Bad credit or no credit? You can’t afford not to seek advice in real estate transactions
In 2013, a Houston investment firm bought the small foreclosure house in Des Moines for a song: around $ 16,850.
Then Morningside Funding offered the home on an option to buy lease to a new owner for $ 450 per month, promising to use $ 133 of each payment toward the eventual purchase of the home.
The buyer was asked to pay $ 1,500 up front at the start of the lease. In 30 years, provided there is no default, title to the house would pass to the buyer.
Ask your friends what are the biggest mistakes people make when buying a home, like I did on Facebook and Twitter, and they’ll tell you a lot to underestimate the costs of home buying. home ownership, failing to get an inspection, or ignoring already apparent red flags.
But often the biggest and costliest issues aren’t on a buyer’s radar. And buyers without credit or with poor credit who try to bypass the collateral built into working with real estate agents and traditional lenders can often be the most vulnerable.
The buyer of the previously mentioned purchase, for example, was unaware that Morningside had a habit of not obtaining rental certificates from the city on the properties he rented out, ensuring that the houses were safe and compliant. to the code.
She was also unaware that the contract drafted by Morningside contained illegal provisions in Iowa, including a late fee of $ 100 in excess of the amount allowed by Iowa law.
With the housing market as hot as it has been, it’s tempting to move quickly to a real estate transaction to get ahead of investors or others who gobble up affordable homes.
But even in sleepy Iowa, people are ready to take advantage of your ignorance and what is likely to be your biggest investment.
I have seen this happen time and time again when the Des Moines metro was riddled with problems with houses being sold on contract.
The source of one of my oldest deep dives for the Registry, which started in 2001 and continued until 2006, was with a company called Wolford Group, which took thousands of dollars from buyers at low income and offered high risk deals. transactions that did not disclose hidden costs, unpaid property taxes and outstanding liens.
Private real estate contracts allow buyers to make payments directly to sellers. They can be good for people who can’t get conventional loans, but the seller can evict the buyer and repossess the house if the terms of the contract are not met.
Contracts establish the purchase price, the interest rate, and the number and amount of payments.
Wolford Group founder Rod Wolford Sr. devised a plan to buy dozens of homes from cash-strapped contract sellers, and quickly sell them on contract to credit-damaged buyers. The company often found tenants willing to pay far more than the existing owners’ monthly mortgage and high interest, until a lump sum payment was suddenly due for the balance.
Often times, the buyer couldn’t afford to stay in the house, didn’t know the costs of repairing the house, or couldn’t qualify for a loan to pay for the ball.
In 2001, following a Registry investigation and warnings from state officials, Wolford Sr. agreed to stop soliciting investors for his company until it had undergone a thorough audit, paid “tens of thousands” of overdue property taxes and improved the company’s disclosure to clients. .
State lawmakers and Des Moines City Council have passed laws requiring better disclosure and inspections for homes sold on contract.
In 2006, the Wolford Group went bankrupt and Wolford Sr. was sentenced to 75 years in prison.
But Wolford Sr. was just a bad actor. In 2001, the registry also covered John Davis, a notorious slumlord who had been a money launderer for South American cocaine traffickers and moved to Des Moines through the federal witness protection program.
Davis, among other things, was known to sell doomed homes to the unsuspecting poor. He also used phantom down payments to secure mortgages for properties that far exceeded the value of the home.
It took years for a judge to shut down the sale, lease, lease or investment in Davis real estate after being found responsible for consumer fraud.
In Iowa, Morningside Funding continues to buy and sell properties, as it does in other parts of the country. Company officials have said in press reports that they are targeting people who cannot obtain conventional financing. They could not be reached for comment.
Alex Kornya, deputy director of litigation at Iowa Legal Aid, said he won his case against Morningside in the 2013 lawsuit. Legal Aid was able to recover the woman’s deposit and a cash payment, did he declare.
But Kornya said issues with the company persist and another client recently negotiated with Morningside in an equally legally questionable real estate deal in Ruthven.
“They have been a problem not only for home buyers, but for cities,” he said. “They don’t make any effort to fix the houses.
The problem with option-to-purchase leases is that they often require large down payments, and sellers try to bypass Iowa’s Landlord Tenant Act and local housing codes.
Ben Bellus, a lawyer in the attorney general’s office, said some sellers had also charged tenants “the option” to purchase the house at the end of the tenancy term.
In many cases, courts have ruled that homes are still rented out and owners still have to maintain units as well as reimburse excessive fees, he said.
Thanks to changes to the law during Wolford’s day, those who sell houses on contract are subject to more disclosure requirements.
Des Moines now requires pre-sale inspections on real estate contracts. And since 2002, the Iowa code has given contract buyers the right to sue for damages or terminate a contract if the seller does not comply with disclosure requirements.
But the buyer only has one year from the date of the contract to act.
Pam Carmichael, executive director of Home Inc., a non-profit organization in Des Moines that offers advice to prospective home buyers, said the city of Des Moines is trying to resolve other issues related to renting with option. buying and homes that people try. for sale that do not respect the housing code.
“People have tried to pretend that if you are renting to buy, you don’t need to have a rental certificate. It’s ridiculous,” she said. “If you’re renting, you’ve got to have one, period.”
Carmichael said the city was drafting an ordinance to deal with these issues.
People have to do their due diligence if they want to buy a house on contract. This means a title search so that it is clear who the actual owner of the house is, an inspection from a reputable company so you know what you are getting into, and a legal review of the land contract before it is signed.
Kornya would be the first to tell you that you’ll save both headaches and heartaches by doing so.
“I would love if 90 to 95% of people were not already in crisis when they come to see us,” he said.
Lee Rood’s Reader’s Watchdog column helps Iowa residents get answers and accounts from officials, the justice system,corporate and non-profit. Contact her [email protected], 515-284-8549 on Twitter @leerood or on Facebook.com/readerswatchdog.
If you are looking for a property on Craigslist, you should know that scammers have been known to repost legitimate agent listings to trick potential buyers to wire deposits or get information about identity theft.
If a salesperson doesn’t meet you in person, that’s a sign of a scam. (You should be able to verify the true owner of a property through the county appraiser’s office.)
Ben Bellus, a lawyer in the attorney general’s office, advised that you should first budget for property costs before purchasing, including property taxes, insurance, immediate repairs, and maintenance.
The best defense is to use trustworthy professionals such as a good real estate lawyer, an experienced loan officer in a credit union or bank, an experienced home inspector; and if possible, a real estate agent who is only your agent in the transaction.
If you cannot afford to use these professionals, you should always read all written sales statements required under Chapters 558 and 558A of the Iowa Code and inspect the home in daylight.
Move away if the salesperson does not allow you to inspect everywhere during the day or to answer your questions.
Like home improvement contractors, some inspectors have a lot of skills and some just walk around the house. It is a good idea to hire an inspector who is a full or regular member in good standing of a qualifying professional association for home inspectors.
Ask for a one-year warranty that includes more than the HVAC, which is the norm.
Look for signs of water damage, animal droppings, mold, or insect infestation.
Talk to the neighbors!