Wednesday, March 02, 2016

Use Of Contracts For Deed/Land Contracts To Peddle Dilapidated, 'Money-Pit' Homes To Savvy-Lacking, Low-Income Buyers w/ Crappy Credit No Longer Limited To Local Neighborhood Real Estate Operators As Nationwide Deep-Pocketed Foreclosure Investors Now Hop On Scam Bandwagon

In Akron, Ohio, The New York Times reports:
  • Hundreds of broken-down houses still dot the streets of this onetime tire capital of the world, a scar from the financial crisis and housing bust.

    The wood has rotted in some; others have black mold, broken windows or failing foundations. Many lack working electrical systems or are missing water pipes and furnaces. The unpaid property taxes mount.

    Dozens of these houses were scooped up after the financial crisis by investors, who then make deals with low-income home buyers unable to get traditional mortgages. The arrangement is something like buying a home on an installment plan, with a high-interest, long-term loan called a contract for deed, or land contract.

    But for buyers lured by the dream of homeownership, these seller-financed transactions can become a money trap that ends with a quick eviction by the seller, who can flip the home again. Before the housing crisis, low-income buyers got too much of a house that they couldn’t afford. Now, they are getting too little of a house that they can’t afford to repair.

    It is a scene playing out across the Midwest and the South, where many of the derelict houses have been sold to private investors by government mortgage firms at knockdown prices.

    Nationwide, more than three million people are estimated to have bought a home through a contract for deed. After the financial crisis, as banks retreated from lending to those with poor credit, this odd corner of the housing market began to draw interest from deep-pocketed investors who sometimes sell the homes for four times the price they paid.

    “There is this whole other way that people buy homes. It is very much under the radar and hidden,” said Heather K. Way, a professor of law at the University of Texas. “Homeowners go into this without knowing that this is such a high-risk contract fraught with perils.”

    Now, complaints are piling up in cities across the country, according to dozens of court records reviewed by The New York Times, as well as interviews with housing lawyers and home buyers in Ohio, Michigan and Minnesota.

    In Akron, some investment firms aim at residents “who do not have the financial ability to comply, nor the savvy to realize that they are being taken advantage of,” said Duane Groeger, the city’s housing administrator, whose office oversees code violations.

    One of several firms Mr. Groeger’s office has fielded complaints about is Harbour Portfolio Advisors of Dallas.(1)
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    Swimming in Debt

    Lacking the means to fix up the homes, those who enter into contracts with Harbour often end up swimming in debt, a review of lawsuits shows.

    Kevin Franklyn, 46, of Detroit said he struggled with making repairs on a $44,925 Harbour house in 2011. After falling behind on the payments, he recently agreed to forfeit the contract to the house. The roof, plumbing, electrical system and drywall all needed serious repairs, he said.

    His fiancée, Lisa Micou, 46, said the home was in greater disrepair than the couple had anticipated.

    “Everybody wants that part of the American dream — everyone wants a piece of that pie,” she said.

    In Battle Creek, Mich., Patricia Howard entered into a contract for deed with Harbour for $28,800 in April 2014. Soon after, she fell behind on her monthly payment of $280, excluding taxes and insurance.

    Ms. Howard, 54, said she had to spend thousands of dollars on critical house repairs.

    “I’m behind because I had to fix the plumbing, and now the gutters on the side,” said Ms. Howard, whose main source of income is her monthly disability checks. “It’s like one thing after another is falling apart.”

    In December, she reached a court settlement with Harbour that gives her until March to make up the 10 missed payments. If she cannot come up with the money, Ms. Howard will have to forfeit the contract and leave the house.

    Harbour bought the home from Fannie Mae for $7,691.
    ***
    Fewer Protections for Buyers

    Provisions in a contract for deed are enforceable as long as they do not conflict with state law. The home dweller has more limited protections than a person buying a house with a mortgage, and evictions are quicker than a foreclosure. The residents are typically responsible for repairs and paying all property taxes, but the legal title under a contract for deed does not transfer until the final payment is made — an end result that rarely happens.

    Robert Doggett, Texas RioGrande Legal Aid’s general counsel, says contracts for deeds “take advantage of people’s desperation” and can worsen neighborhood blight.

    Some municipalities seek to hold the sellers of contracts for deeds liable for correcting housing code violations, but that can be difficult. In some states, like Michigan, there is no requirement that a contract for deed be recorded, making the market hard to monitor.
For more, see Market for Fixer-Uppers Traps Low-Income Buyers.

Editor's Note: It doesn't take an excess of genius to discern that these deals are, in substance, nothing more than leases (ie. lease-purchase or rent-to-own ripoffs) that are structured as purported sales to allow the investor to pocket upfront cash, and then collect monthly payments from the occupants with none of the typical repair & maintenance obligations, nor any of the tenant protections.

Further, by conning the occupant into thinking he/she is actually in the process of buying the property, they are duped into investing additional money into make necessary (if not emergency) improvements to the premises that the purported seller is not responsible for, only to find themselves ultimately either walking away from the home, or getting the boot when the contract terms become to onerous to comply with.

See, for example:
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posted by Home Equity Theft Reporter at 4:06 AM