By JUSTIN WIER
Land contracts are one of the ways that out-of-state investors profit from purchasing – and neglecting – Youngstown homes, local officials say.
Investors offer the contracts to prospective buyers who don’t qualify for home-mortgage loans. Those buyers then assume responsibility for maintenance and staying in compliance with city housing codes.
Ian Beniston, executive director of Youngstown Neighborhood Development Corp., said it is a frequent practice in the city.
“It’s basically a scheme, particularly in distressed neighborhoods,” Beniston said. “You get individuals [who] generally aren’t likely to get a bank loan, so they think this is their only opportunity [to become a homeowner] and then you prey upon them.”
In a typical scenario, an investor will purchase a home for $3,000, and turn around and offer it to a buyer for $3,000 down and $200 a month over 10 years. The party issuing the land contract still holds the deed, so if the buyer under the contract defaults on a payment, the issuer keeps the money collected and the home.
“People make the down payment and then go along two, three, six years into it, then … something happens,” Beniston said. “They can’t pay.”
Investors typically claim the occupant is responsible for repairs, so when occupants are hit with code violations, they refuse to address them even though this violates state law and city ordinances.
“That might be in the contract [repair responsibility], but … the owner is the owner, and in the state of Ohio, the owner is responsible,” Beniston said.
In addition, owners often neglect to file land contracts with the county recorder, which makes them invalid.
If the tenant defaults, and the owner evicts them, the investor walks away often having doubled, tripled or quadrupled their investment without making any improvements to the property.
YNDC has identified a few LLCs that frequently issue land contracts, including one company based in Columbia, S.C., and another based in Dallas. The first owns 18 properties in Youngstown and 25 in Mahoning County. The second owns 15 homes in the city and 21 in Mahoning County.
A former home on Lemoyne Avenue in the Brownlee Woods neighborhood on the city’s South Side was used by one of the companies to seek prospective home buyers for land contracts. YNDC recently took over the property, placed it into receivership and demolished it.
“They had it marketed on a sign with spray paint in the front yard,” said Jack Daugherty, neighborhood stabilization director for YNDC.
Nancy Martin, president of the Brownlee Woods Neighborhood Association, said the house had been a nuisance for several years. The house was full of mold, and neighbors kept waiting for the demolition to take place.
During the court case that allowed YNDC to take control of the property, Daugherty said a tenant appeared and claimed to own a land contract on the property despite neighbors reporting it empty for several years. The city determined it was too late for the contract to be filed.
A GROWING PROBLEM
Alison Goebel, deputy director of the Greater Ohio Policy Center, said her organization is just beginning to comprehend the magnitude of the problem in Ohio.
“I don’t think this was as big of a problem five years ago as it is today,” Goebel said.
“You’ve seen some bigger companies grow and get into it,” Ian Beniston said. “[They’re] buying up literally thousands of houses across the country.”
He said YNDC has seen it in their neighborhood assessments when they are producing action plans. Problem properties are frequently linked to land contracts.
Abigail Beniston, code enforcement and blight remediation superintendent for the city, said things may be improving slightly in Youngstown.
“I think it’s leveled off a little bit, but we still receive those calls, and we still deal with people that are purchasing on land contract daily,” she said.
Land contracts also create problems when attempting to demolish houses, she said. Demolition requires the city to deal with the deeded owner, who is not the tenant. Tenants often don’t find out about proceedings until the notice of demolition is issued.
“It becomes a sticky situation when you have to explain to [the tenant], ‘I’m sorry but the piece of paper you’re showing me is not valid,’” Beniston said. “That doesn’t go over well with them.”
Beniston said it’s difficult and time consuming to find out if a tenant holds a land contract, and there’s nothing on the books to stop the practice. When the contract has not been recorded, a civil suit is the tenant’s only recourse.
In the case of the Lemoyne house, the tenant found out about the court case after making the down payment. The law requires the owner to notify individuals about court cases, but the tenant is responsible for pursuing litigation.
These are generally people of limited means, Beniston said.
“They’re likely not going to hire an attorney to sue the company out of South Carolina,” Daugherty added. “It’s a tough situation.”