Oregon Land Sales Contract

In a land sales contract, the seller is known as a vendor. The buyer is known as a vendee. These similar terms are confusing for many people. Because seller and buyer convey the roles of each party in the contract clearly, we will use them as we describe the land sales contract process.

When a buyer enters into a land sales contract, the seller keeps the legal title to the property until the purchase price for the property is paid in full. This provides security to the seller in case the buyer fails to fulfill the payment agreement or other stipulations, such as maintaining the property in good condition.

A land sales contract is valid and enforceable between the seller and buyer whether or not it is recorded. It is recommended that the contract or a memorandum of the contract be recorded to protect the buyer against a future purchaser not receiving notice that another buyer already has interest in the property. A memorandum of contract allows the existence of the land sales contract to be recorded, without requiring disclosure of all the financial terms. It holds the same legal power as recording the actual land contract. Recording either document protects the buyer, but neither passes legal title to the buyer or affects any prior encumbrances.

Oregon law requires that, when title will not transfer to the buyer within 12 months, the seller must record the contract or a memorandum of the contract within 15 days of the day the parties bind themselves to the contract.

If the seller fails to meet this deadline, the contract will still be valid, but the seller will be subject to a fine. It is quite common for the escrow agent who acts on behalf of the seller at closing, to record the land sales contract or the memorandum of contract. If the parties involved in the contract, decide to terminate their agreement before the buyer is given a deed, the buyer should expect the seller to ask for a quitclaim deed. This releases the buyer’s claim to the property and allows the seller to deliver a marketable title to a new purchaser.

A land sales contract will specify which acts constitute default and which remedies the seller may use to satisfy the default. All the remedies available to the seller, such as rescission, deed in lieu of foreclosure, specific performance, foreclosure and sale, and, in Oregon, strict foreclosure may be included in the contract. Strict foreclosure allows a seller to regain clear title to the property rather than having the court force the sale of the property.

To declare the buyer’s interest null and void and for the seller to take back all rights to the title of the property without a judicial sale of the property requires litigation by the courts. To begin the foreclosure process, the seller, through his attorney, issues and records a notice of default, stating that if the default is not corrected the seller will seek a remedy in court.

If the default is not cured, the court will determine whether or not the buyer has actually defaulted on the contract terms and whether or not the contract was reasonable. The court may then issue an interim decree (called an interlocutory decree), stating the amount due on the contract. The buyer is given a specified time (generally 90 days to one year) to pay the court appointed amount due before the property can be foreclosed. This right to pay off the debt prior to foreclosure is called an equitable right of redemption.

If the buyer fails to redeem within the specified period, the court will issue a final decree, foreclosing the buyer’s interest in the property and giving the seller full legal title. From that point, the buyer is allowed no further redemption right.

If the judge determines that a buyer’s equity interest in the property is substantial, he may order that the seller return a portion of that interest to the buyer. On the other hand, if the value is less than the amount owed, the seller would not be entitled to a deficiency judgment against the buyer to recover the loss.

Some contracts seek to avoid involving the courts by including a forfeiture clause in the event of default. This clause allows the contract to be terminated without court action with the seller retaining all payments made by the purchaser. In Oregon, a seller may have the contract forfeited after allowing the buyer a specified period of time ranging from 60 to 120 days to cure the default, depending on the percentage of the purchase price remaining unpaid.