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Wisconsin’s Land Contract Default Remedies
As bank's lending standards have tightened in recent years, financing for real estate sales has become more difficult to obtain. More buyers and sellers are considering alternative financing options, such as land contracts. If the buyer, otherwise known as the vendee, makes all payments on time and pays off the land contract when due, then all parties seemingly walk away from the transaction happy.
However, in the event the buyer defaults on the land contract, Wisconsin has a limited number of remedies that the seller, otherwise known as the vendor, may choose to employ.
Strict Foreclosure. Vendors most frequently elect to use this option. Like in a traditional foreclosure, the vendor starts by filing a strict foreclosure lawsuit against the vendee. Unless the vendee files an answer and disputes the assertions in the complaint, the court typically will grant a default judgment and give the vendee a period of time to pay off the remaining amount due under the land contract, called the “redemption period." In Wisconsin, the redemption period must be at least seven business days. If the vendee pays off the balance due during the redemption period, it obtains legal title to the property. If it fails to pay, title reverts back to the vendor. If the vendor chooses this option, it cannot also pursue the vendee for a money judgment for any additional amounts owed.
Specific Performance. This option typically is used if the property is significantly underwater, and the vendee has assets available to satisfy a money judgment. It is most akin to a traditional bank foreclosure; a lawsuit is filed for the balance due, a redemption period is set, and a sheriff's sale is scheduled. The vendor can “credit bid" at the sheriff's sale up to the full amount of the debt it is owed and pursue the vendee for any remaining balance, which is called a “deficiency judgment."
Lawsuit for Breach of Contract. The vendor can also simply sue the vendee for the unpaid balance due under the land contract. In this scenario, the vendee retains title to the property, and the vendor obtains a judgment against the vendee for the full balance due. The vendor would then have to satisfy the money judgment from the vendee's assets.
Quiet Title Action. If the vendee's interest in the property is “insignificant," the vendor can declare the land contract to be at an end and bring an action to quiet title, thus restoring full title to the vendor. While no hard and fast rule delineates when the vendee's interest is “insignificant," this remedy likely only could be utilized if the vendee has made a small number of payments prior to the default.
Ejectment. Similar to having a tenant evicted, the vendor can sue to have the vendee “ejected" from possession of the property. The vendor can then manage the property on its own, or request that a court appoint a third-party like a receiver to manage the property on its behalf.
While selling a property through a land contract may seem like a viable solution when a buyer is not able to obtain a traditional bank loan, sellers should carefully consider the additional time, expense, and hassle involved with Wisconsin's default remedies before deciding whether or not it is their best option.