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Buying real estate on contract is a method
of purchasing a home that does not require the buyer to obtain a
mortgage or third party financing. Buyers typically make a $2,000-$3,000
down payment and have one to five years to obtain financing and
pay off the balance of the principal, which is known as a balloon
payment. Unlike with a traditional mortgage sale, buyers do not
own the property until they have made the final payment. Contract
sales in and of themselves are not bad, but they have become associated
with sellers who have no intentions of making families homeowners
and are just out to make a large profit.
Iowa Citizens for Community Improvement
has seen a number of unethical practices used to take advantage
of contract buyers. Below are real examples of practices we’ve
encountered.
Overpriced
homes
A seller bought a house for $16,000 then quickly sold it for $66,000
without making any repairs.
Poor condition
of houses not disclosed
Buyers have discovered leaking roofs, broken water heaters, termites,
furnaces that didn’t function and even a floor that was so
rotten under the linoleum that the toilet fell through the floor.
In most cases, the problems with the houses
were concealed. For example, houses sold in the summer time had
furnaces that didn’t work or roof leaks weren’t discovered
until the first time it rained. In other cases, sellers promised
repairs but never followed through.
Liens, unpaid
taxes & clear information regarding who owns the house not disclosed
Numerous buyers discovered, after signing the contract, that there
were tax sale certificates for back taxes on the property that needed
to be paid right away or they risked losing their home.
People who
cannot read English being deceived
A Latina woman who could not speak English was convinced to sign
papers, a year after living in her home, that were supposed to be
“nothing important”. In reality, the papers increased
the principal by $8,000. A significant percent of the individuals
we’ve seen who are victims of unethical real estate contract
sales have a language barrier.
Buyers not
allowed to make own repairs
Contracts sometimes bar buyers from making repairs. Instead, sellers
select contractors, determine repairs to be made, and set the price
that buyers must pay.
Balloon payments
designed to make buyer fail
We have a copy of a contract with a balloon payment, due after 14
months, for over $112,000!
Condemned
houses sold on contract
Buyers are unaware the house is condemned until they are notified
that their home is slated for demolition!
Unclear information
about when buyer will own home
One family had paid on their contract for 10 years, yet only $1,000
was credited to the principal. |
