Ohio House Bill 103 Threatens to Stifle Land Installment Contracts
June 3, 2019 | Gary L. Froelich and Mitchell R. Carnes
Imagine for a moment that you are a young Ohioan determined to purchase your first home. You are struggling to come up with the down payment or your credit score limits your ability to obtain a sufficient loan. For many of Ohioans this hypothetical could be their reality. Land installment contracts have played an important role for individuals who are unable to purchase a home through traditional means but want to end the cycle of paying rent and hope to build equity. Residential land installment contracts do not, however, come without consequence. The repercussions for defaulting under the agreement can often be harsh, including forfeiture and cancellation of the contract. House Bill 103 aims to keep installment contracts as a viable option under Ohio law while protecting buyers through a variety of consumer protection measures. While many contend House Bill 103 is much needed for buyers, others claim that it would effectively stifle sellers’ willingness to enter into an installment contract therefore having the opposite result for buyers.
Ohio House Bill 103, introduced by Representatives Michele Lepore-Hagan and Don Manning proposes to overhaul the residential land installment contract law in Ohio, currently codified in Ohio Revised Code Section 5313. The modifications would resemble other recent consumer protection acts passed by the Ohio Legislature. The buyer protections that House Bill 103 seeks to add include: shifting the default responsibility for property taxes and assessments from the buyer to the seller; prohibiting a seller from holding a mortgage on the property at the time of execution of the installment contract, or placing a mortgage on the property during the course of the contract; requiring the seller to satisfy all liens on the property prior to executing a contract with a buyer; requiring the seller to obtain a certificate confirming that the property complies with the applicable building codes before execution of the installment contract; requiring the seller make all repairs to keep the property in a fit and habitable condition during the course of the installment contract; requiring the sellers to obtain an independent appraisal of the property and to provide a copy of the appraisal report to the buyer prior to executing the installment contract; and requiring the land installment contract to contain a provision specifying that homeowners insurance must be obtained for the property and that the seller must be responsible for the premiums. Furthermore, the Bill requires that all installment contracts be considered loans secured by an interest in real property, therefore triggering the application of the federal Truth in Lending Act. Finally, the Bill also provides a wide variety of buyer’s remedies should the sellers breach any of the aforementioned requirements including a provision that states that money damages must include at least one of the following: (1) two percent of the principal amount of the contract debt; (2) equity in the property; or (3) a return of all money paid by the buyer up to the date of the breach. Notwithstanding the foregoing, the parties to a land installment contract can agree to modify terms of the proposed Bill if both the buyer and seller are represented by an Ohio licensed attorney.
Proponents of the bill argue that these protections are beneficial as land contracts are inherently unfair and deceptive in that they shift nearly all the burdens and obligations of homeownership to the buyer with none of the attendant rights or protections. Proponents also contend that independent appraisals are rarely performed and the contracts often require the buyers to pay grossly inflated purchase prices, while preexisting liens are rarely disclosed.[ 1 ] On the other hand, some individuals argue that the protections proposed in the Bill go too far, and will severely limit buyers’ ability to obtain a land installment contract.
Buyers and sellers alike should keep a watchful eye on House Bill 103. As of the date of the article, the last activity for the Bill occurred on March 5, 2019, when it was referred to committee. Ultimately should Bill 103 pass, it has the potential to send shockwaves through the Ohio real estate market and could shift the way the real estate investors approach the purchase and sale of residential real property in Ohio.
[ 1 ] Sarah Mancini and Margot Saunders, Land Installment Contracts: The Newest Wave of Predatory Home Lending Threatening Communities of Color, 2017 https://www.bostonfed.org/publications/communities-and-banking/2017/spring/land-installment-contracts-newest-wave-of-predatory-home-lending-threatening-communities-of-color.aspx