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The Consumer Financial Protection Bureau (CFPB) issued an advisory opinion and research on contract-for-deed financing arrangements. This announcement makes clear that such arrangements fall under the Truth-in-Lending (TILA) laws which require the lender to prove the borrower has the ability to repay the loan, to provide disclosures, and limits balloon or bullet payments.
Contract-for-deed or land contracts are agreements for a buyer to make regular payments on the property to the owner at the end of which time, they receive the deed. These arrangements were rife with exploitation during the 1970s and 1980s and are still common in some communities. They often carry high rates, quick foreclosure processes, and limit home buyers' ability to recoup maintenance or improvement expenses.
This clarification by the CFPB will also impact FinTech companies that offer to purchase a home for a borrower, which the borrower then pays back or has a finite period within which to purchase the home. It also highlights some of the murky agreements that affect some equity sharing deals, an issue NAR's Shared Equity Work Group is currently contending with.