The Law Q&A | Defaulting on real estate bought on installment | Columns

Under Illinois law, if I am buying residential real estate from a seller in an installment contract, and I default in making my payments, can the seller evict me in court just like a landlord can when their tenant can’t make the rent payments?

Yes.

And no.

Yes, I know. Another prevaricating, nebulous, wishy-washy answer on what the law is.

In deciding how an installment seller can dispossess/disown the buyer from residential property, the law sets forth whether the installment buyer qualifies for certain rights in the property.

Such installment purchases are any agreements entered into on or after July 1, 1987, to sell residential real estate to a buyer who pays the purchase price in installments. If the buyer has paid more than 20 percent of the purchase price plus any interest that has become due, the seller can only get the property back after a default by buyer through a foreclosure lawsuit. If the buyer has not met the minimum 20 percent amount of payment, then the seller can simply sue to evict.

The difference between a lawsuit to evict (as is done by landlords) and a foreclosure lawsuit (typically done by mortgage lenders) is eviction suits move much more quickly through court. Eviction suits seek to have a court order the tenant to turn over possession to the landlord. Illinois eviction law allows an expedited hearing in court after the case is filed by the landlord to decide if the tenant has breached the lease agreement and thus must surrender possession.

Under mortgage law, a party owes the money to a lender who loaned it to a buyer for that buyer to pay a seller the purchase price immediately in one shot. The buyer then must pay back the loan to the lender over time. As part of the loan agreement, the buyer gives the lender rights in the property (called a “mortgage”). The mortgage gives the lender the right, upon the borrower’s default under the loan agreement, to foreclose on the property in court.

Foreclosing means that in a lawsuit, the lender proves the borrower has defaulted under the loan agreement, and that the lender holds a valid mortgage on the property in question. The lender will have the court order that the property be sold at auction to pay for all or some of the debt left on the loan.

The same is true in installment sales where the buyer defaults before the purchase is paid off but after they have paid more than 20 percent of the purchase plus interest. The seller can only then terminate the buyer’s rights in the property through a foreclosure lawsuit like a mortgage lender. The foreclosure process can last many months and gives the buyer, just as a mortgage borrower, an opportunity to fix the default or to pay off the unpaid debt before the property is sold at auction.

Installment sales are typically used where a buyer doesn’t qualify for a mortgage loan. Typically, the seller retains ownership until all payments are made, but gives possession to buyer at the start of the agreement.

So, beware of the legal minefield of residential installment sale agreements.

We recommend hiring a legal-explosives-disposal attorney in drafting or advising on such booby-trapped contracts.

Brett Kepley is a lawyer with Land of Lincoln Legal Aid Inc. Send questions to The Law Q&A, 302 N. First St., Champaign, IL 61820.

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