Monday, July 03, 2017

Indianapolis-Area Real Estate Peddler Accused Of Using Predatory 'Land Contract' Business Model To Create Mirage Of Homeownership; Use Of Short-Term Balloon Payments Leaves Many Unsophisticated Homebuyers Holding The Bag

In Indianapolis, Indiana, The Indianapolis Star reports:
  • Home ownership seemed out of reach to Ashley Glenn. That is, until a friend told her about an Indianapolis company run by Christians who help people that don't qualify for traditional mortgages.

    She reached out to Chart Properties LLC in October, and the next day she forked over about $5,000 and moved into a newly remodeled home on the Far Eastside. It was a dream come true, she said, at a time when her growing family was in a bind.

    But in May, a real estate agent showed up and planted a For Sale sign in the front yard of the home on Chateau Drive that Glenn thought she had purchased from Chart. The unexpected event turned Glenn's life upside down and placed her among a growing number of buyers and sellers disillusioned by their dealings with the Indianapolis real estate business.

    An IndyStar investigation found Chart has more than 100 contracts for the purchase and sale of homes from which it stands to make millions of dollars flipping properties it doesn't actually own. The buyers, in many cases, are people who really can't afford the homes or are unprepared for home ownership.

    In contract sales, unlike purchases made with cash or a traditional mortgage, the buyer makes monthly payments but the property remains in the name of the owner until the contract is paid in full. That means Chart does not typically own the homes it sells, but rather has a contract that allows it to sell the home on behalf of the owner.

    The investigation — prompted by a seller who reached out to IndyStar Call for Action — revealed Chart targets unsophisticated sellers and buyers and, according to former employees, often uses high-pressure pitches to close deals that fair housing advocates call one-sided and potentially "predatory."

    The Chart business model is built on a series of land contracts that allow the company to profit from buying and reselling, often with little or no investment by the company. It's a twist on rent-to-own, with the new buyer bearing nearly all the risks and costs — often including the money Chart uses to make monthly payments to the seller and what former employees described as the company's target profit margin of at least 28 percent.

    Contract sales often set up vulnerable people to fail, fair housing advocates told IndyStar. Defaults actually benefit the business in the deals that are not covered by Indiana real estate laws. It's a potential trap for the poor, they say, that Indiana lawmakers need to address.

    "Homeownership through these deals was often a mirage," the National Consumer Law Center warned in a 2016 report,(1) "and buyers lost their homes, their down payments, their sweat equity, and the money they paid for repairs."
    Here's how the Chart system, which Keck said was developed in the 1980s by [partner Grady Brian] Rogers, works:
  • Chart enters into contracts with sellers that allow the company to take immediate possession of a home in exchange for monthly payments over a designated period of time. Those payments are meant to cover the seller's mortgage obligation. Chart assumes responsibility for insurance and taxes. The contract term is typically five years, with a balloon pay-off due from Chart at the end. Until that time, the property remains in the name of seller.
  • Once Chart secures a signed purchase agreement and the keys, it re-sells the home on a second contract — sometimes as quickly as promised in the "same day" pitch. The deal requires a small down payment, followed by monthly installments that covers Chart's purchase costs, and a full pay-off at the end of one year.
  • Since late 2015, Chart has contracted to purchase and sell more than 60 homes, according to Keck. But only one of those deals, so far, has culminated in a pay-off to the original seller and the transfer of title, Keck said.

    Keck did not provide a number, but acknowledged some buyers also have defaulted. In those cases, under the sales contract, the buyer can be evicted and lose their down payment, the monthly payments they've made, and everything they spent on improvements.

For more, see ‘Homeownership was a mirage’: How home buyers say their American dream became a nightmare.
(1) Toxic Transactions: How Land Installment Contracts Once Again Threaten Communities of Color. land contract for deed

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