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July 2018
Housing
Predatory land contracts strip wealth
from communities
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Victoria Jackson
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Predatory land contracts strip wealth from communities
POLICYMATTERSOHIO.ORG
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Introduction
Housing is a basic need that can be exploited for a profit. For some, homeownership provides
stability and wealth, but many who aspire to own a home are taken advantage of by
predatory lending practices. Communities that are locked out of traditional home buying
because of income, race, and credit history are common targets for exploitative practices.
Land installment contracts, also called land contracts, are one way of exploiting buyers. These
contracts, common during legal housing segregation, have seen a resurgence as tightened
access to conventional lending has reduced home-buying options for many aspiring home-
owners.
A land contract is a seller-financed home purchase transaction where the buyer makes
payments directly to the seller over time, and the seller agrees to transfer the title to the
buyer after the house has been paid in full. They can include egregious terms like exorbitant
fees, buyer-required repairs, and balloon payments. In Ohio if a buyer defaults before making
substantial payments, the seller can cancel the contract through a process called forfeiture,
which allows the seller to force the buyer to leave and to forfeit all prior payments and
investments entirely. Land contracts are often advertised as an alternative model to
homeownership, but usually they represent a blatant predatory lending practice that harms
buyers and communities.
In Ohio, a state hit hard by the foreclosure crisis, investors, like Harbour Portfolio Advisors,
are buying foreclosed derelict properties in bulk, marking up prices, and selling houses on
contract. From January 2008 to January 2018, there were 47,610 recorded land contracts in
Ohio.
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This number does not include the large number of unrecorded contracts.
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Land
contracts often provide the illusion of homeownership to the buyer but are instead a
predatory agreement that deeply, almost exclusively, advantages the seller.
To address the issue of predatory land contracts, Ohio should provide greater legal
protections for land contract buyers, allowing seller financing to be restricted to terms that
are fair, equitable, and ethical.
How land contracts harm communities
Predatory land contracts are designed to strip wealth from buyers and communities. Weak
state laws allow unfair contracts with one-sided terms. Land contracts are usually used in
communities lacking access to traditional credit. Prospective homeowners denied access to
mortgages are vulnerable to predatory land contracts. Thus, homebuyers in land contracts
are disproportionately low-income, people of color, and immigrants.
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For buyers, predatory land contracts bring the responsibilities of homeownership without the
benefits. Under current law, buyers have few protections or rights under a land contract. The
buyer builds no equity in the home until the principal, interest, taxes, liens and fees are paid in
full. Only then does the seller transfer the deed. This rarely happens because, absent the
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1
Public records request from County Recorder’s Offices. Montgomery County is not included. Montgomery County’s online records system lists
7,490 land contracts. This number is an outlier and does not reflect the actual lower number of recorded land contracts. A staff person in the
Montgomery County Recorder’s Office confirmed their online database can include multiple records for one land contract, which results in an
usually high number of records.
2
Peter M. Ward, Heather K. Way, and Lucille Wood, The Contract for Deed Prevalence Project: A Final Report to the Texas Department of
Housing and Community Affairs (Aug. 2012), available at http://www.tdhca.state.tx.us/housing-center/docs/CFD-Prevalence-Project.pdf
3
Battle, Jeremiah, Jr., Sarah Mancini, Margot Saunders, and Odette Williamson. “Toxic Transactions: How Land Installment Contracts Once Again
Threaten Communities of Color.” National Consumer Law Center, July 2016. https://www.nclc.org/issues/toxic-transactions-threaten-
communities-of-color.html.
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Predatory land contracts strip wealth from communities
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protections and access to programming that homeowners have, buyers struggle to meet
contract demands. Typically, land contracts make buyers responsible for insurance,
maintenance and major repairs. These buyers are often unable to obtain repair loans or
access to loan and grant programs for low- to moderate-income homeowners. If a buyer
defaults on any term of the contract, they can be kicked out of their home without recourse.
Without strong regulation, land contracts are structured to advantage sellers and
disadvantage buyers. A report from the National Consumer Law Center found several
common exploitative features of land contracts, described in the box below.
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Exploitative features of land contracts
1.
Lack protections of renting or mortgages.
Predatory land contract purchases
are designed to fail. Because the contracts lack the protections found in leases
or mortgages, it is very easy to kick buyers out of their homes for defaulting
on the contract.
2.
Have artificially high purchase prices
. Often the purchase price of a land
contract is significantly higher than the house’s fair market value. Because
most land contracts are sold without an inspection or independent appraisal,
buyers are unaware of the true value. Over the life of the loan, buyers would
typically pay much more than if they had access to traditional financing.
3.
Make buyers responsible for repairs.
Many homes sold by land contract are
barely habitable and not up to code. The condition often prevents the home
from being rented or, in some cases, qualifying for a traditional bank loan. In
addition, land contract buyers are generally ineligible for loan and grant
programs designed to help moderate-income homeowners make repairs. To
avoid the cost of making a home habitable, sellers sell the house through land
contracts, which puts the legal burden of making repairs on the buyers
4.
Contain title problems.
There are often title problems with the transactions.
Land contracts are rarely recorded with the county, so buyers have little
recourse when title problems arise. When contracts are recorded, if the seller
defaults on the mortgage or property taxes or does not pay a lien, the house
can be sold without consideration for the buyer. In many cases, a buyer pays
the full term of the contract and the seller cannot provide them with a title.
Source: Policy Matters Ohio based on “Toxic Transactions: How Land Installment Contracts Once Again Threaten
Communities of Color.” National Consumer Law Center.
For corporations, the goal of selling a house through a land contract is often to buy cheap,
sell high, and kick the buyer out before they finish paying off the contract. The exploitative
features of many land contracts enable this business model. In part, the profitability of land
contracts depends on the ability to constantly turn over properties with new buyers. Sellers
force buyers out of their homes through forfeiture clauses. Forfeiture occurs when buyers
default on the terms of the contract. It is especially harmful to buyers because they do not
have foreclosure protections. In Ohio, these protections only take effect after buyers have
been paying their contract for more than five years. Most land contracts come with forfeiture
clauses outlining what a buyer must do to avoid losing their home.
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These requirements range
from not missing payments to getting the property up to code in an allotted amount of time.
Buyers of land contacts often struggle to make monthly payments because the homes they
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Battle, Jeremiah, Jr., Sarah Mancini, Margot Saunders, and Odette Williamson. “Toxic Transactions: How Land Installment Contracts Once Again
Threaten Communities of Color.” National Consumer Law Center, July 2016. https://www.nclc.org/issues/toxic-transactions-threaten-
communities-of-color.html.
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Chapter 5313: Land Installment Contracts, Ohio Revised Code §. Accessed March 5, 2018. http://codes.ohio.gov/orc/5313.
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Predatory land contracts strip wealth from communities
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buy are below code and need significant and expensive repairs. Thus, forfeiture clauses result
in the constant turnover of buyers. This, perversely, increases corporate profit.
Racist history of land contracts
Land contracts have a racist history. In the mid-twentieth century land contracts were used to
exploit black homebuyers. From the 1930s to 1960s, the U.S. government barred black people
from receiving federally backed home loans and mortgages. Because black neighborhoods
were shut out of traditional credit, land contracts were often one of the only ways to
purchase a home. Unscrupulous and racist speculators emboldened by discriminatory federal
policy sold black homebuyers land contracts with inflated prices and impossible-to-fulfill
contract terms. Many families lost their homes, down payment, all monthly payments, interest,
and the costs of repairs, maintenance, and insurance when they were not able to meet the
contract demands.
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Land contracts were a part of the racist practices that stripped wealth
from black families and continues to harm access to opportunity.
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Connection to foreclosure crisis
Today, land contracts are on the rise in part because of the foreclosure crisis, which hit Ohio
hard. Many of the hardest hit areas have not recovered and are in need of targeted, intensive
intervention. Real estate investors use foreclosed homes as an investment. Large corporations
often buy foreclosed properties in bulk at dirt cheap prices, then dramatically increase the
purchase price and sell the house by land contract. In Ohio, though they have fallen
significantly, foreclosure rates are still higher than in the 1990s, prior to the onset of subprime
lending and the housing crisis. The predatory practices of the mortgage lending industry led
to the foreclosure crisis. Now, real estate investors use land contracts to prey on communities
that have not yet recovered.
Corporate investors and Harbour Portfolio
After the housing crisis, real estate investment firms began buying up inexpensive houses in
areas hit hard by foreclosures. Many investment firms selling homes on land contracts bought
houses from Fannie Mae. These firms targeted areas with limited access to traditional
mortgages and many dilapidated homes. Harbour Portfolio Advisors of Dallas, an investment
firm that has been active in Ohio, was the largest buyer of homes from Fannie Mae. Harbour
raised $60 million from investors to buy houses in bulk for an average of $8,000 per house
between 2010 and 2014.
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The firm purchased over 6,700 single-family houses in Ohio,
Michigan, Pennsylvania, Illinois, Georgia, Florida, and a few other states. In Ohio, there are
1,329 records involving Harbour.
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This does not capture the substantial number of unrecorded
land contracts.
Harbour and other investment firms buy properties in bulk in poor communities to sell them
on contract to community members at inflated prices with high interest rates. Cities like
Youngstown, Toledo, Dayton, Akron, and Cincinnati. The City of Cincinnati sued Harbour
Portfolio for “predatory and unconscionable” practices targeting low-income residents,
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including practices like selling houses for five times the purchase price. The city is suing
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Battle, Jeremiah, Jr., Sarah Mancini, Margot Saunders, and Odette Williamson. “Toxic Transactions: How Land Installment Contracts Once Again
Threaten Communities of Color.” National Consumer Law Center, July 2016. https://www.nclc.org/issues/toxic-transactions-threaten-
communities-of-color.html.
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Brotman, Barbara. “Decades Later, Black Homebuyers’ Battle for Justice Back in Spotlight.” Chicagotribune.com. Accessed March 6, 2018.
http://www.chicagotribune.com/news/ct-contract-buyers-league-20150724-story.html.
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Goldstein, Matthew, and Alexandra Stevenson. “Market for Fixer-Uppers Traps Low-Income Buyers.” The New York Times, February 20, 2016,
sec. DealBook. https://www.nytimes.com/2016/02/21/business/dealbook/market-for-fixer-uppers-traps-low-income-buyers.html.
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Public records requests from County Recorder’s Offices
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Norton, Paula. “Cincinnati Sues ‘Predatory’ Housing Firm Harbour Portfolio Advisors.” Cincinnati Business Courier. Accessed March 6, 2018.
https://www.bizjournals.com/cincinnati/news/2017/04/21/cincinnati-sues-predatory-housing-firm.html.
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Predatory land contracts strip wealth from communities
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Harbour for $360,000 in unpaid fines, fees, and violation notices.
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In Akron, the Housing
administrator’s office that oversees code violations has received several complaints about
Harbour Portfolio. These are a couple examples of an out-of-state firm preying on Ohio
communities.
How Ohio is affected
Nearly all counties in Ohio are affected by land contracts. From January 1, 2008 to January 31,
2018 a total of 47,610 land contracts were recorded in the state. This probably grossly
understates the number of actual land contracts, many of which are unrecorded, in violation
of state law.
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The lack of recording obscures the magnitude of the problem. Moreover,
unrecorded land contracts completely lack protections for buyers. Table 1 shows the top 10
counties for recorded land contracts.
Table 1
Top 10 counties for recorded land contracts from Jan. 2008 - Jan. 2018
Number of recorded land contracts
2,706
2,456
2,094
1,956
1,873
1,622
1,592
1,186
1,153
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Source: Policy Matters Ohio based on public records request from County Recorder’s Offices. Montgomery County
is not included. Montgomery County’s online records system lists 7,490 land contracts. This number is an outlier and
does not reflect the actual lower number of recorded land contracts. A staff person in the Montgomery County
Recorder’s Office confirmed their online database can include multiple records for one land contract, which results
in an usually high number of records.
The map in Figure 1, which shows recorded land contracts across the state, is hosted on our
website provides information about Harbour Portfolio.
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Most land contracts are in higher
populated urban areas. The number of recorded land contracts range from zero in Medina
County to 2,706 in Trumbull County.
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Goldstein, Matthew, and Alexandra Stevenson. “Cincinnati Sues Seller of Foreclosed Homes, Claiming Predatory Behavior.” New York Times,
April 20, 2017. https://www.nytimes.com/2017/04/20/business/dealbook/cincinnati-sues-harbour-seller-foreclosed-homes.html.
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Chapter 5313: Land Installment Contracts, Ohio Revised Code §. Accessed March 5, 2018. http://codes.ohio.gov/orc/5313.
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Please view our website to see the interactive map accompanying this report that shows the number of recorded land contracts, the number of
records involving Harbour Portfolio, the percent of residents in poverty and the percent of non-white residents for each county. In Ohio, in 2016
the poverty rate was 14.5 percent and the state was 17.8 percent non-white.
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Predatory land contracts strip wealth from communities
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Figure 1
Number of recorded land contracts by county
Source: Policy Matters Ohio based on public records from County Recorder's Offices. For Ashland, Crawford,
Morgan, Noble, and Preble Counties, data on Harbour Portfolio is unavailable. For Jackson and Jefferson Counties,
land contracts are recorded as mortgages, so the Recorder’s Offices were unable to provide the number of land
contracts. For Darke and Erie Counties, the Recorder’s Office was unable to provide information. For Meigs,
Richland, and Vinton Counties, the Recorder’s Office did not respond. Montgomery County’s online records system
lists 7,490 land contracts. This number is an outlier and does not reflect the actual lower number of recorded land
contracts. A staff person in the Montgomery County Recorder’s Office confirmed their online database can include
multiple records for one land contract, which results in an usually high number of records.
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Predatory land contracts strip wealth from communities
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Land contracts are recorded in most counties in the state. Southern Ohio has counties with
the highest number of land contracts per 1,000. The top 10 counties for recorded land
contracts per 1,000 people are in Table 2.
Table 2
Top 10 counties for land contracts/1,000 people from Jan. 2008-Jan. 2018
Number of recorded land contracts
25.6
22.7
22.6
15.6
15.3
14.3
13.1
12.9
12.5
12.0
Source: Policy Matters Ohio based on public records request from County Recorder’s Offices. Montgomery County’s online
records system lists 7,490 land contracts. This number is an outlier and does not reflect the actual lower number of
recorded land contracts. A staff person in the Montgomery County Recorder’s Office confirmed their online database can
include multiple records for one land contract, which results in an usually high number of records.
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Predatory land contracts strip wealth from communities
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The map in Figure 2 shows the number of recorded land contracts per 1,000 people. The
number of recorded land contracts per 1,000 people range from zero in Medina County to
25.6 in Galia County.
Figure 2
Land contracts per 1,000 people by county
Source: Policy Matters Ohio based on public records from County Recorder's Offices. For Ashland, Crawford,
Morgan, Noble, and Preble Counties, data on Harbour Portfolio is unavailable. For Jackson and Jefferson Counties,
land contracts are recorded as mortgages, so the Recorder’s Offices were unable to provide the number of land
contracts. For Darke and Erie Counties, the Recorder’s Office was unable to provide information. For Meigs,
Richland, and Vinton Counties, the Recorder’s Office did not respond. Montgomery County’s online records system
lists 7,490 land contracts. This number is an outlier and does not reflect the actual lower number of recorded land
contracts. A staff person in the Montgomery County Recorder’s Office confirmed their online database can include
multiple records for one land contract, which results in an usually high number of records.
Ohio’s insufficient land contract law
Predatory land contracts are a threat to communities because weak regulation allows
investors and others to exploit homebuyers for profit. Ohio’s land contract law is not
sufficient to protect Ohioans from problematic corporations and contracts. Ohio law spells
out the definition and requirements for land contracts, rights of the buyer and seller, and the
process of forfeiture and contract cancellation. Ohio law favors the rights of sellers. There are
some laws protecting buyers, but not enough to stop the sale of bad contracts and protect
buyers and the money they have invested in houses. Also, buyers often do not have access to
legal representation to help enforce their rights. Existing law contains the following
provisions:
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Predatory land contracts strip wealth from communities
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1. Requires land contracts to be recorded by the seller with the county recorder within
20 days of contract execution and outlines information to include in the contract.
2. At least once a year but no more than twice per year, the seller must inform the buyer
of how much they owe and how much they have paid to principal and interest.
3. The buyer can take the seller to court if they do not abide by the law.
4. Buyers are responsible for the payment of taxes, assessments, and other charges
against the property from the date of the contract, unless agreed otherwise.
5. With few exceptions, no seller can hold a mortgage on property sold by a land
installment contract in an amount greater than the balance due under the contract.
6. If a buyer defaults on payments, a seller can use eviction and forfeiture to seize the
house, unless the buyer pays in full within 30 days. However, if the buyer has paid on
the house for longer than five years or has paid 20 percent or more of the value of the
contract, the seller must go through the foreclosure process to take back the house.
7. The process of cancelling a land contract is outlined.
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The existing land contract law in Ohio does not sufficiently protect homebuyers. There are
several problematic provisions, like requiring buyers to pay taxes, assessments, and other
charges against the property, and not having foreclosure protections for buyers who have
been paying their contracts for less than five years. Lawmakers should do more to protect
Ohioans from predatory land contracts by passing laws to protecting buyers from common
exploitative features of land contracts.
Recommendations !
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Ohio needs to create better rules for land contracts and better enforce them once they’re in
place. Without regulation, Ohioans are vulnerable to predatory practices. Community leaders
have been working with the legislature to document the problems and put forth best practice
solutions. Solutions should include: !
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1. Require houses sold through land contracts to be habitable and up to code prior to
sale and over the course of the contract and require sellers to provide documentation
that property is in compliance.
2. Require sellers to pay for independent inspections and appraisals, ensure clear rules
about inspections, and ensure that sellers use reputable appraisers.
3. Require sellers to pay off liens on the property prior to executing a contract and
prohibit sellers from holding a mortgage on the property.
4. Ensure that contracts are understandable, clearly spell out seller obligations, are
provided to buyers, and inform buyers of their rights.
5. Deviation from land contract law provisions should only be permitted when the buyer
and seller each have their own attorney.
6. Ensure that buyers have the right to sue for contract or law violations and can be
awarded money damages.
7. Contracts must be subject to the federal Truth in Lending Act. Contracts should not
be permitted to contain forfeiture clauses; prepayment penalties; or unfair, deceptive,
or abusive practices.
8. The state should vigorously enforce and monitor compliance, including collecting data
to enable assessment of how land contracts affect communities.
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Ohio Revised Code. Chapter 5313: LAND INSTALLMENT CONTRACTS, Ohio Revised Code §. Accessed March 5, 2018.
http://codes.ohio.gov/orc/5313.
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Predatory land contracts strip wealth from communities
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It is essential that Ohio protect its people from predatory land contracts. Legislators should
support measures to shield Ohio communities from predatory practices that strip wealth from
homebuyers and harm neighborhoods. !
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For funding and other assistance that made this work
possible, we thank the Raymond John Wean Foundation,
Youngstown Neighborhood Development Corporation,
Trumbull Neighborhood Progress, Tessa Perry, and Ester
Khaykin.