Real Estate Contract Project

Overview

Predatory lenders who abuse real estate contracts make New Mexico communities more impoverished and less stable. Unlike with a traditional mortgage, the purchaser under a REC does not obtain title until the property is fully paid for. Low-income buyers turn to these contracts because they allow individuals with little or no down payment cash and poor credit a way to purchase property. Sellers like that they can use RECs to work with buyers directly, without incurring substantial closing costs. While real estate contracts offer a simple way to buy and sell land, New Mexico law does not currently apply consumer protections or basic transparency requirements to REC buyers and sellers. As a result, these contracts are often used by predatory lenders to take advantage of low-income buyers.

The Center is seeking to bring basic consumer protections to real estate contracts. Our goal is to ensure that buyers and sellers can continue to use real estate contracts safely and honestly, while also ensuring that unscrupulous sellers will not be permitted to mistreat low-income New Mexicans or unfairly take their homes.

How are Real Estate Contracts Abused?

Predatory lenders who abuse real estate contracts cause harm that results in New Mexican communities that are more impoverished and less stable. Buyers can lose their property and investment for missing just one payment, even after paying for many years. Sellers can take back the property – and even the house a person has built on it – without going to court or paying the buyer anything. Some people sell land when they have no clear title or they still owe money on it, so even a buyer who makes every payment can’t get title. Buyers and sellers often do not use title insurance or escrow services, so there are no third parties that could ensure the legitimacy of the transaction. Lawsuits to enforce these agreements are rare because it is so difficult for low-income buyers to find or afford a lawyer.

In rural areas, predatory lenders have used real estate contracts to develop illegal subdivisions. Using RECs, they sell undeveloped and unplatted land, while making empty promises about roads and utilities that are “on their way,” but never arrive. Such communities develop with no legal roads and no electric, gas, sewer or water service. Residents can’t get permits to install septic tanks or wells and roads and utilities can’t be brought in because there are no proper easements. Children are forced to walk miles to reach the nearest school bus stop because school buses are prohibited from driving on undedicated roads. Emergency service vehicles cannot respond quickly to 911 calls because homes in these communities do not have addresses available on any maps. Government agencies that try to resolve these issues find it difficult to determine the legitimacy of claims and interests involved since the transactions were never legally recorded.

At present, New Mexico lags behind the other Mexican border states, which provide consumer protections and transparency requirements for those who use RECs. New Mexicans need legislation that offers protection to buyers while preserving the ability of all New Mexicans to use these instruments legitimately.

How Can We Make Real Estate Contracts Fair?

Real estate contracts often provide the only path to home ownership for low-income buyers. No one needs a predatory loan.  Regulating real estate installment contracts would prevent predatory sellers from taking advantage of low-income buyers, while still preserving this important opportunity for low-income New Mexicans. A fair, effective law would (1) require full, written disclosure of facts, terms, rights and obligations, all in the language in which the negotiations took place; (2) ensure that the property and its sale are properly recorded; (3) provide for more fairness in the event that a buyer defaults after many years of payments; and (4) provide for penalties and enforcement in the case of violations.

Resources