The National Association of Responsible Home Rebuilders and Investors NARHRI expects to be extremely busy advocating on behalf of residential real estate investors throughout the country in 2008. NARHRI lobbies in 12 states and tracks legislation impacting residential real estate investors in all 50 states. NARHRI ultimately plans to represent investors directly in every state and implement its Community Appreciation and Rehabilitation Services (CARES) program and state attorney general outreach program.
Based upon our conversations with lawmakers and enforcement officials throughout the country, NARHRI believes that the bulk of legislation impacting investors will fall into two categories: regulation/elimination of leaseback to owner transactions and legislation limiting the activity of foreclosure consultants.
In addition, NARHRI believes additional legislation may result from the foreclosure and predatory lending state task forces that have formed throughout much of the country. Finally, NARHRI is preparing for some unique battles, such as legislation in North Carolina intended to ban all so-called subject to transactions.
Massachusetts has banned “leaseback to owner” transactions, with few exemptions|A home in Massachusetts|]For the most part, the legislative atmosphere surrounding the leaseback to owner transactions is settled; it is simply a matter of time before legislation restricting that specific transaction moves through the country. Roughly a dozen states have already moved to reduce the use of this transaction by requiring an investor to guarantee the homeowner at least 82 percent of fair market value when the option to buy is due.
Massachusetts has banned the transaction outright, providing only some unique exemptions. Based upon intelligence gathered by NARHRI operatives throughout the country, more and more state attorneys general are examining investors who conduct these transactions. The Federal Trade Commission has also weighed in opposing this transaction.
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As a matter of policy, NARHRI does not believe that every leaseback to owner transaction is inherently fraudulent; however, we are not opposing the legislation. No group in the country is as qualified as NARHRI to speak on the legislative debate surrounding this transaction because we were on the ground first when the bills were introduced around the country.
Enforcement officials are extremely concerned about homeowners facing foreclosure and the confusion that arises when the homeowner is permitted to stay in their home and rent it from an investor. They argue that most homeowners do not understand that they no longer own their homes. Furthermore, there is concern about whether a homeowner who has failed to make mortgage payments can make lease payments. NARHRI has also noticed that investors engaged in this transaction are becoming targets of civil lawsuits under the charge that the leaseback was in fact a loan.
The foreclosure consultant legislation is designed to target scam artists who take an upfront fee to help a homeowner work out a deal with their lender to keep their home, but instead take the money up front and do nothing. This is a common act of fraud and NARHRI believes that lawmakers should address the issue.
However, NARHRI does have some concerns about this model legislation. One issue is that once an investor has approached a homeowner in distress as a foreclosure consultant, the investor cannot then buy the house if the homeowner cannot work out a deal with the lender. While the legislation bans all upfront payments to foreclosure consultants, one compromise here may be that the monies paid for foreclosure consulting can be kept in escrow, and if the homeowner ultimately wishes to sell their home to the investor, the escrow money is returned to the homeowner.
Lawmakers in North Carolina have attempted to ban all “subject to” transactions| alt=|The state capital of North Carolina in Raleigh|]Investors and investor clubs around the country should be aware that this legislation will be introduced in their state at some point in the future if it hasn’t been already. NARHRI has worked on this legislation in the states, most notably in Colorado, and secured concrete changes to the bill that make it much more investor friendly while still preserving important consumer protections.
With a handful of exceptions, such as Arizona and Ohio, the vast majority of state clubs cannot afford to retain a lobbyist every year to protect the interests of their members; NARHRI is filling that void. Another one of the ways NARHRI supports investors is working with the growing number of state task forces aimed at protecting foreclosure victims and curbing predatory lending. Our goal, as always, is to protect investors and home rehabbers from onerous proposals emerging from the task forces.
The issue that has garnered the most national attention in the past few years has been our work in North Carolina, where lawmakers have made several attempts to pass legislation that would ban all so-called subject to transactions. NARHRI has consistently and successfully argued that North Carolina should address the issue of foreclosure rescue scams by focusing on the key transactions under debate in other states rather than focus on an entirely different group of transactions.
NARHRI will continue to argue against this measure in 2008 as we have done for the past three years. While we are profoundly disappointed that a representative from the investor clubs in the state has spoken out in support of leaseback to owner transactions–an act of political suicide in our estimation–and wants to try to work on a compromise of the subject to legislation, NARHRI will continue its approach to fight the subject to legislation entirely. If the approach taken by the local leadership in North Carolina is utilized and the bill is passed, every other state in the country will need to fight this effort as well.