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With the recent mortgage crisis and the economic troubles that followed, the governments are looking for someone to blame. Real estate investors in North Carolina are facing yet another piece of legislation that will diminish their freedoms – hurting not only them, but also the many people that they help.
Termed the “Homeowner and Homebuyer Protection Act”, NC Senate Bill 1015, this bill takes several bold steps to eliminate some individual freedoms that exist in the real estate market today. In addition, it would give a huge competitive advantage to the same mortgage companies and banks that got us into the economic crisis in the first place. Last year, a compromise had been reached by all industry stakeholders on a bill that was designed to regulate foreclosure rescue purchases, lease purchase options and contracts for deed. Unfortunately, the version of that bill was reintroduced into the North Carolina House and is completely different than the one that was agreed upon. The huge lobbying power of the major banks and mortgage companies are once again swinging the laws into their favor.
The Metrolina Real Estate Investors Association (Metrolina REIA) released some highlights from the proposed bill last week including:
-Investors will be unable to purchase pre-foreclosure property for less than 82% of the fair market value and allow the seller to lease-back, buy-back, retain and option or in any way retain an interest. This will prevent many of the foreclosure-rescues that occur today.
-Investors will not be able to sell residential land or property using a contract for deed or lease with an option to purchase unless the investor owns the property outright and the property that they are selling is the only property on that mortgage. This will eliminate most investor’s ability to sell property through contracts for deed or through a lease purchase option. It will also eliminate an individual’s ability to purchase several acres of land, keeping one for themselves, and selling the others through a contract for deed or lease/option. Owners would also be unable to purchase a large tract of land for a subdivision, and sell off any parcels of land through either a contract for deed or lease/option without paying off the mortgage first.
-If you sell a property through a contract for deed, you must escrow the down payment for the life of the contract. This is one of the oddest provisions of the law. If you foreclose on the property five years down the road, you do not have to return the down payment, so why do you have to hold it in escrow? It is understandable that the down payment would have to be held until the deeds are properly recorded by the closing attorney; however, it makes no sense that it must be held for the life of the contract. This provision only serves to eliminate a big incentive that an investor might have to sell the property through a contract for deed.
The provisions of Homeowner and Homebuyer Protection Act are clearly designed to benefit large banks and mortgage companies, with little to no additional “protection” given to homebuyers. In fact, it will eliminate the possiblity that many people will actually become homeowners.
Chad Bordeaux is a Charlotte CPA who works with small business owners and individuals on a monthly basis to provide them with proactive guidance and advice on how to grow their business, minimize their tax liabilities and grow their bottom line. Contact Chad through his firm’s website today so that they can help put your small business on track to meet its goals. Chad is also a primary contributor to the Beancounter Ramblings blog which focuses on issues important to small businesses.
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