Contract for Deed as a Non-Profit Affordable Housing Tool

New Orleans   Thinking about how to open up a pool of potentially affordable housing to low-and-moderate income families, ACORN’s Home Savers Campaign has spent a lot of time visiting with people in various Midwestern cities trying to figure out a way to link abandoned housing stock in land banks with the potential for rehabilitation with families that need affordable housing.  There seems to be some appetite from certain companies and investors, and there are huge numbers of lower income families that want rent they can afford or even ownership, if they could swing the payments.  Experience with housing counseling has taught us that credit scores can be improved sufficiently to qualify for even conventional mortgages.  The problem is the gap.  The period between when the house is ready and the family is still working to get its finances and credit in shape.   The missing piece in the puzzle is the bridge.

Contract for deeds and other forms of land contracts have been the target of the ACORN Home Savers Campaign because they are little understood and often highly predatory.  Yet, we have found that nonprofit housing groups in Akron and Youngstown, Ohio, and Detroit all use various short-term land contracts to solve this problem in communities where banks are hesitant to take risks in lower income housing markets.  Theoretically, even long-time organizers in the fight against land contracts believe it is possible to devise such instruments in a constructive way, despite their existence in a grey area of few to nonexistent regulations.

Surveying the field, the answer we have found so far is that maybe such contracts might work.  In Youngstown, some housing organizers and advocates claimed that the nonprofit contracts were worse than some of the for-profit operators.  The Housing Authority says that it has lost money on its half-dozen land contracts.  In Akron, there are several nonprofits using land contracts in various forms on rehabbed houses.  In Detroit, United Community Housing Coalition uses a short-term contract for a couple of years successfully to establish a credit record for families trying to regain their foreclosed properties so that they can refinance.

A 2013 case study by the Federal Reserve Bank of Minneapolis on the use of contracts for deed as a bridge for lower income families detailed favorably the experience of the Greater Metropolitan Housing Corporation (GMHC) in the Twin Cities.  Their SHOP program which stands for Sustainable Home Ownership Program started in 2008.  Bridge to Success was the contract for deed program.  A SHOP-approved buyer would find a home and then SHOP would take possession and hold the deed for no longer than ten years, while the buyer would be able to deduct interest and taxes after making a 2% down payment on houses that average $126,000 and could not be priced any higher than $225,000. Once buyers have their credit straight they are assisted in converting to a mortgage.

Sounds good doesn’t it?  In 2013, they had financed more than 60 homes and had a goal of building a loan pool through Bridge to Success of $50 million that would give them the capacity to purchase 400 houses.  Checking now in 2018 on their website, when I hit the section for “contract for deed” under financing, it took me to a page that said the program had been discontinued.

What happened?  The theory was good.  The early experience was solid.  Was it the land purchase or something else?

Meanwhile we continue to search for the right piece to solve this puzzle.

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Land Contract Companies Settle Lawsuits in Cincinnati Without Celebrations

New Orleans     In the more than a year that the ACORN Home Savers Campaign has built committees of owner-occupants in cities in Michigan, Ohio, Pennsylvania, Arkansas, Georgia, and Tennessee to try to force companies to convert land contracts to ownership for the occupants, to renegotiate the terms, and bring homes up to standards, others have argued that the best tactic in dealing with land contracts was through the courts.  Lead lawsuits filed in Cincinnati a year ago have now been settled and provide a template for understanding what relief is possible and what is not, so let’s see what an examination of the settlements provides for the future organizing.

The City of Cincinnati sued both Harbour Portfolio, based in Dallas, and Vision Property Management, based in Columbia, South Carolina.  The suits were based on the condition of certain properties owned by the prospective companies.  The settlements in both cases resolved various fines and assessments involving these properties.  Harbour will have to pay $125,000 to settle and Vision will be required to pay about $88,000.

Going forward the companies are required to record all properties in the future.  They are also barred from entering into any future land contracts until the city has inspected the property to determine that meet minimum code standards.  There was an attachment with a list of properties that Harbour needs to resolve.  In the Vision settlement there were four properties at issue, two of which the City agreed had already been brought up to code and were deemed approved and two that were in process.

Pretty much that’s the bottom line on the settlements.  Pay up, fix ‘em up, and go on about your business.

The one area in which the settlements are completely silent is on the issue of the land contracts themselves and their provisions.   Harbour has been a classic contract-for-deed company in most of its transactions.  After investigations and subpoenas from the Consumer Financial Protection Bureau about their business practices since contracts-for-deed are under Dodd-Frank, the company seems to largely be exiting the market, even though the CFPB has been rendered toothless at this point.  Vision is a lease-purchase-option company where owner-occupants sign an agreement with a term of seven years normally and at the end of that term have credits set aside and the option to then buy the property and refinance.

In the settlement the City and Harbour agreed that a separate disclosure would be given to Harbour occupants explaining that they were in a land contract.  In the Vision settlement the company agreed, regardless of the nature of their contracts, to comply with any Cincinnati regulations that govern the conduct of landlords with tenants.

All of this is for the good, but leaves both companies whole and intact though chastened, and leaves the nature of their contracts affirmed as legal and appropriate business models under state law in Ohio, either because land contracts are covered in the case of Harbour or the law is silent in the Vision situation using lease-purchase-options.  Efforts to amend the Ohio law in the legislature proposed by some seem to not be making much progress and lack Republican support in the bodies they control.  The Cincinnati settlement will be the benchmark by default and gives relief where there are nuisance properties, but leaves the structure of land contracts in various forms untouched, leaving the ACORN Home Savers Campaign with plenty of work to do in our efforts to push companies towards mortgage conversions and different contract and business models.

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