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Can we foreclose and if we do does the buyer by Indiana law have the right to keep a portion of the land for what they have paid for?

Can we foreclose and if we do does the buyer by Indiana law have the right to keep a portion of the land for what they have paid for?

Full question:

My father sold on contract our farm in Indiana to be paid by annual installments @ 7% interest. My father passed away and the buyer hasn't payed anything for 2 1/2 years to his estate. The question is: Can we foreclose and if we do does the buyer by Indiana law have the right to keep a portion of the land for what they have paid for? In the contract it is stated that the buyer is responsible for all legal fees if foreclosure are taken.

Category: Real Property
Subcategory: Foreclosure
Date: 04/07/2025
State: New Jersey

Answer:

We cannot give legal advice. The following is not a substitute for the advice of a local attorney. But we hope the information will be useful.

Yes, foreclosure by the estate (if the estate is still open 2.5 years after your father's passing, if not, then by the heir(s) who inherited the rights to the contract payments) is clearly possible.

Regarding your question about the money the borrower (mortgagor) has already paid you, the way foreclosure typically works is that the property is sold, and the lender (you, the mortgagee) take enough proceeds from the sale so that (when added to the amount you have already been paid over the years by the borrower), you recover the entire loan amount (plus the interest due). Any money left over after you have recovered the entire loan amount would be kept by the borrower - the borrower does NOT get to keep a portion of the land based on what they've already paid you.

If the land does not sell in the foreclosure sale for enough money to entirely repay your loan, then the borrower receives nothing, plus they are still most likely on the hook to you for the remaining amount of the unpaid loan.

Depending on the contract, you may have other rights. You may be able to keep their money, and get the land back. Certainly, they owe you something for the 2.5 years they've lived on/used the land without paying you a dime - they don't just get 2.5 years of rent-free living for nothing.

The details of all this depend on your contract and on Indiana law, so you need to retain a local attorney in Indiana in a town or city near your property to pursue the matter.

Time is not on your side here - statutes of limitations may be running on your various potential claims - so you need to contact, and discuss your case with, a local Indiana attorney as quickly as possible.

This content is for informational purposes only and is not legal advice. Legal statutes mentioned reflect the law at the time the content was written and may no longer be current. Always verify the latest version of the law before relying on it.

FAQs

What happens to contracts when the owner dies?

When the owner of a contract dies, the contract typically becomes part of their estate. The rights and obligations under the contract may pass to the heirs or the estate executor. If the contract is still active, the estate can enforce it, including pursuing payments or initiating foreclosure if necessary. It’s important to review the specific terms of the contract and consult with an attorney to understand the implications for the estate and the buyer.

What is the main reason a seller will agree to an installment sale?

Sellers often agree to installment sales to attract more buyers who may not qualify for traditional financing. This arrangement allows sellers to receive regular payments over time, often at a higher interest rate than traditional loans. It can also provide tax benefits and a steady income stream while retaining some control over the property until the buyer fulfills the payment terms.

What is an installment land sale contract?

An installment land sale contract is an agreement where the buyer pays for the property in installments over time, rather than in a lump sum. The seller retains the title until the buyer completes all payments. This type of contract allows buyers to purchase property without traditional financing while giving sellers a way to secure payment over time. However, the seller retains certain rights until the contract is fulfilled.

Who pays property taxes on a land contract in Indiana?

In Indiana, the buyer of a land contract is typically responsible for paying property taxes. This is because the buyer has equitable title to the property during the contract term. However, the specific terms of the contract may outline responsibilities differently, so it’s essential to review the contract for any stipulations regarding tax payments.

Does an installment sale get a step up in basis at death?

In general, an installment sale does not receive a step-up in basis at death. The property retains its original basis for tax purposes, which can affect capital gains taxes if sold by the heirs. However, if the property is included in the estate, it may receive a step-up in basis for the portion of the property inherited. Consulting with a tax professional is advisable for specific situations.

How does a land installment contract work?

A land installment contract allows a buyer to purchase property by making regular payments over time. The buyer occupies the property and makes payments to the seller, who retains the title until the contract is fully paid. If the buyer defaults, the seller can typically reclaim the property. This type of contract is beneficial for buyers who may not qualify for traditional loans but comes with risks for both parties.