Establishes requirements for purchase agreements for residential real property by which the buyer must maintain the property while full payment is outstanding

Summary of provisions

Section 1. Adds a new section 246-a to establish requirements for the use of land contracts in New York State. Specifically the bill defines a land contract as a written agreement which requires that the property buyer make installment payments to the seller which results in the transfer of the property at the end of the installment term. The defi- nition includes contracts with a deposit of $1000 or more for a term beyond 50 days in which the buyer is required to make any necessary repairs to the property. The bill requires that the land contract seller shall provide a written "Land contract Consumer Caution and Counseling Notice" by certified mail to the purchaser not less than 10 days before contract execution. This notice must include information notifying the consumer that they may lose the property if other individuals or enti- ties have a legal interest or claim to the property or if they fail to make payments or perform as mandated by the contract terms. The notice must also include information as to the existence of any mortgages or recorded liens, unpaid property taxes or assessments against the proper- ty. Additionally the bill mandates that every land contract contain specific terms including the requirement that the seller maintain escrow funds required under the contract in a separate account and provide the buyer with an annual accounting and proof of taxes paid. The buyer must also record the land contract within five days of execution or be subject to a right of recovery for payments made by th e purchaser. Land contracts are also prohibited from containing certain provisions such as the imposition of excessive late fees and an automatic waiver of judi- cial intervention or a waiver of equity in the event of buyer default.

Section 2. Provides for a 120 day effective date.

Justification

The distinct characteristic of a land contract is that the transfer of title to the property does not take place until all the payments on the property have been made. The buyer under a land contract does not receive the deed to the property until the end of the contract term. In contrast, in a traditional real property purchase, which is usually financed by a mortgage, the buyer gets a deed at the onset at the closing. A mortgage is then held by the seller, or the financing entity as a lien against the property. Because a land contract buyer does not receive a deed until the end of the contract term, the buyer's home and investment are at a greater risk. These risks include potential foreclosure actions against the seller, or the seller actually encumber- ing the property after the land contract is signed. This risk can extend through the life of a land contract which usually spans form 10-20

years. Land contracts are typically entered into by low-income buyers who have poor credit, or lack the funds for a down payment. Often the housing they are purchasing under a land contract is in poor condition and is in need of repairs. Land contract buyers currently have the worst of both worlds in terms of statutory protection. Land contract buyers lack the statutory protections provided to tenants, such as right to repairs, rent notices, and defined procedures in the event of default. Land contract buyers also lack the statutory protection of homeowners who are purchasing by mortgage, such as recording requirements, regu- lation of escrow accounting, limits on late fees and requiring foreclo- sure in the event of default. This gap in statutory Protection has seri- ous practical consequences for land contract buyers. Land contract buyers wishing to become homeowners will often scrape up, at great sacrifice, a down payment for the land contract and then invest substan- tial funds in repairing the property. Buyers then make payments month after month for years with the full expectation of receiving the deed to the property. Many problems often occur due to the lack of oversight of land contracts. These include the jeopardizing the investments made by the buyer due to the seller's failure to make his required mortgage payments resulting in foreclosure proceedings against the seller. Land contracts will often afford buyers little redress by containing clauses that impose excessive late fees or will allow the purchaser to enforce forfeiture terms in a summary proceeding. The seller can also sometimes fail to deliver the deed at the end of the contract term. Also, because land contracts are not typically recorded, buyers are unable to finan- cial assistance from agencies for desperately needed repairs. This bill will provide a number of minimum mandatory notice requirements for those wishing to enter a land contract and will as well provide a minimum number of statutory land contract terms to help address these inequi- ties.

Legislative history

2012: S.7011 Referred to Judiciary

Fiscal implications

None.

Effective date

This act shall take effect 120 days after becoming a law.