Contract for Deed – Seller’s Four Remedies Upon Default – Part 2 of 5
Posted on February 28, 2014 byIn this article, I continue the five-part discussion about contracts for deeds by discussing the four options, or remedies, sellers have when a buyer defaults under a contract for deed.
When a buyer defaults, subject to the terms of the contract, the seller has four legal remedies. Two of the four remedies include the same first step – rescinding the contract. The four possible remedies are: (1) sue on the contract; (2) foreclose; (3) rescind the contract and bring ejectment; (4) rescind the contract, re-enter and re-possess.[1]
Under the first remedy, the party preserves the contract (as opposed to rescinding it) and sues on it for damages. This option is similar in time, cost and procedure to other suits on a defaulted loan. This remedy is generally not the preferred option unless (a) there is substantial equity in the contract versus the value of the property, and (b) the buyer is someone from whom money could be collected after a judgment is rendered.
The second remedy is foreclosure.[2] In foreclosure, the property is sold at public auction to recover the defaulted amount for the seller. In order to foreclose without judicial process (the way most foreclosures are performed), the contract for deed must contain or be accompanied by certain language including a power of sale provision. While foreclosure is a quick and effective remedy, most use a contract for deed for the express purpose of avoiding this remedy.
The third and fourth remedies are the most popular and are similar in their procedure. In both, the contract is first rescinded. Next, the party ejects the occupant(s) or retakes possession.
Ejectment is a civil action to recover the possession of real property. In many jurisdictions today, the old form of ejectment does not exist and is replaced by a dispossessory action (an eviction). If the property is vacant, then the seller can physically re-enter and take possession of the property. Re-entering and taking possession is a viable option as long as the property is unoccupied. Re-entering an occupied property can lead to liability for, among other things, trespassing, breach of peace and wrongful eviction.
If a seller elects to pursue either the third or fourth remedy described, then the buyer must be restored to his/her original status.[3] Courts have interpreted this to mean that the buyer would be entitled to the amount of money paid to the seller minus an amount that would prevent actual loss for the seller.[4] This is often where disputes and litigation arise. In the next article, I will discuss these last two remedies in more detail including the buyer’s rights to reimbursement under this formula.
Disclaimer: The information contained in this article is for informational purposes only and is not legal advice or a substitute for legal counsel. It does not constitute advertising or solicitation. The information in this article may not reflect the most current legal developments; accordingly, this article is not guaranteed to be perfect, and should not be considered an indication of future results.
[1] Douglas v. Vourtsanis, 203 Ga. 64, 45 S.E.2d 203 (1947); Watkins v. Maddox Med. Assocs., 270 Ga. 404, 509 S.E.2d 614 (1998).
[2] Chilivis v. Tumlin Woods Realty Assoc., 250 Ga. 179, 297 S.E.2d 4 (1982).
[3] O.C.G.A. § 13-4-62.
[4] Crowell v. Williams, 274 Ga. App. 676, 678 (2005).
Jon David Huffman is a litigation attorney specializing in real estate disputes, business disputes and commercial collections. With more than a decade of experience managing small businesses before attending Emory Law School, he brings a business owner’s perspective to the practice of law.
