Buying in Installments? When the Land Contract Goes Wrong

An Indiana family living in an older Victorian home made the news this summer. The story isn’t pretty. The family has spent nearly seven years trying to get the deed to their home after paying off the last installment on a land contract. And now Yolanda, of Frankfort, Indiana, is speaking out about her family’s struggle with the local couple who sold the home to them.

Thirteen years ago, Yolanda explains, her family paid $60K for the Victorian home on a land contract from sellers Gracie and José. Yolanda says the family holds the receipt for the final payoff, made in 2020. But the county has no record of a transfer, and the deed is still in the sellers’ names.  

They see the sellers on social media, promoting other homes for sale around Frankfort. Yolanda’s daughter posted a warning to viewers on one of their advertisements. She was blocked.

Now the family is hoping media attention will help them press for the long-delayed transfer of their deed.

Installment Contracts Mean Big Business

Installment financing in Indiana is a well-worn path. Indeed, across the Midwestern states, many properties have changed hands through such agreements. About a third of these agreements involve businesses selling homes and acting as lenders.  

Installment agreements, such as land contracts (a.k.a. contracts for deed), are workarounds when a mortgage lender’s approval isn’t attainable. Some of these homes are priced too low to meet mortgage lenders’ minimums. The typical home bought on contract costs barely more than $120K.

The buyer usually gives the seller a down payment—typically 5% or less of the home’s price. The buyer then pays the rest month by month, often owing a large final payment after a few years. The seller plans to transfer the title upon receiving that final payment. The buyer doesn’t get the formal title until the end, but holds equitable title—a future ownership interest—during the course of the contract.

Land contracts offer a relatively easy entry to the market. But here’s the rub. There aren’t many consumer protections if the contract goes wrong. In Indiana, a contract for deed can have any interest rate, terms, or fees.

Indiana courts say buyers in default are entitled to foreclosure protections. That means they can’t be evicted without a chance to catch up, and they don’t forfeit all their built-up equity to the seller. But sellers do not always respect the buyers’ rights, and many buyers don’t have the funds for professional representation in a court case.

Stonewalled in Frankfort

And this is how things are for Yolanda’s family—and why, six years past payoff, they’re speaking to the media about the sellers’ refusal to sign over the deed. They’re paying the property taxes, as required, to keep the home from falling into foreclosure. But they don’t feel confident about doing necessary repair work on the old house, given the uncertain title status.

The main problem seems to be a lack of clear documentation. Throughout the years of the contract, Yolanda’s family made payments through work and with cash.

Without the deed, Yolanda’s family cannot claim property tax credits, which means they are overpaying their taxes. They don’t get the notices. They call the county themselves to find out what the bill says.

Yolanda’s family has requested the deed numerous times. One of the sellers, Gracie, reportedly blamed a local lawyer for not getting the work done. That lawyer, who drew up the contract at the beginning, retired. The office closed. A police investigation was opened but later abandoned.

An investigative report from WIBC in Frankfort, Indiana, found that the deed remains recorded in Clinton County in the name of Gracie’s family. There’s no transfer of ownership to Yolanda’s family on file.

And now, according to media reports, Gracie isn’t answering calls.

If lenders served people in need of small mortgages, buyers of low-priced homes would have a wider array of financing options. Fewer people would have to resort to precarious installment agreements.  

Renting to Own? Buying on Installments? Know the Risks.

After seeing Yolanda’s story in the media, buyers hoping to purchase a home of any kind on an installment plan will want to know how to protect themselves. How can the parties understand and navigate the risks in a seller-financed home sale? Legal professionals have shared their comments with the public.

• A verbal contract is hard to enforce. If the buyer has documentation of the purchase contract and the financing agreement, the claimed ownership interest is easier to prove if a dispute arises. The buyer may need documentation to avert eviction. So, any seller-financed purchase agreement should be in writing.

• A buyer should get a legal professional to review the parties’ installment contract before signing and be familiar and comfortable with all the terms in the document.

• Look out for contracts in which default could lead to forfeiture—that is, the loss of all the buyer’s built-up home equity.

• It is an excellent idea to record the purchase agreement. This is true even in states such as Indiana, where recording is not legally necessary to create a valid contract for deed.

• A buyer should keep records and receipts for every payment and request annual accountings from the seller.

The proof is in the paperwork. In case of a disagreement with the seller, the buyer will need to be able to prove their equitable ownership interest. Receipts for monthly payments, taxes, required insurance premiums, payments to landscapers, technicians, and repair personnel—all of these show that the buyer has a real interest in the title under a seller-financed contract for deed.  

Rather than simply talk to the seller, use emails, letters, or texts. Keep copies. It’s good to keep photos in case the home’s condition comes into dispute. If you can’t get the deed in the end, you might be able to come to a settlement. The outcome will depend heavily on who can document their case.

An installment buyer in default or otherwise facing the potential loss of a home should meet with staff at the nearest legal aid office. Those who believe their sellers are abusing a contract for deed might need to call local police and the state attorney general’s office.

Remember that you must consult with a licensed professional for advice about your own set of facts and circumstances. No website (ours or any other) is a substitute for individualized legal guidance.