Today, the Senate passed HB 1495, sending the bill to conference committee where legislators will negotiate bill changes between Senate- and the House-passed versions. As this article in the Indiana Lawyer describes, this bill aims to provide greater transparency and modest guardrails to land contracts for homeownership. While not new, these contracts have exploded in number, particularly in Indiana where communities were hit hard by the foreclosure crisis.
Communities with thousands of vacant homes circulating on tax sales have been purchased as investment properties, but many have also been purchased by speculators, acquiring numerous homes with low values and severe habitability issues to sell to aspiring homeowners on contract at inflated prices. In these transactions, borrowers enter into agreements with sellers who transfer the title at the end of the mortgage, rather than the beginning as you would in traditional mortgages.
While this can be a viable alternative homeownership model, without any clarity in state law in how to treat them, we have unfortunately seen large scale sellers churning borrowers in and out of properties who lose all of their investments along the way. Regularly, these borrowers invest thousands in repairs only to be evicted when they are underwater, unable to keep up with repairs, balloon payments, fees, etc. and they lose all of their equity invested in these properties.
That is because land contracts shift all the burdens and obligations of homeownership to the buyers with none of the rights or protections of homeownership. This transaction has fallen into a no man’s land of policy, with court opinions differing on whether or not it’s a rental contract which would have some habitability standards or a true lending contract.
HB 1495 does not in any way attempt to prevent people from offering or signing these homeownership arrangements, only to provide needed clarity for all parties. In recognition that some individuals offer these contracts informally and not as their primary business, the provisions only apply to those who are regularly engaged in the business of selling land contracts and have four or more outstanding land contracts at a given time.
It does not require a standardized contract, but instead would have the Attorney General publish the necessary contract components or the contract can be considered voidable.
This bill would require disclosure of basic information about the property and loan terms, such as the annual percentage rate of the contract, existing liens on the property, whether or not seller or buyer will be paying real estate taxes, for instance that provide clarity for the borrower and the seller.
Rather than calling for a full inspection that would be required for a traditional mortgage, the bill would have these contracts include an appraisal within the previous year to allow borrowers to know some critical information about the property without the full inspection process.
Since this bill does not provide for an extensive inspection process, there will be a three-day cooling off period where the buyer or the seller may deliver to the other party a written notice of cancellation to account for misrepresentation of the property
The legislation is authored by Representative Vanessa Summers, co-authored by Representatives Clere, Fleming, Woody Burton and sponsored by Senators Bohacek, J.D. Ford, and Breaux.
Stay tuned to this blog for updates on bill negotiations and advocacy steps you can take in support of this measure!
For more information, contact Kathleen Lara, at firstname.lastname@example.org.