Definition:
Forfeiture in real estate is the loss of a buyer’s rights to a property—often including money already paid—because they violated the terms of the purchase or lease agreement.
Example:
Maria signs a rent-to-own contract with a seller and agrees to make monthly payments toward eventually buying the home. After missing several payments and violating the agreement, the seller ends the contract. Maria loses the home and forfeits the money she has already paid toward the purchase.
Explanation:
Forfeiture can happen in different types of real estate agreements, such as rent-to-own deals, land contracts, or lease agreements. It usually occurs when the buyer or tenant fails to meet the terms of the agreement—such as missing payments, failing to maintain the property, or breaching other key conditions.
When forfeiture happens, the buyer or tenant may lose their right to occupy or buy the property and often doesn’t get refunded for any money previously paid, such as a deposit or installment payments. The property typically returns to the seller or landlord, who can then sell or rent it to someone else.
Forfeiture clauses must be clearly written in contracts to be enforceable and are subject to state and local laws, which may require notice or legal proceedings before the forfeiture becomes final.
Why is Forfeiture Important in Real Estate Transactions?
Forfeiture is important because it protects sellers and landlords from long-term financial loss if a buyer or tenant fails to uphold their end of the agreement. For buyers and renters, understanding forfeiture helps them recognize the risks involved—especially in non-traditional purchase agreements.
Clear communication, well-written contracts, and following payment schedules help avoid forfeiture and ensure a smoother, fairer real estate transaction for all parties involved.