New law to protect homeowners, homebuyers starts Friday

Raleigh, NC – September 30, 2010 – (RealEstateRama) — North Carolina homeowners, especially those struggling with financial problems, will have more protection from schemes that can lead to problems like foreclosure starting Friday, Attorney General Roy Cooper said today.
“A home is the most important purchase most of us will ever make, and consumers deserve fair laws that protect them and their homes from bad deals,” Cooper said.

The Homeowner and Homebuyer Protection Act (Senate Bill 1015)  takes effect October 1 and will govern three types of real estate transactions: home foreclosure rescue deals, lease option contracts (also known as “We Buy Homes” schemes), and contracts for deed.  

“A real estate transaction can be extremely complicated, making it too easy for unethical people to take advantage of the financial desperation of others,” said Senator Josh Stein, sponsor of the new law. “This law puts in place some common-sense protections against abuses that were robbing too many North Carolinians of their hard-earned money.”

Consumers are usually offered the transactions covered by the new law as a way out of an immediate financial crisis, such as impending foreclosure. But these options can sometimes put consumers at even greater risk of losing their homes, especially when they get rushed into making a quick decision. Under the new law, North Carolinians will get more complete information before signing a contract for one of these transactions and better protection of their rights.

Foreclosure rescue transactions 

This type of transaction is typically offered to homeowners who have equity in their homes but can’t make their mortgage payments.  A consumer who wants to keep his or her home from being foreclosed signs over the deed, agrees to pay rent on the house, and plans to buy it back within a short period of time. 

Once the consumer signs over his or her home to a third party, that third party, without the original homeowner’s knowledge, takes out another loan based on the equity in the home.  If the third party defaults, then the home goes into foreclosure.  The homeowner loses both the home and the equity built up through years of mortgage payments. 

To protect consumers, the new law:

• Requires that homeowners get at least 50 percent of the fair market value of the home, as determined by a licensed appraiser no more than 90 days prior to the foreclosure rescue transaction; and
• Requires that all contracts be in writing and include specific information, including the financial obligation assumed by the new buyer, the total amount paid, the fair market value of the home, and the interest in the property retained by the original owner.

We Buy Homes schemes / lease option contracts

Lease option contracts usually happen in situations where homeowners need to sell quickly and have no equity in their property.  The homeowner sees a sign that says, “We Buy Homes,” or receives a letter from someone offering to buy the home.  The potential buyer suggests entering into a contract to lease the home with an option to purchase it rather than buying it outright. 

The buyer promises to make all mortgage payments and then finds someone else to move into the home and lease it. The renter is usually charged a substantial, non-refundable fee. In many cases, the original homeowner isn’t aware that he or she is still responsible for the original mortgage, and doesn’t know if payments are being made or if the house is at risk of foreclosure.

To protect consumers, the new law:

• Requires that contracts be filed on the public record, including the name and signatures of all parties along with a description of the property;
• Applies the state’s landlord tenant law to the lease portion of these agreements; and
• Gives renters the option to cancel lease option contracts if default occurs on the mortgage, and seek a refund for all money paid less the fair rental value of the property.

Contracts for deed

Contracts for deed are a form of owner financing where the buyer doesn’t receive a deed to the property until every payment has been made, unlike with a conventional mortgage.  If the buyer defaults, he or she loses the right to buy the property and loses all money paid toward the purchase price.  This can happen even if the buyer has paid the majority of the original price. 

Problems happen with this type of transaction when the person selling the property doesn’t have clear title to it, or the property is subject to an existing mortgage that must be paid off before the title can be transferred to the new buyer.  The buyer isn’t informed of these problems or their possible consequences. 

To protect consumers, the new law: 

• Prohibits sellers who don’t hold clear title from selling property under a contract for deed, with only limited exceptions;
• Requires certain specific disclosures in the contract, including whether there is a mortgage or any other liens on the property;
• Requires the contracts to be filed on the public record;
• Gives buyers the right to resolve a default after being notified of it; and
• Provides buyers with a statement of accounts every twelve months.

“Anyone who’s ever bought or sold a home can tell you how complex the process can be,” Cooper said. “This law will help consumers get honest information about certain real estate transactions so they can make informed choices.”

To avoid problems with real estate deals, Cooper’s office recommends the following tips:

• Read any contract carefully before you sign it.
• Consult a real estate attorney before entering into any real estate contract, especially the types covered under the new law.
• If you have an existing mortgage on your property and are thinking of transferring title on it without paying off the mortgage, consult your lender to be sure that the transfer won’t violate the terms of your mortgage.

To report a potential real estate scam or unfair transaction, consumers can call Cooper’s Consumer Protection Division toll-free within North Carolina at 1-877-5-NO-SCAM or file a complaint online at www.ncdoj.gov

Contact:  Noelle Talley (919) 716-6413