States crack down on predatory real estate deals

In less than two years, more than half of the nation’s states have passed AARP-backed laws that protect consumers from unfair real estate deals, in which brokers exchange a small upfront cash payment for the future right to sell a person’s house. .

Also known as homeowner benefits agreements, these contracts have been marketed to cash-strapped homeowners – especially older people – and can be binding for up to 40 years. This means that if the homeowner or his or her heirs later sell the property using another listing agent, they could be forced to pay a penalty much higher than the initial cash payment, often as much as 3 percent of the price of the home.

These agreements are being challenged by attorneys general in 11 states.

On May 8, Connecticut became the latest state to pass a law banning such real estate transactions, following Hawaii and Oklahoma, which approved similar laws late last month. The Connecticut bill is now in the hands of Governor Ned Lamont, who is expected to sign it.

Landlords signing these agreements complained that they were unaware that the contracts would be recorded in their real estate records and could complicate future property transactions and sales. Contracts also pass to relatives who inherit the property after the owner’s death, meaning that under this type of agreement, those relatives would also be obligated to use a specific listing agent for a sale under penalty financial sanctions.

In Connecticut, about 400 such transactions were recorded in land records, state Attorney General William Tong said in written testimony in support of the bill in the constitutional state. Often, he said, owners didn’t have time to review the documents or didn’t understand the terms before signing. Many homeowners only learned of the terms of their agreement as they prepared to close on the sale or refinance of their home, “requiring them to pay exorbitant amounts of money to have it removed.”

A victory for the owners

A total of 26 states have now passed legislation banning homeowner benefit agreements, including Indiana, West Virginia, Arizona, Kentucky, Oregon and Nebraska this year. Utah, Maryland, North Dakota, Idaho, Georgia, Tennessee, Colorado, Alabama, Florida, Iowa, Maine, Nevada, Ohio, Washington, North Carolina and California passed similar laws in 2023.

Although details vary by state, laws generally limit the duration of these agreements and prevent them from being recorded in property records or enforced through liens. Some laws allow prior agreements to be removed from property records and allow affected owners to recover damages.

AARP worked with the American Land Title Association (ALTA) to create model legislation for states to follow, with the goal of passing law in all 50 states.

“Any time a state legislator makes it clear that these types of unfair agreements are not welcome in their state, it’s absolutely a victory for consumer protection and it’s a victory for property rights people,” said Elizabeth Blosser, ALTA vice president for government affairs. in an interview with AARP.

She said members of the organization, which facilitates real estate closings across the country, have encountered countless consumers who have suffered financial losses because of these agreements, whether it is a penalty for using another real estate agent or legal fees for fighting to overturn a deal. of their act.

“There should be no unreasonable restrictions on a person’s ability to transfer or finance their property,” Blosser said.

Samar Jha, AARP’s government affairs director who focuses on housing issues, noted that across the country, these laws passed with overwhelming bipartisan support and minimal opposition.

“This is clearly an issue that concerns all landlords,” he said.

Protect financial assets

AARP has long worked to ensure seniors have the financial stability needed to age in their own homes and communities.

For many seniors, “their home is their most important financial asset and the foundation of their financial stability,” said Joy McGill, AARP advocacy director in Oklahoma, where Gov. Kevin Stitt signed the law on April 29.

Jha said AARP hopes to get the law across the finish line in a handful of other states before the end of the year. Even if the companies peddling these deals aren’t currently operating in a particular state, Jha added, “that doesn’t mean it can’t happen.” It is still a practice that should be banned.

To hear from a landlord who claims they were misled into signing one of these agreements, listen to our podcast, The perfect scam.

Natalie Missakian covers federal and state politics and writes AARP’s Fighting for You Every Day blog. She previously worked as a journalist for the New Haven Register and Ohio daily newspapers. She has also written for AARP NewsletterTHE Hartford Business Journal and other publications.

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