Officials: Loopholes on housing protections should be closed
Land contracts fly under radar, leave vulnerable populations at risk
WARREN — While land contracts can be an alternative route to homeownership for people without access to traditional mortgages, the terms often lead to more community destabilization in areas already weakened by the foreclosure crisis, according to researchers, attorneys, fair housing activists and other officials.
Trumbull County had the most land contracts recorded with county recorders’ offices across the state between January 2008 and January 2018, according to a report composed by Victoria Jackson with Ohio Policy Matters. She said many land contracts are never recorded despite a state law requiring them to be.
If the terms are appropriate, the contracts can be helpful to people seeking to buy a home who do not have the credit history required for traditional bank loans, or those seeking homes in areas banks deem too risky to lend in. The contracts also can be helpful to homeowners trying to sell a home in a market flooded with undervalued houses, said Matt Martin, executive director of Trumbull Neighborhood Partnership, which runs the Trumbull County Land Bank.
But when large investment groups, or even local real estate investors and landlords, get their hands on a large amount of properties in places like Warren and Youngstown, land contracts and lease-to-own contracts are often riddled with clauses that offer the illusion of homeownership without the benefits and protections but rife with obligation, said Rachel Nader, managing attorney of Community Legal Aid.
“In the Mahoning Valley area, people in the city of Youngstown and the city of Warren have long been preyed upon by entities that promise the dream of home ownership because of our vulnerable populations. We see it in the most devastated neighborhoods,” Nader said.
The seller can force the buyer out of the home through a forfeiture, holding onto all money and value put into the home. The protections afforded to someone being put through a foreclosure are not available to those in land contracts until they have been in the contract for five years, or have paid 20 percent of the price, according to the report.
Advocates are calling for changes to laws that oversee the contracts, but until that happens, officials wary of the contracts after seeing many people harmed by them are encouraging anyone considering one of the contracts or similar lease-to-own contracts, to protect themselves.
A land contract is considered a seller-financed sale. The buyer hands over the agreed upon payments to the seller, who uses it to pay the mortgage and sometimes the property taxes, though state law puts responsibility for the taxes on the buyer. The sellers often charge interest rates higher than typical mortgage loans. They also often require the buyer to make repairs, some major, to the house.
The sale is supposed to be recorded with county recorders’ offices, by the seller, within 20 days. If the seller does not record the contract, there is nothing the recorders’ office can do to enforce it, and the buyer can’t have the contract recorded, said Tod Latell, Trumbull County recorder.
And when the contracts aren’t recorded, buyers have even less access to protection from having the house sold out from under them, or of being notified it is being put into foreclosure, Latell said.
Those thinking about entering into a land contract should have a title research firm look into the property and check for discrepancies because the recorders’ office can’t do that for the buyer or seller, Latell said.
They also should check with the county auditor’s office for back taxes the buyer might be held accountable for and with the local water provider to ensure there isn’t a bill for prior use because water bills follow the property, according to Ohio law, said Patti Dougan, an attorney with Community Legal Aid. Buyers also should check with local code enforcement departments to ensure the home is considered ready to be occupied or at least know what local codes it might be in violation of, Dougan said.
The buyers aren’t often afforded a thorough look at the home before the contract is signed, and even if they are, they don’t know what to look for, Dougan said. In some of the worst cases, the pipes have all been stripped, there are no connections in the electrical box, or the city shows up with an order to knock it down, Dougan said. Some homes have issues with sewage backing up or holes in the roof.
Not all land contracts are bad, but “the devil is in the details,” Martin said.
Latell said the majority of the contracts in Trumbull County seem to come from individual owners, and there was about a 10 percent increase in the recorded contracts in the county after 2008 and 2009, when the foreclosure crisis hit the area.
When homes keep changing hands, the neighborhoods don’t have the chance to recover from the mass exodus of homeowners, Martin said.
“Even if you don’t have empathy for the individual contract owners because they didn’t read the fine print, you have to think about the greater impact on the community,” Martin said. “Nothing against renters, but in reality, more homeownership leads to more active and stable communities,” Martin said.
Trumbull Neighborhood Partnership will look over contracts before they are signed to help a buyer figure out if it is a good deal, Martin said. So will Community Legal Aid if the buyer is income qualified, Nader said.
Robert Pinti, deputy health commissioner for the Warren City Health District, said even if a buyer can’t afford to hire an attorney to review the contract, he or she should have someone he or she trusts review the contract with them, read every line and ask questions about things that are unclear.
“Be aware of what you are signing. Don’t take their explanation of it. Don’t just put your signature down. Read everything you sign, and more importantly, understand it,” Pinti said.
Even as organizations encourage buyers to look out for their own interests, they and others are pushing for legislative changes to law overseeing the contracts.
“Existing state law is not sufficient,” Jackson said. “Not all of these contracts are predatory, but we can do more to protect against exploitive contracts.”
Craig Gilchrist entered into a land contract he thought would be above board because it was a minister selling the home in Boardman to him. He thought he would own the home outright when one morning he opened the door to a sheriff’s eviction notice.
“The house was in foreclosure from the day I took ownership of it,” Gilchrist said at a recent committee meeting of Youngstown City Council. The faith-based coalition ACTION is hoping to convince Youngstown to adopt new laws governing the contracts.
Ohio state Rep. Michele Lepore-Hagan, D-Youngstown, introduced the Fair Lending through Land Contracts Act to regulate land contracts and lease-to-own contracts. She is looking for a Republican co-sponsor to further the legislation.
“My bill will stop the type of exploitation and manipulation that is wrecking families and destroying neighborhoods while preserving the opportunity for homeownership,” she said.