous.AnyforbearancebytheMortgageeinexercisinganyrightor remedyunderthismortgageoraffordedbylaworequity,shallnotbeawaiveroforpreclude theexerciseofanyotherrightorremedy.thismortgageshallbebindinguponthemortgagor anditssuccessorsandassigns,andanysubsequentownersoftheproperty,andallofthe covenantsinthismortgageshallinuretothebenefitofthemortgagee,itssuccessorsand assigns.thismortgageshallbegovernedbythelawsofthestateofmichigan.ifanyprovision ofthismortgageisinconflictwithanystatuteorruleoflaworisotherwiseunenforceablefor anyreasonwhatsoever,thensuchprovisionshallbedeemednullandvoidtotheextentofsuch conflictorunenforceabilityandshallbedeemedseverablefrombutshallnotinvalidateany otherprovisionsofthismortgage.anydefaultbythemortgagorunderthetermsofanyother agreementwiththemortgagee,shallbeadefaultunderthismortgage.theheadingsinthis Mortgageareforconvenienceofreferenceandshallnotlimitoraffectthemeaning.Inthe eventofforeclosureofthismortgageortheenforcementbythemortgageeofanyotherrights andremediesunderthismortgage,themortgagorwaivesanyrightavailableinrespectto marshaling of assets which secure the Debt or to require the Mortgagees to pursue its remediesagainstanyothersuchassets.upontherequestofthemortgagee,themortgagor shallexecute,acknowledgeanddeliveranyandallsuchfurtherconveyances,documents, mortgagesandassurances,anddoorcausetobedoneallsuchfurtheracts,asthemortgagee mayreasonablyrequiretoconfirmandprotectthelienofthismortgage. 27
INWITNESSWHEREOF,theMortgagorhasdulysignedthisMortgage,effectiveasofthe datespecifiedinparagraph(1)above. MORTGAGORS/BUYERS: STATEOFMICHIGAN ) )ss. COUNTYOF ) Theforegoinginstrumentwasacknowledgedbeforemethis dayof, 200 by and,husbandand wife. NotaryPublic County,Michigan MyCommissionExpires: Thisinstrumentdraftedby andafterrecordingreturnto: 28
ExhibitA topurchasemoneymortgage LEGALDESCRIPTION 29
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EXHIBITD PURCHASEMONEYNOTE FORVALUERECEIVED, and (the Payors )jointlyandseverallypromisetopaytotheorderof and, husband and wife (the Payees ),theprincipalsumof Dollars($ )inaccordancewiththetermssetforthbelow. Theprincipalshallbearinterestatarateequalto percent( %) per annum, and thepayors shall make monthly payments of principal and interest in the amountof $ onthe dayofeachmonthcommencingon andonthe dayofeachmonththereafteruntil,whenthe entirebalanceshallbedueandpayable.allprincipalandaccruedinterestmaybepaidonthis Noteatanytimepriortomaturity.Aftermaturity,thisNoteshallbearinterestatarateequal totherateof percent( %)perannum(butinnoeventinexcessofthemaximum ratepermittedbylaw). PrincipalandinterestshallbepaidtoPayeesat, or such other place as they may designate in writing. Thenoteevidencesthebalanceofthepurchasepriceofcertainpropertyconveyedby thepayeestothepayorsofevendateherewithandissecuredbyapurchasemoneymortgage onsuchproperty. IntheeventthePayorsbecome15daysindefaultunderthisNoteortheMortgage,at theelectionofthepayeesandwithoutnoticetopayors,thisnoteshallmatureandthepayees mayacceleratetheentireindebtednessevidencedhereby. EachPayorseverallywaivesdemand,presentment,noticeofdishonorandprotestof thisnoteandconsentstoanyforbearance,extensionorpostponementofthetermsofthe obligation represented hereby, to any substitution, exchange or release of any collateral securingthisnote,totheadditionofanypartyhereto,andtothereleaseordischarge,or suspensionofanyrightsandremediesagainst,anypersonwhomaybeliablehereon.nodelay onthepartofthepayeesintheexerciseofanyrightorremedyshalloperateasawaiver thereof,nosingleorpartialexercisebythepayeesofanyrightorremedyshallprecludeany otherorfurtherexercisethereofortheexerciseofanyotherrightorremedy,andnowaiveror indulgencebythepayeesofanydefaultshallbeeffectiveunlessinwritingandsignedbythe Payees,norshallawaiverononeoccasionbeconstruedasabartoorwaiverofanysuchright onanyfutureoccasion. 31
IntheeventthatthePayorsdefaultundertheprovisionsofthisNoteandthePayees hereofincurlegalexpensetoenforcetheirrightsuponsuchdefault,thepayorsagreethatthe Payees reasonableattorneys feesshallbeaddedto,andshallbecomeapartof,theprincipal debtowedbythepayorstothepayeeshereof.thepayorsacknowledgethatsuchattorneys feesareanobligationunderthisnoteandnotcoststobetaxedorawardedinthecourtof litigation. ThePayors,afterconsultingorhavinghadtheopportunitytoconsultwithcounsel, knowingly,voluntarilyandintentionallywaiveanyrighttoatrialbyjuryinanylitigation baseduponorarisingoutofthisnoteoranyrelatedinstrumentoragreementoranyofthe transactionscontemplatedbythisnoteoranycourseofconduct,dealing,statements,whether oral or written, or action. The Payors shall not seek to consolidate, by counterclaim or otherwise,anysuchactioninwhichajurytrialhasbeenwaivedwithanyotheractioninwhich ajurytrialcannotbeorhasnotbeenwaived.theseprovisionsshallnotbedeemedtohave been modified in any respect or relinquished by the Payees hereof except by a written instrumentsignedbythepayees. Executedanddeliveredasofthedatewrittenbelow. Date: 32
EXHIBITE SAMPLEOPTIONCLAUSEFORINSERTIONINLEASE LandlordherebygrantsTenanttheoptiontopurchasetheProperty(the OptiontoPurchase )foratotalpurchasepriceof ($ )(the PurchasePrice )byprovidingnoticeoftheexerciseoftheoptionto PurchaseduringthetermofthisLease(the OptionPeriod ).ThetermsoftheOptionto Purchaseshallbeasfollows: a. Withinfourteen(14)daysoftheCommencementDate,Tenantshall obtainacommitmentforanowner spolicyoftitleinsurancewithstandardexceptionsfor theamountofthepurchaseprice.uponreceiptofthecommitment,tenantshallnotify Landlordofanyobjectionstotheconditionofthetitle,includinganyconditionsreflectedin thecommitmentwhichrendertitleunmarketable,withinfourteen(14)daysofreceipt,and thereafter,landlordshallhavethirty(30)daystocureanysuchdefects.iftenant s objectionstotheconditionofthetitlearenottimelycured,tenantmayeither:(i) terminatetheleaseandreceivearefundoftheearnestmoney;or(ii)waivehisobjections. IntheeventtheOptiontoPurchaseisexercised,Landlordshallprovide,atitsexpensea policyoftitleinsuranceintheamountofthepurchasepricepursuanttothecommitment approvedbytenantpursuanttothissection.iftenantexercisesitsoptiontopurchase, anyobjectiontoconditionoftitle,includinganyconditionsreflectedinthecommitment whichmayrendertitleunmarketable,shallbedeemedwaivedbytenant. b. TenantmayexercisetheOptionbydeliveringtoLandlordwritten noticeofitsintenttoexercisetheoptiontopurchaseduringthetermhereof. c. UponexerciseoftheOptiontoPurchase,LandlordandTenantshall closethetransactionwithin daysthereafter. d. UponclosingofthesaleoftheProperty,Landlordshallconveyfee simpletitletotenantbyawarrantydeedinrecordableform. e. UponclosingofthesaleoftheProperty,Landlordshallpayallcounty andstatetransfertaxesassociatedwiththeconveyance.tenantshallpaythecostof recordingthewarrantydeed.landlordandtenantwillshareequallythetitlecompany s closingcosts. f. Onehundred(100%)percentofthedivisionsavailableunderSection 108oftheLandDivisionActaretobetransferredbyLandlordtoTenantuponclosingafter Tenant sexerciseoftheoptiontopurchase.landlordmakesnorepresentationsastothe numberofdivisionsavailable. g. TenantshallhavenorighttoexerciseitsOptiontoPurchaseifitisin 33
defaultunderthetermsofthisleaseduringtheperiodoftimepermittedforexerciseofthe OptiontoPurchaseuntilitcuresanysuchdefaultduringtheperiodforexerciseofits OptiontoPurchase. h. TenantshallnothavetherighttoassignitsinterestintheOptionto PurchasewithouttheLandlord spriorwrittenconsent. i. LandlordagreesthatattherequestofTenant,itshallexecutea MemorandumofOptionAgreementwhichshallevidenceTenant soptiontopurchase, whichshallbeinrecordableformandmayberecordedbytenantwiththeregisterof DeedsfortheCountyof. 34
EXHIBITF MEMORANDUMOFOPTIONAGREEMENT THISMEMORANDUMOFOPTIONismadeandenteredintoasofthe dayof 200,between,aMichigan,whoseaddressis ( Optionor ),and,amichigan,theaddressofwhichis ( Optionee ). WITNESSETH: Forvaluableconsideration,OptionorhasgrantedtoOptioneeanoption, commencingonthedatehereof(the CommencementDate )andexpiringon (the ExpirationDate ),topurchaseacertainparceloflandsituatedinthe Townshipof, County,Michigan,morespecifically describedinexhibit1attachedhereto(the Property ),pursuanttothetermsofacertain optionagreementdatedthisdatebetweenthepartieshereto(the OptionAgreement ). Thisinstrumentisexecutedforthepurposeofgivingpublicrecordofthefactofthe executionoftheoptionagreementandallthetermsandconditionsoftheoption Agreementareincorporatedhereinbyreference,andanyreferencetotheOption AgreementmaybemadebyreferringtotheLiberandPageinwhichthisMemorandumof OptionAgreementisrecordedintheofficeoftheRegisterofDeedsof County,Michigan. INWITNESSWHEREOF,thepartiesheretohaveexecutedthisMemorandumof OptionAgreementasofthedayandyearfirstabovewritten. OPTIONOR: By: Its: STATEOFMICHIGAN ) 35
)ss COUNTYOF ) Theforegoinginstrumentwasacknowledgedbeforeme,aNotaryPublic,this dayof 200,by,the of,amichigan,onbehalfofsaid. NotaryPublic County,MI MyCommissionExpires: Actingin County,MI OPTIONEE: By: Its: STATEOFMICHIGAN ) )ss COUNTYOF ) Theforegoinginstrumentwasacknowledgedbeforeme,aNotaryPublic,this dayof 200,by,the of,amichigan,onbehalfofsaid. NotaryPublic County,MI MyCommissionExpires: Actingin County,MI Draftedbyandwhenrecordedreturnto: 36
ExhibitA tomemorandumofoptionagreement LEGALDESCRIPTION 37