Land Installment Contracts

Ohio Land Installment Contracts-Ohio Revised Code 5313

By: Yanfang Marilyn Ramirez, Esq.

In Ohio, land installment contracts for residential properties are governed by Chapter 5313 of the Ohio Revised Code.  A land installment contract is “an executory agreement which by its terms is not required to be fully performed by one or more of the parties to the agreement within one year of the date of the agreement and under which the vendor agrees to convey title in real property located in this state to the vendee and the vendee agrees to pay the purchase price in installment payments, while the vendor retains title to the property as security for the vendee’s obligation.” ORC 5313.01(A).

The statute only applies to residential property because it expressly states that there must be a “dwelling” on the real property. See ORC 5313.01(B). Ohio courts have extended the definition of “dwelling” to include mobile homes. See Marcus v. Seidner, 2011-Ohio-5592, ¶ 31 (12th Dist. Ct. App.).

Land installment contracts can be used for commercial properties as long as the applicable terms are included in the written agreement; however, contracts involving commercial properties are not governed by ORC 5313.

ORC 5313 also provides for remedies in case the vendor or the vendee fails to comply with the requirements set forth in the statute or the contract itself.   Some examples of requirements for the vendor are that the vendor must record the land installment contract within twenty (20) days of its execution, and the vendor cannot get a mortgage on the property in an amount greater than the amount owed on the contract, unless the vendee agrees otherwise.  The vendee may enforce the obligations of the vendor in a municipal court, county court, or court of common pleas.

ORC 5313 also provides the vendor with remedies if the vendee defaults on their payments or otherwise fails to comply with the terms of the contract.  Prior to enforcing the contract, the vendor must provide the vendee with two notices as separately set forth in ORC 5313.05 and 5313.06. First, the vendor must provide the vendee with a notice of default, after which the vendee has thirty (30) days to cure the default by becoming current on all payments or coming into compliance with the terms of the contract.  If the vendee fails to cure the default, then the vendor must give the vendee a written notice terminating the contract. The notice of forfeiture must include: (1) The existence of the land contract and the address of the property; (2) the reason(s) for ending the contract; and (3) that the vendee has ten (10) days to cure the problem.  The written notices must be served upon the vendee by handing them a copy in person, by leaving it at the property that is the subject of the contract, or by registered or certified mail to the vendee’s last known address.

After the ten-day notice period, the vendor can take one of two actions, depending on the status of the contract between the parties at the time of default. If the contract has been in effect for less than five (5) years, or the vendee has paid less than 20% of the principal due on the contract, ORC 5313.08 provides the vendor with the remedy to commence an action for forfeiture of the vendee’s rights in the contract and for restitution of the vendor’s property under ORC 1923. This action is similar to a landlord-tenant eviction. A successful forfeiture will result in the cancellation of the land installment contract. Possession of the real property will be restored to the vendor and the vendee will lose any down payment made under the contract and each monthly payment made will be considered a rental payment.

If, at the time of default, the vendee has paid on the contract for five (5) years or more from the date of the first payment, or has paid a total sum equal to or greater than 20% of the contract price, then under ORC 5313.07 the vendor must use a foreclosure action and judicial sale of the property to recover possession of the property as provided in ORC 2323.07. The foreclosure action must be filed in a Court of Common Pleas in the county where the property is located. The vendor is entitled to proceeds of the sale up to and including the unpaid balance due on the land installment contract.

Finally, ORC 5313.10 specifies that foreclosure and judicial sale under ORC 5313.07 or forfeiture and restitution under ORC 5313.08 is an exclusive remedy that bars further action on the land installment contract. The only exceptions are if the vendee has paid an amount less than the fair rental value or if there has been deterioration or destruction of the property that occurred during the vendee’s use. If this occurs the vendor may recover the difference between the amount paid by the vendee on the contract and the fair rental value of the property plus an amount for the deterioration or destruction of the property caused by the vendee’s use.  Various Ohio courts have held that the vendor cannot seek a deficiency judgment after a foreclosure or forfeiture. See Howard v. Temple (2007), 172 Ohio App.3d 21, 872 N.E.2d 1260 (stating that vendor cannot seek deficiency judgment from vendees to recover the difference between the contract purchase price and the amount property was sold for after forfeiture.); Kothera v. Stroupe (Sept. 12, 1984), Summit App. No. CA 11693 (“When the vendor seeks foreclosure and judicial sale, the statute clearly states that the vendor is entitled to sale proceeds up to and including the unpaid balance. No provision is made for a deficiency judgment.”); Shone v. Griffis (Feb. 2, 1984), Montgomery App. No. 8252, 1984 WL 4376 (stating that ORC 5313.10 deprived the trial court of jurisdiction to render a deficiency judgment); Dalton v. Acker (1981), 5 Ohio App.3d 150, 151, 450 N.E.2d 288 (stating that the prohibition of “further action on the contract” is plainly a bar to a deficiency judgment).

Reisenfeld & Associates, LLC accepts referrals for foreclosures on land installment contracts. Please contact us with any questions.

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Cincinnati, OH 45227