Borrower's Duties to Maintain Premises

It is the Borrower's duty to protect the value of the property until it is paid in full. This clause is important because the value of the property is what keeps the Borrower making payments. If the Borrower ever defaults and suffers foreclosure, the value of the property should enable the Seller to resell without a loss.

Most loans require the Borrower to notify the Seller in writing before the Borrower or any third party neglects the property or allows it to be used in a way that lessens its value or removes, changes, or demolishes any buildings or improvements on the premises in a way which may diminish the property's value.

Helpful Hint

On a regular basis, drive by the property you sold. If you've moved out of state, have someone you know do this for you. Fundamental changes to or deferred maintenance on the buildings on a property can seriously diminish the value of your loan, while improvements to the property (a new roof or new landscaping, for instance) can make prompt payments by the Borrower more likely than ever.

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 no1 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.