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THE DARK SIDE: Don’t let your clients sign land contracts

It is safe to say there is very little about which an old-school conservative like me and an advocate for majoritarian tyranny, such as Roscoe Pound, could agree.

But I think we’d both give the same advice to any client who asked for assistance in purchasing real estate on a land contract: “In the name of God, don’t do it.”

As far back as 1920, Pound recognized that land contracts were unconscionable and specifically criticized Wisconsin courts for enforcing them.

Roscoe Pound

And since that time, Wisconsin courts have found many contracts unconscionable. But the land contract endures.

For some reason, while liberty of contract is a derogatory term in almost every other context, it reigns supreme when it comes to enforcing land contracts.

Since the economic downturn, courts have gone out of their way to find perfectly reasonable contracts to be unconscionable. Courts have refused to enforce fair mortgages, credit card and cell phone contracts in the name of procedural and substantive unconscionability.

In any civilized society, an employer and an employee could sign a contract providing that the employee would breach the contract if he joined a union. However, no court in this society would enforce such a contract.

But the land contract perseveres as if it were sacrosanct.

I suspect the reason is there is no way to bring a class action in such a case. If a mortgage, credit card contract or cell phone contract is unconscionable, a class action can be brought on behalf of every consumer who signed an identical contract. But that can’t be done with a land contract between an individual seller and an individual buyer.

And if a buyer had enough money to pay a lawyer to take a case all the way to the Wisconsin Supreme Court and argue for reversing 150 years of precedent upholding land contracts, he or she would simply make payments on the contract instead.

The mere existence of a proposed land contract should be enough to warn off any buyer. Even if the penalties for default were not so severe, one or both of these two factors is necessarily present: (1) the seller’s price is so exorbitant that no bank will finance any buyer who wants the property; or (2) the particular buyer lacks the means to fulfill the contract.

But buyers still sign them and come to us for help when they go sour. If only they came to us first, before they signed.

It wouldn’t matter what lawyer they went to. Even Pound and I would agree that a client should not sign such a contract.

And even though it only takes a minute of our time to advise as much, the advice is so valuable it would be a fair contract to charge thousands of dollars for it.

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