COVID-19 relief efforts don’t do much to help land contract homeowners

Thousands of metro Detroiters who have used nontraditional contracts to become homeowners have been largely boxed out of financial relief during the COVID-19 pandemic, according to a review of federal programs and interviews with housing experts and advocates.

These land contract homeowners do not ​qualify for a piece of the $622 million in federal aid expected for renters in Michigan this year. Federal rules that allow mortgage holders to delay their payments during the pandemic don’t typically apply to land contract holders, housing advocates say. And legal experts say the current national moratorium on evictions doesn’t apply to them.

The lack of help exacerbates what can be an already tenuous situation for typically low-income and first-time homebuyers, who critics say are often misled into “predatory” land contracts. Sellers can charge buyers up to 11% interest by state law on homes that in some Detroit neighborhoods are bought without hot water heaters or furnaces.

When a buyer purchases a property using a land contract, the seller acts as the bank and collects installment payments over a period of time. The buyer doesn’t become the full owner until the final payment. They are less regulated and have fewer legal protections than traditional mortgages, experts say.

The risks are substantial. Miss a few payments and an owner can lose all their equity under terms of many agreements.

That’s what Detroiter Colandra Boyd-Hopson, 50, fears.

Colandra Hobson-Boyd is buying her home through a land contract, but due to the ongoing pandemic and losing her husband due to COVID-19 last year, she risks eviction. She cares for her sister and elderly mother who both have cerebral palsy. Her daughter and three year-old grandson also live with her. Hobson-Boyd is receiving help from a nonprofit that will cover whatever payments she's unable to make on the home.

Boyd-Hopson’s husband, a 64-year-old retired auto parts salesman, died last spring after contracting COVID-19. Her family, including her mother and sister who have cerebral palsy, relied primarily on her husband’s Social Security disability payments. They recently fell behind more than $3,200 on house payments.

“The impending situation is that we are going to be homeless,” said Boyd-Hopson, who has paid off about half of her $36,000 land contact on her west-side brick bungalow. “I am going to have to put my mom in a nursing home. We don’t have a lot of family up here. There are not many places we can go.”

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Federal lawmakers are considering a Homeowner Assistance Fund that could help land contract buyers as well as traditional mortgage holders cover delinquent payments.

But in the meantime, land contract buyers only have access to limited aid.

“People that are in land contracts are often the most vulnerable would-be homeowners,” said Sarah Mancini, a staff attorney with the Boston-based National Consumer Law Center, which is suing a land contract seller on behalf of Michigan residents. “They need help as much or more than anyone else.”

Why land contracts persist

It’s tough to pin down how prevalent land contract agreements are. In Michigan, they aren’t required to be filed publicly. Researchers have found they are most common in struggling urban housing markets — particularly in the Midwest and Southeast.

Historically, Black homeowners have been targeted by costly land contracts. In the 1950s and 1960s, land contracts were a popular way for minority groups shut out of traditional mortgages to purchase homes.

In Detroit, experts say land contracts proliferated when investors bought up a flood of cheap, tax-foreclosed homes after the housing crash in 2008. Traditional banks have offered few mortgages for the city’s prospective homeowners, forcing buyers to seek alternatives. Banks issued only 244 mortgages in the city in 2012, though that increased to 1,535 mortgages last year.

Researchers found about 35,000 land contracts in Michigan’s Wayne, Oakland and Macomb counties between 2005 and 2016, according to a report published by the Joint Center for Housing Studies of Harvard University.

Last year, in Wayne County, there were 1,770 land contracts filed, according to a search of the Register of Deeds. In Oakland, there were 513 land contracts recorded in 2020 and 436 in Macomb, according to county officials. But Marilyn Mullane, executive director of Michigan Legal Services, said those numbers are likely a fraction of what exists.

For some like 36-year-old Alex Johnson, it was his only option because of past credit problems. He said he’s about eight payments away from paying off a $21,000 land contract and owning a 1,800 square-foot home on Detroit’s east side outright.

“To just have a chunk of property…is really special to me,” Johnson said.

But critics say many sellers mislead buyers, who think they are on path to own a home, but instead enter murky agreements sometimes called “lease to land contract.” The contracts start out as a traditional rental with the option to buy later.

Legal aid lawyers argue those agreements are often disguised to avoid federal lending laws, which require disclosures of the interest and principal to be paid.

Critics say that sellers can treat buyers differently depending on the circumstances, creating confusion.

When sellers want to skirt city rental regulations, such as lead paint removal, they treat the contracts as a traditional home sale where the buyer is responsible for the physical upkeep and property taxes, said Wayne State University Law School Prof. John Mogk.

But when the sellers want to remove a delinquent buyer, they call it a “lease to a land contract” and treat the seller as a renter, who has fewer protections in court, Mogksaid.

There are some advantages for land contract owners over renters.

By law, renters have 10 days to pay a nonpayment of rent judgment and stay in the home. But land contract buyers have at least 90 days to pay their debt after a judge rules for the seller. (Mortgage holders usually have at least six months).

Many protections out of reach

This week, Boyd-Hopson, whose seller took her to court over the debt, received financial help from the United Community Housing Coalition. But she worries she could wind up in court again soon if she is late on future payments.

Pandemic-related safety nets for renters and mortgage holders in most cases are out of reach for land contract owners like Boyd-Hopson.

The back wall of the home Colandra Hobson-Boyd is buying through a land contract on Sunday, Feb 7. 2021, in Detroit. She claims that the home had wall damage that let drafts in. Due to the ongoing pandemic and losing her husband due to COVID-19 last year, she risks eviction. She cares for her sister and elderly mother who both have cerebral palsy. Her daughter and three year-old grandson also live with her. Hobson-Boyd is receiving help from a nonprofit that will cover whatever payments she's unable to make on the home.

They weren’t eligible to tap the state’s $50 million Eviction Diversion Program, which ran through December, because the federal assistance was limited to rentals, said Katie Bach, spokesperson for the Michigan State Housing Development Authority.

Land contract owners don’t qualify for a new emergency rent and utilities program MSHDA plans to launch, funded by the latest federal stimulus package, she said.

And land contract buyers aren’t eligible for the kind of pause in payments now available to certain mortgage holders, according to MSHDA. The federal Centers for Disease Control and Prevention’s current moratorium on many evictions protects only renters, lawyers said.

“They really fall into a gap that exists right now,” Mancini, the attorney for the National Consumer Law Center.

There is some funding available at the state and local level, but it’s limited.

The Michigan Department of Health and Human Services offers up to $2,000 for households in a “crisis” — like a land-contract forfeiture. If a person receives the full $2,000 payment, they are no longer eligible in the future.

Wayne Metropolitan Community Action Agency, a nonprofit that helps low-and moderate-income residents with financial needs, offers up to $1,500 to help land contract homeowners pay off delinquent debt. To qualify, owners must have a recorded land contract, a past due balance, and meet certain income requirements. More than 1,600 people have applied and, of that, roughly 400 are land-contract owners.

Lawsuits allege deceptive behavior

In addition to a lack of pandemic aid, advocates worry about how land contracts put homeowners at greater risk for abuse.

When Marquita Walker, of Detroit, came across a two-bedroom ranch-style house in 2013, she thought she had finally found a home for her family after a fire devastated their last place.

Now, seven years later, her contract has recently ended and the seller — Vision Property Management — told her that she can either pay $10,500 in cash for the title to her home, get a mortgage for that amount, or she can continue paying rent, but no amount will go toward a principal balance.

Walker said she was under the impression that at the end of her contract, the home would be hers.

“I keep having to come up with more and more money. It’s never-ending. It’s almost like a money pit, ” she said.

Walker, 45, put down $1,600 in 2013, she’s paid more than $34,000 in rent and has spent thousands of dollars in repairs. When she moved in, the house didn’t have a furnace or bathroom.

“I just was so gullible,” she said.

Walker, a daycare provider, fell behind on payments three times because of the pandemic, but was able to make up for it with help from her church. Still, she worries about the future.

“I’m just trying to rebuild this business and I’m trying to keep a roof over my head, plus keep my car, just all of those things,” she said.

Vision Property Management, based in South Carolina, was sued in September by three Michigan homeowners in part for alleged violations of the Fair Housing Act. The homeowners’ lawyers said in court papers that Black buyers in metro Detroit have been targeted with “abusive and deceptive” land contracts. The company and its affiliates are estimated to own 1,000 homes in Wayne County and 10,000 nationwide, according to court filings.

Some buyers said the company led them to believe they were on seven-year contracts toward owning their home. But according to the lawsuit, the agreements were actually leases with an option to buy after seven years.

The agreements were internally tracked by the company as 20- to 30-year repayment terms, with interest rates of up to 10%, according to the lawsuit. Those rates are in contrast to most Michigan lenders, who are offering interest rates for residential mortgages at or below 2.875%, according to the government’s Consumer Financial Protection Bureau.

“This high interest rate and long repayment term—both undisclosed to homebuyers—meant that only a small portion of each monthly payment was credited toward the purchase price,” the lawsuit reads, which was filed by the NAACP Legal Defense and Educational Fund and the ACLU of Michigan.

A Michigan attorney representing one of the Vision affiliated companies didn’t return an email or call for comment. Vision has not responded to the federal lawsuit.

Another Detroit land contract seller facing legal challenges is Michael G. Kelly of Grosse Pointe Woods. He is a well-known Detroit investor who, along with companies he’s affiliated with, has bought hundreds of tax foreclosed homes in recent years.

He faces a lawsuit in federal court filed by homebuyers, accusing him of selling “predatory” land contracts that violate the federal Truth in Lending Act.

Kelly’s lawyer declined to comment on the pending litigation. But in the court filings, Kelly denies he’s violated the federal lending laws.

A written statement from the Detroit Property Exchange, a company Kelly is affiliated with that is also being sued, called it “mind-boggling that every pandemic aid program offered … thus far seems to exclude land contract purchasers.”

In one of the homeowners’ lawsuits, Kelly is accused of selling dilapidated homes with missing gas lines and flooded basements and other significant problems. Then Kelly’s companies file court cases to evict the buyers as renters when they are behind on payments, according to the lawsuit.

“People who lack access to traditional financing should not be preyed upon,” homeowners’ attorney Gerard Mantese said in an interview.

How to get help: If a resident is facing eviction and has a land contract in the city of Detroit, they can contact the Detroit Eviction Helpline at 866-313-2520. They should indicate during the intake that they have a land contract, according to the city. The resident will be placed on a list for screening and intake. For the Wayne Metropolitan Community Action Agency program, visit www.waynemetro.org and submit a “universal” application. For additional help, call 2-1-1.

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