“Contract-for-deed” real estate transactions are subject to the protections associated with residential mortgage loans under the Truth in Lending Act, the Consumer Financial Protection Bureau said today in an advisory opinion.
In a contract-for-deed deal, a seller agrees to turn over a home’s deed only after the buyer completes a series of payments. In a statement, the bureau said that such deals “often have little oversight, and investment groups and other sellers can set a series of traps that leave buyers in unlivable homes, on the hook for tax liens and expensive repairs, and at risk of losing their down payments and homes.”
The CFPB said that home prices are often inflated under contract-for-deed deals because sellers are not competing against banks or other mainstream mortgage lenders, and the homes come without the benefit of inspections associated with mainstream mortgage financing. Under TILA, larger sellers, such as investment groups, must assess borrowers’ ability to repay loans, provide informative and accurate disclosures, and limit “balloon” payments that prevent buyers from even getting the full legal title of their homes, according to the bureau.
The CFPB also released a separate report concluding that contract-for-deed loans are disproportionally concentrated in low-income, Black, Hispanic, immigrant and some religious communities. The report also concluded that the deals “can harm housing markets by causing or perpetuating substandard housing stock, inflated home prices and less access to mainstream mortgage credit.”
