Seller-financed deals are increasingly coming under scrutiny. The Consumer Financial Protection Bureau is investigating some larger investors using seller financing in real estate deals, accusing some investors of abusing the practice by evicting buyers for missing just a single payment or selling homes at the end of the agreements that are in complete disrepair.

Learn more: NAR’s Seller Financing Resource Page

Legislators in three Midwestern states—Ohio, Illinois, and Michigan—are targeting abuse of seller-financing deals with new legislation that aims to better protect buyers in these contracts.

In Ohio, lawmakers have introduced a bill that would require property owners to solve any housing code violations and pay outstanding fines before selling the homes to buyers in contract-for-deed transactions or in rent-to-own leases.

Earlier this year, Illinois enacted a law that strengthens disclosure requirements in seller-financed deals. For example, buyers will be given more time to come up with the money for a missed payment that would prevent them from being quickly evicted. The law takes effect in January 2018.

In Michigan, lawmakers are working on a bill that would address similar abuses with contracts for deeds, The New York Times reports. In Detroit, homes sold on contracts for deeds are outpacing the number of homes sold in the city with traditional mortgages.

Earlier this year, The New York Times highlighted in a series of investigative articles some dangers of contract-for-deed transactions. Reporters uncovered several national firms that were selling homes in seller-financed deals without fully disclosing that some properties had housing violations or that some of the properties had thousands of dollars in unpaid taxes and other fees. Some homes that were sold had even been slated for demolition.

Source: “States Acting to Protect Buyers of Seller-Financed Homes,” The New York Times (Oct. 3, 2017)