Wednesday, November 14, 2007

'Not business friendly' - post #4

Well, despite the pleas from realtors who truly know our market the best, Toledo City Council passed a government-mandated inspection of homes prior to a land-contract sale. (Blade article on the vote here.) And kudos to the five council members who voted no: Joe Birmingham (R-Dist. 6), Rob Ludeman (R-at large), George Sarantou (R-at large), Betty Shultz (R-at large) and Mark Sobczak (D-at large).

This means that anyone wanted to sell their home under a land-contract agreement must first apply to the Commissioner of Building Inspection for the Certificate of Property Code Compliance (CPCC) and include a copy of the inspection of the house conducted by an inspector "registered with the Commissioner of Building Inspection."

"A Certificate of Property Code Compliance Inspection shall include an inspection of the electrical, heating, and plumbing systems and building structure (e.g., roof, gutters, siding, etc.) to ensure that the residential property is in a safe, sanitary and habitable condition and meets the Property Maintenance Code (PMC) of the State of Ohio. Any Certificate of Property Code Compliance Inspection Report shall be on the form provided by the City of Toledo. Minimally, the Certificate of Property Code Compliance Inspection Report shall list individual violations and a rough estimate of the cost to cure each violation or deficiency, signed by a Registered Inspector. The Commissioner of Neighborhood Revitalization or the Commissioner of Building Inspection may, at his or her discretion, accept alternative inspection report forms. The Certificate of Property Code Compliance Inspection Report shall be completed and filed with the Commissioner of Neighborhood Revitalization or the Commissioner of Building Inspection within thirty (30) days of the date of application."

You've got 90-days (renewable once) to fix any defects found in the inspection report. Oh - and of course it's going to cost you $100 to actually become a 'registered inspector.' And, if you fail to follow this law, you can be fined $250 for the first violation, $500 for the second one and $1,000 for the third and subsequent fines - enforceable in civil court.

Non-compliance with other portions of this new law can be charged under the criminal code "of a misdemeanor third degree on the first offense, a misdemeanor of the second degree for a second subsequent offense or a misdemeanor of the first degree for a third subsequent offense."

All this, according to Keith Foster, vice president of the Greater Toledo Housing Coalition which sought the change, is to "protect the consumer."

And, the coalition will certainly work with any landlord who thinks the law is detrimental ... how magnanimous.

As many landlords and realtors have said in the past, laws already exist to protect such consumers. But the problem many housing advocates have is that they provide relief AFTER the fact, rather than preventing the consumer from making a mistake in the first place. And now we have the force of government to ensure that no one purchases a home on land contract without being aware of any problems and having them fixed. Never mind that anyone purchasing a home has the ability to hire an inspector and then negotiate a price accordingly. The force of law is now going to be not on the buyer, but on the seller to not only perform the inspection but to make any necessary repairs.

I guess the days of 'caveat emptor' are over - and instead we have the increasing lack of personal responsibility due to the government ensuring you never have the opportunity to learn from a mistake.

6 comments:

Tim Higgins said...

Maggie,

Thank goodness that council has stepped in to protect potential home buyers from making a mistake while making a purchase with a land contract. After all, there are certainly a lot of homes being purchased in Toledo, and we are not a very smart bunch. Why I even had to call folks on the 22nd floor explain to me what "caveat emptor" meant ("let the buyer beware", for those of you who do not have the phone number).

Seriously, this shows not only a non-business friendly atmosphere in the city of Toledo, but is an insult to the intelligence of its citizens to believe that we cannot function in life without the protection of the city government. This should especially be considered amusing when that same city that seems to be having just a bit of trouble with their purchase of a fix for the MLK bridge wants to tell me how to best protect myself in a major purchase.

They might have a point however, when you consider that we thought putting them in office was a smart move.

Roo said...

Maggie,

As you know, this is a real sore spot for me.

I was against this from day one, attended the hearings and was against it at Council, and I'm against it now.

Toledo's housing market is in sad shape at the moment. And this particular piece of legislation only serves to discourage investors from spending time and money purchasing, renovating and selling homes. I know that I will no longer be investing my money in Toledo properties.

The properties we own are in very good condition. They are safe and modern and have repairs made as soon as we are aware of a problem. But under this law if I wanted to sell one of these homes to a tenant on a Land Contract I would have to jump through hoops and spend even MORE money. I won't do it - on principle.

Hypothetical situation:

Grandma goes in the nursing home. Family members agree to sell grandma's home to cousin Billy on a Land Contract. Now the family calls the city and asks for a list of 'approved' inspectors. They call the inspector and order an inspection (avg $300). The inspector finds evidence of old powder post beetles, a couple of electrical outlets that are dead, evidence of a small leak in the bathroom sink and a window does not raise and lower properly.

YIKES!!! Now the family has to make these repairs and then order a RE-inspection. On the reinspection there is still a problem with the window. This is a 'no deal' waiting to happen.

Ideally, cousin Billy would have the house inspected on his own and then tell the family that he is reducing his offer by $xxx to cover the repairs. At that point it's between cousin Billy and the family. They work it out and Billy assumes responsibility for doing his own repairs.

But the 'nannies' here in Toledo felt such a need to soothe their social conscience that they had to poke their noses into the business of others. Ain't it just grand?

And, as an aside, during the next to last hearing Kattie Bond stated that it would take approx. 80 full time inspectors to deal with the housing issues that are to be addressed by this legislation. Currently there are 8. Who is going to pay these people? Where is the money going to come from?

Ooops! Forgot! That will come from all the new fees that will be trumped up.

I'm done investing in Toledo. It's become a one way street and that's not profitable to anyone.

Kurt said...

Well, if you're dumb enough to take a sub-prime loan, you're certainly dumb enough to buy on land contract. I think the city's decision makes a lot of sense. This kind of sale should be discouraged, and I'm glad the city is making it more difficult. If a realtor or landowner is that desperate to sell on land contract, I have to wonder why.

Maggie Thurber said...

Kurt - are you saying that it is the role of government to protect citizens from ever making a mistake? If this is a good idea, where does it stop?

Some people buy on land-contract because that's the financing system they want. Others would rather purchase a home they know needs improvements because they want a lower price, expecting to make improvements themselves. This legislation requires the home to pass 'inspection' within 90 days. Some might have planned to take longer to make the government-mandated repairs.

Not everyone who bought on land contract did so in a 'stupid' way...and even if they did, since when did we come to expect that government could legislate away stupidity?

Sorry, Kurt - I think plenty of laws already exist to account for fraud, etc. I think this removes the responsibility from the purchaser to make a good choice...and makes them further dependent upon the protection of government to ensure they never make a mistake and, thus, never learn from them.

But we can agree to disagree.
:)

Roo said...

Kurt - Perhaps you are mistaken about the uses of a land contract and the advantages and disadvantages for both the seller and the buyer.

Scenario A:

Nancy and John lost their jobs and their home 2 years ago. Not through irresponsible spending, but through unemployment and attempting to stretch the available dollars. They are now employed, working to clean up their damaged credit and would like to own a home again. With limited funds and damaged credit they have 2 options.

1. Appeal/apply to high interest secondary market lenders. And yes - they are still out there. Just not as plentiful. They may pay as high as 15% interest and have NO equity in the home whatsoever.

2. Purchase a home on a land contract with as little as 3% down, interest rate of 8 - 10%, recorded as per Ohio Revised Code, and building equity while cleaning up their credit.

In 2 years they could conceivably have a credit toward conventional financing of up to $4800. Money they would be unable to save if they were renting somewhere.

Many times the terms of a land contract will include a credit for repairs that are made by the purchaser toward their down payment.

As a property owner I would much prefer to just sell my homes outright. That's instant cash to me and no risk. On a land contract I have to wait for my money, assume a level of risk that the tenant/buyer will not make the agreed on repairs, will cause more damage and/or will default. This is not a money maker.

Land contracts have been in place since the days of the Pilgrims. But now City Council and the nannies of the neighborhoods have stepped in to make everything right with the world.

If you go to sell a used car is there a law in place that says you MUST have that car inspected? No.

So what protection is there for me when I buy your used car and it starts falling apart? Perhaps the city needs to look at that law next. (sarcasm off now)

Art A Layman said...

Ah me! Let all things that have been always be...

Land contract real estate sales as pointed out have been around forever and as also pointed out they can be used in instances of good and fairness. Alas, they have also been used by many, less than upright citizens, to take advantage of the less fortunate and have been known as a way to foist a housing dog upon unwitting, unknowing folks, merely seeking a part of the American dream.

Caveat Emptor was never really a good idea but in today's complex world of contracts and lawyers with charaltans lurking in many nooks and crannies, including, supposedly solid well known corporations, it's not a bad idea to give aid to unsuspecting buyers by requiring that a seller insure that his property meets compliance.

The constant hue and cry of the property class is another old American phrase, "Don't tread on me".

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