Banking & Finance

Legislation, Activists Target Predatory Land Contracts

YOUNGSTOWN, Ohio – Legislation introduced by state Rep. Michele Lepore-Hagan would target predatory land contracts that often leave would-be home buyers without the rights and protections of holders of traditional mortgages or leases.

It’s a problem that plagues inner-city neighborhoods here and across the country where out-of-town companies offer “lease option purchase contracts” that often contain deceptive — and extremely costly — home repair agreements, activists say.

Lepore-Hagan, D-58 Youngstown, says her legislation would require property owners to correct any code violations and pay any outstanding taxes, fines or fees on a property before entering into a land contract agreement. It also would require the seller to be responsible for insurance premiums and a home inspection.

“When there are predatory situations like this, we have to help people,” she says. The legislation has five cosponsors, including state Reps. Michael O’Brien, D-64, Warren, and Glenn Holmes, D-63, McDonald.

The Fair Lending Through Land Contracts Act, which Lepore-Hagan introduced Oct. 2 and will discuss at a news conference tomorrow, was referred Tuesday to the Financial Institutions, Housing and Urban Development Committee. The press event will take place at 226 E. Lucius Ave., which is pictured above. The property is owned by Vision Property Management of South Carolina and is dilapidated to the degree that a tree is growing through it.

The issue of predatory land contracts was highlighted earlier this week in a post on the Working-Class Perspectives blog co-authored by Gary Davenport, project director at the Mahoning County Land Bank, and Wade Rathke, founder of Acorn.

The post discussed efforts by organizers with the Acorn Home Savers Campaign to work with Vision Property Management, which has come under fire nationwide, and address predatory land contracts. Vision operates in more than a dozen states and was the subject of several New York Times stories last year detailing problems with its rent-to-own program. Following the articles, Fannie Mae announced it had stopped selling properties to Vision. Just yesterday a court in Wisconsin effectively ended its right to operate in that state.

The company did not respond to The Business Journal’s request for comment Wednesday.

“This is the follow-up to the foreclosure crisis,” Davenport said. Companies purchased properties and entered into agreements with buyers to purchase them with no appraisal at prices often 10 times or more higher than what they purchased them for, and priced so homeowners are underwater from the time they start.

“Somebody figured out how to monetize the foreclosure crisis further,” he remarked.

The land bank is researching the issue. Often such agreements aren’t recorded, Davenport said.

Used properly, land contracts can help individuals who don’t qualify for a conventional mortgage to buy a house, said Ian Beniston, executive director of Youngstown Neighborhood Development Corp. These include agreements to transfer property from one family member to another, or a small property owner who has just two or three houses he is selling.

However, under some agreements, the prospective buyers, or vendees, are required to make any needed repairs to the property on top of the required monthly payment, Beniston said. If they miss a payment or two, the vendees are often evicted without the process or protections afforded under traditional mortgage or rental agreements, losing whatever down payments or monthly payments they’ve made, as well as whatever they’ve put into repairs. The interest rate is sometimes 18%, he said.

“As a vendee, you’re treated like a tenant when it’s advantageous to the seller and you’re treated like a mortgagee when it’s advantageous to the seller,” Davenport said. In addition, unlike in a traditional mortgage, the property isn’t transferred into the vendee’s name. “You really have very little standing,” he said.

Lepore-Hagan said Beniston and YNDC brought the issue of predatory land contracts to her attention, “They’re on the ground working and they’re going into the community,” she said.

“I don’t think all land contracts are bad,” Beniston said. “We are saying there should be fair and just, and there should be provisions so that it’s an equitable arrangement for both parties.”

Pictured at top: 226 E. Lucius Ave. is owned by Vision Property Management, a South Carolina company that has come under fire for engaging in predatory land contracts.

Published by The Business Journal, Youngstown, Ohio.