BILL NUMBER: S908

SPONSOR: YOUNG
 
TITLE OF BILL:

An act to amend the real property law, in relation to establishing
requirements for land contracts

 
PURPOSE:

To afford notice to and additional protections for homeowners who
purchase their residence pursuant to a land contract.

 
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 90 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 the 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 clos-
ing. 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 foreclo-
sure actions against the seller, or the seller actually encumbering 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 , regulation of escrow account-
ing, limits on late fees and requiring foreclosure in the event of
default. This gap in statutory protection has serious practical conse-
quences 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 substantial 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 financial 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 inequities.

 
LEGISLATIVE HISTORY:

2018: S.551 Referred to Judiciary
2017: S.551 Passed Senate
2016: S.3921 Recommitted to Rules
2015: S.3921 Passed Senate
2013, 2014: S.3504 Referred to Judiciary
2012: S.7011 Referred to Judiciary

 
FISCAL IMPLICATIONS:

None.

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