McLemore v. McLemore
2005 Ind. App. LEXIS 796, 2005 WL 1119346, 827 N.E.2d 1135 (2005)
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Rule of Law:
Forfeiture of a land sales contract is a disfavored remedy and is only appropriate in limited circumstances, such as when the buyer abandons the property or has paid only a minimal amount while also jeopardizing the seller's security interest. In most cases where the buyer has acquired substantial equity, foreclosure is the proper remedy.
Facts:
- In May 1998, Morris McLemore entered into a conditional land sales contract to sell a residential property to his nephew, Brian McLemore, for $185,000.
- The contract required Brian to make a $25,000 down payment, monthly payments of $1545.21, and to be responsible for taxes and insurance.
- For approximately three years, Brian made regular monthly payments, paid for insurance, and paid property taxes, with the exception of the taxes due in 2001.
- By September 2001, Brian had paid a total of $96,863.48, of which $38,727.83 was applied to the principal, constituting 18.2% of the purchase price.
- After Brian failed to pay the 2001 property taxes, Morris paid them.
- On September 19, 2001, Morris and Brian had an angry exchange on the property regarding a late payment.
- On September 21, 2001, Morris changed the locks on the property, denying Brian access.
- On October 4, 2001, Brian instructed the tenants on the property to direct all future rent payments to Morris.
Procedural Posture:
- Brian McLemore filed a complaint against Morris McLemore in the St. Joseph Circuit Court (trial court) for wrongful forfeiture, breach of contract, and conversion.
- Morris McLemore filed a counterclaim seeking forfeiture or, alternatively, foreclosure.
- Following a bench trial, the trial court issued a judgment in favor of Morris McLemore, ordering the land contract forfeited.
- Brian McLemore filed a motion to correct error, which the trial court denied.
- Brian McLemore (Appellant) appealed the trial court's judgment to the Indiana Court of Appeals (intermediate appellate court), with Morris McLemore as the Appellee.
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Issue:
Is forfeiture, rather than foreclosure, the appropriate remedy for a land contract breach when the buyer has paid over 18% of the principal over three years but was subsequently locked out of the property by the seller following a dispute?
Opinions:
Majority - Mathias, J.
No. Forfeiture is not the appropriate remedy; the trial court's order of forfeiture was clearly erroneous because the circumstances do not meet the narrow exceptions where forfeiture is permitted. Citing the precedent set in Skendzel v. Marshall, the court explained that forfeiture is disfavored and is generally only appropriate where (1) the buyer has abandoned the property, or (2) the buyer has paid a minimal amount and the seller's security interest has been jeopardized. The court found that Brian did not abandon the property, as he was forced off when Morris changed the locks; a seller cannot create the condition of abandonment through self-help and then use it to justify forfeiture. Furthermore, the court concluded that Brian's payment of 18.2% of the principal over three years constituted more than a minimal amount, thus failing the second exception as well. The court also rejected the contract's own definition of 'substantial amount' as being against public policy. Because Brian had acquired significant equity, the proper remedy is foreclosure, which protects the interests of both parties.
Analysis:
This case reinforces the strong public policy against forfeiture in land sales contracts established by Skendzel v. Marshall. It clarifies that courts will look beyond contractual language and assess the totality of the circumstances to determine if a buyer's equity is substantial enough to warrant the protection of foreclosure. The ruling serves as a strong warning to sellers against using self-help remedies like lockouts, as such actions will preclude a finding of abandonment by the buyer. This decision solidifies the principle that land sales contracts in Indiana are treated similarly to mortgages, requiring a judicial foreclosure sale rather than a summary forfeiture in all but the most extreme cases.
