Proposal would create rules for land contracts

8/19/2007

At the recommendation of a mayoral task force, Toledo City Councilman Joe McNamara will announce legislation today to protect families from buying substandard houses on land contract.

Unlike mortgages, the seller in a land contract keeps the deed, an obstacle if the buyer needs to finance home repairs. The defunct Westhaven Group, once Lucas County's largest residential property owner, used land contracts to sell ramshackle houses to low-credit buyers.

The proposed ordinance would require all land contracts to be publicly recorded. It would further order the inspection of properties being sold on land contract so that buildings can be brought up to minimum levels of habitability. Violators could be fined up to $1,000 and face misdemeanor charges.

"This is a basic consumer-protection law that lets people know what they're getting into," Mr. McNamara said.

The proposal is a sign of public cooperation between Mayor Carty Finkbeiner and Mr. McNamara.

They recently feuded about the city budget and the size of council, but the land contract issue hints at their mutual desire to stop a cycle of blight fueled by what can be risky finance vehicle.

The legislation also drew sup-port from state Senate Minority Leader Teresa Fedor (D., Toledo), a long-time Westhaven critic who said the ordinance would "curtail some of the abuses that have gone on."

The Property Rights Coalition, a trade group composed of the Toledo Board of Realtors, Associated General Contractors, and Homebuilder's Association, opposes the ordinance.

Patty Camacho, a consultant for the Property Rights Coalition, said no statistics have been released about whether Toledo actually needs to regulate land contracts. She said more education programs are needed for home buyers, instead of regulations that could stunt the real-estate market.

"This will hurt a lot more innocent buyers than inconvenience an unscrupulous seller," Ms. Camacho said.

While owning a house is part of the American dream, land contracts commonly go to people who cannot obtain conventional mortgages, making their chance of defaulting much higher. Those defaults can infect an entire neighborhood, said Linda Furney, a consultant for the Greater Toledo Housing Coalition.

"In many cases what we're giving them is a ticket back to poverty," Ms. Furney said. "For the general public, the important thing is that we get control of these properties, make neighborhoods more habitable, and prevent the spread of this problem to other neighborhoods."

Land contracts are different from other forms of subprime lending, a market that has imploded nationally, causing foreclosure rates to jump 51 percent in Toledo during the first six months of this year, according to RealtyTrac, an online marketer of foreclosed properties.

Without the exchange of a deed, land contracts operate much like a lease with an option to buy, an arrangement that provides a roof but not necessarily long-term stability.

"One of the best ways to create wealth is home ownership, but you can't create wealth if people are living in a subpar home," said Terry Glazer, CEO of the United North Community Development Corporation. United North is an alliance of Lagrange Development Corp. and NorthRiver Development Corp.

For years Mr. Glazer attacked Westhaven for putting people in decaying houses without proper heating systems or adequate plumbing. A buyer's down payment on the land contract can wipe out any savings for fixing the house. And without a deed, buyers do not have the collateral for an additional loan, forcing them, in a best-case scenario, to charge repairs to a high-interest credit card.

"It gets predatory," Mr. Glazer said.

The Ohio Department of Commerce shut down Westhaven in December, 2005, for defrauding investors, because it failed to match investments with properties of equal value.

The real estate company is being liquidated by court-appointed receivers. John Ulmer, Westhaven's founder, has not faced any criminal charges, but federal prosecutors charged his son, Scot, in April with doctoring lead-paint disclosure forms.

The reasons for Westhaven's closure are separate from its land contract practices, which could be replicated by copycat firms without the ordinance.

"Westhaven has a lot of influence on what happened," said Bailey Stanberry, co-chairman of the Toledo Housing Task Force. "They were not recording land contracts, with the idea that they could flip that building to another family."

The mayor established the task force last August, said Mr. Stanberry, president of Stanberry Homes. In addition to land contracts, the task force has dealt with absentee landlords and the registration of vacant buildings.

As chairman of council's Community and Neighborhood Development Committee, Mr. McNamara will examine the legislation at a hearing Thursday.

Contact Joshua Boak at: jboak@theblade.com

or 419-724-6728.