The following Q&A is based on a column by John Roska, an attorney/writer whose weekly newspaper column, "The Law Q&A," ran in the Champaign News Gazette. 

Question

I’m buying a house on a Contract for Deed. I got behind on the payments, and the seller is threatening to evict me. Since I’m buying the house, doesn’t the seller have to do a foreclosure case to get me out?  The seller says a foreclosure case would take too long, and that he can just do an eviction case.

Answer

It depends on how much you owe. If you owe less than 80% of the original purchase price, the seller must file a foreclosure case. If you owe 80% or more, then the seller can do an eviction case. 

A Contract for Deed is a way to buy a house. It’s an alternative to a mortgage sale—usually, because the buyer can’t get a mortgage.

A mortgage sale has three sides: buyer, seller, and lender. A bank lends money to the buyer to pay off the seller. The seller, having been paid in full, goes away happy, and leaves behind the buyer to repay the bank over the next 15 years or so. As soon as the seller is paid, the buyer becomes the official owner of the home, although the lender will have a security interest in the home, also called a lien. This means that the lender can foreclose and take the home under certain circumstances if the buyer does not fulfill their obligations under the contract.

By contrast, a Contract for Deed has just two sides: buyer and seller. The buyer pays the seller, usually for at least several years. During that time, the seller keeps legal title to the home, even if the buyer is living in it. Once the contract has been paid off, the seller delivers to the buyer a title to the property, finally making the buyer the legal owner of the home.

Home buyers get more protections under Illinois law than tenants. Whether they’re buying through a Contract for Deed or a mortgage, defaulting buyers are given chances to catch up, so they can avoid losing their house. A Contract for Deed buyer has 90 days to pay what is owed before any action can be brought by the seller. And if they do end up losing the house, a foreclosure, or a Contract for Deed eviction, takes longer than a regular landlord-tenant eviction.

The Illinois foreclosure law specifically applies to some contracts for deed. First, they must have been entered into after July 1, 1987, and require payments for more than 5 years. Then, the total unpaid amount must be “less than 80% of the original purchase price of the real estate.” If all 3 of those things are true, the Contract for Deed gets treated like a mortgage, and a foreclosure case must be filed if the buyer defaults.

An unpaid amount of “80% of the original purchase price” means that 20% must have actually been paid. So, if the buyer has paid at least 1/5th of the purchase price, they’re entitled to a foreclosure case.

The original purchase price is the total amount the buyer agreed to pay for the house. The down payment, and all regular payments, are counted in calculating whether 20% has been paid.

A foreclosure case is much kinder on a defaulting buyer. They have at least 90 days to catch up missed payments, and stop the foreclosure. Plus, they always have the right to pay off the entire contract, or mortgage, debt. Timewise, a foreclosure takes at least 7 months.

Even the eviction process gives Contract for Deed buyers some rights regular tenants don’t have. Contract for Deed buyers can get up to 60 days after an eviction judgment is entered to “cure” their default, get their payments back on track, and stop the eviction.