Indiana law has few protections for people who purchase a house with land contract, a shortcoming that consumer and housing advocates say places vulnerable buyers at risk.
Still, the approach is attractive and increasingly common among individuals and families unable to obtain tradition financing, according to Amy Nelson, executive director of the Fair Housing Center of Central Indiana. That’s because buyers often can get into a contract with little or no money down, followed by affordable monthly payments over a set number of years.
‘Homeownership was a mirage’:How home buyers say their American dream became a nightmare
‘Freedom Behind Bars’:Chart Properties co-founders met while one was in prison
More:Rent-to-own contracts challenged in federal court
The gamble is whether the buyer, often financially distressed to begin with, will have the money or be able to obtain a loan when the balloon pay-off comes due. If they can’t — and default — the property reverts to the seller. The buyer walks away with nothing. There is no equity for the money they have paid the seller or improvements that were made.
Land contracts have been used for decades by individuals selling their homes or land. But recently, Nelson said, they are being used more often by businesses that sell homes in large-scale variations on rent-to-own deals. For instance, an IndyStar investigation found one such seller, Chart Properties LLC, has issued more than 100 contracts to buy and sell homes in a process that is not covered by Indiana’s real estate licensing law.
Nelson said there should be a cap on how many homes a person or business can sell via contracts without a real estate license, which is required in Indiana to sell property a seller does not own
“I would hope that maybe … once you are doing so many transactions a year that you would switch from being that mom-and-pop selling your own home, moving and trying to do it yourself, versus somebody who is in the business of so-called selling those homes,” she said.
Chart President Robert “Bob” Keck explained to IndyStar that he does not need a real estate license because Chart claims ownership of homes it is buying on contract. He said Chart’s attorneys have thoroughly researched their legal standing and the company also has a supporting opinion issued in by the Indiana Attorney General.
With a growing number of people purchasing homes via contracts — without the protections that come with transactions regulated by real estate licensure laws and mortgages — Nelson said the message is “buyer beware.”
“The central problem with these land installment contract is that they exist in this no-man’s land in between where the potential home buyer has none of the protections of home ownership and none of the protections of being a tenant in a traditional lease,” said Sarah Bolling Mancini, of counsel to the National Consumer Law Center and co-author of a 2016 report that called contract sales “toxic” and “predatory.”
The NCLC report included several recommendations for both prospective buyers and lawmakers. Here are three Mancini and Nelson say are critical:
Tim Evans is IndyStar’s consumer advocate. Contact him at tim.evans@indystar.com or (317) 444-6204. And follow him on Twitter: @starwatchtim.