Tuesday, August 29, 2017

More On Private Equity Outfits' Use Of Contract For Deed Scams To Fleece Unsophisticated Buyers With Crappy Credit Aspiring To Own A Home

From a recent opinion commentary in The Guardian:
  • [L]ike a strain of virulent TB that was thought eradicated, this predatory practice has returned. This time, however, the perpetrators are not “mom and pop” landlords, but Wall Street private equity firms.

    In the aftermath of the 2008 mortgage meltdown, millions of people lost their homes to foreclosure, particularly across the midwest rust belt states. Fannie Mae disposed of thousands of these properties in bulk sales to Wall Street private equity firms, some with fingerprints leading back to the original subprime mortgage scandal that fueled the meltdown.

    The Dallas-based Harbour Portfolio Advisors was one of the biggest bulk buyers, acquiring more than 6,700 homes, mostly in Michigan, Ohio, Illinois, Pennsylvania, Georgia and Florida. Other Wall Street firms snapped up thousands of foreclosed units, including the South Carolina-based Vision Property Management, Battery Point Financial and the St Louis-based Apollo Global Capital.

    These Wall Street firms typically don’t invest anything to improve these properties, most of which are in terrible condition. Instead, they transfer them to potential buyers through “contract for deed” transactions – sometimes marketed as “rent to buy”, “seller financing”, or “installment land contracts”.

    These are not inherently predatory, but opportunities for abuse are plentiful. Such contract arrangements are not subject to the Truth in Lending Act or other consumer protections that most traditional mortgage borrowers enjoy.

    These contracts exist in a regulatory ‘no-man’s land’ between tenant protections and homeowner protections,” says Sarah Mancini, an attorney with the National Consumer Law Center. “These aspiring homeowners have neither.”

    Assuming all the risk, if contract buyers miss a payment, they can lose all the previous payments and investments they’ve made in maintaining the house. Because they are technically not owners, buyers may be quickly evicted under forfeiture procedure, without the increased protections of foreclosure law afforded to homeowners. Think “repo” of a car, not a home.

    Deploying contracts for deed, sellers receive income streams from rundown properties that would be unbankable with traditional mortgages and unsuitable for renting because of code violations. In the most predatory scenario, sellers unload dilapidated houses on unsophisticated buyers with a contract for deed, locking them into an inflated purchase price and high interest rate. After paying out tens of thousands for repairs, a defaulting buyer loses all their equity. The contract lender gets back the house in better condition and repeats the cycle.

    “These contracts are the next wave of abuses motivated by corporate profits,” says Mancini. “They are exploiting the same communities of color that were devastated by the subprime crisis. This is just the latest predatory product.”

For more, see Loan sharks were meant to be eradicated. Now they're back. land contract for deed rent to own rackets