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States Crack Down on Predatory Real Estate Deals

Real estate concept - businessman signs contract behind home architectural model
Witthaya Prasongsin/Getty Images

En español | In less than two years, more than half of all states around the country have passed AARP-backed laws that protect consumers from unfair real estate agreements, in which brokers trade a small up-front cash payment for the future right to sell a person’s home.

Also known as homeowner benefit agreements, these contracts have been marketed to cash-strapped homeowners — particularly older adults — and can be binding for up to 40 years. That means if the homeowner or their heirs later sell the property using a different listing agent, they could be forced to pay a penalty far greater than the original cash payout — often up to 3 percent of the home price.

These deals are being challenged by attorneys general in 11 states.

This month, South Carolina and Connecticut became the latest states to pass legislation prohibiting these real estate arrangements, following Hawaii and Oklahoma, which approved similar laws late last month. Connecticut's and South Carolina's bills are with their respective governors, who are expected to sign them into law.

Homeowners entering into these agreements have complained they were unaware the contracts would be recorded in their property records and could complicate future property transactions and sales. The contracts also carry over to relatives who inherit the property after the homeowner dies, meaning that under this type of agreement, those relatives would also be forced to use a specific listing agent for a sale or face financial penalties.

In Connecticut, about 400 of these deals have been recorded in the land records, state Attorney General William Tong said in written testimony in favor of the bill in the Constitution State. Often, he said, homeowners were not given time to review the paperwork or did not understand the terms before signing. Many homeowners only learned of the terms of their agreement when preparing to close on the sale or refinance of their home, “forcing them to pay exorbitant amounts to have it removed.”

A win for homeowners

A total of 27 states have now passed legislation prohibiting homeowner benefit agreements, including Indiana, West Virginia, Arizona, Kentucky, Oregon and Nebraska this year. Utah, Maryland, North Dakota, Idaho, Georgia, Tennessee, Colorado, Alabama, Florida, Iowa, Maine, Nevada, Ohio, Washington state, North Carolina and California passed similar laws in 2023.

Though the details vary by state, the laws generally limit the duration of these agreements and prevent them from being recorded in the property records or being enforced through liens. Some of the laws allow previous agreements to be removed from property records and let impacted homeowners recover damages.

AARP worked with the American Land Title Association (ALTA) to create model legislation for states to follow, with a goal of passing a law in all 50 states.

“Every time a state legislature makes clear that these types of unfair agreements are not welcome in their states, it is absolutely a win for consumer protection and it’s a win for people’s property rights,” Elizabeth Blosser, ALTA’s vice president for government affairs, said in an interview with AARP.

She said the organization’s members, who facilitate real estate closings around the country, have encountered countless consumers who have suffered financial losses because of these agreements, whether it’s a penalty for using a different real estate agent or legal fees from fighting to have an agreement removed from their deed.

“There shouldn’t be any unreasonable restraints in someone’s ability to either transfer or finance their property,” Blosser said.

Samar Jha, an AARP government affairs director who handles housing issues, noted that around the country, these laws have passed with overwhelming bipartisan support and minimal opposition.

“It’s clearly an issue that concerns every homeowner,” he said.

Protecting financial assets

AARP has long worked to ensure older adults have the financial stability to age in their own homes and communities.

For many older adults “their home is their most important financial asset and the basis of their financial stability,” said Joy McGill, AARP advocacy director in Oklahoma, where Gov. Kevin Stitt signed the legislation into law on April 29.

Jha said AARP hopes to push the law over the finish line in a handful of other states before the end of the year. Even if companies peddling these agreements aren’t operating in a particular state now, Jha added, “that doesn’t mean it cannot happen. It’s still a practice that needs to be prohibited.”

To hear from a homeowner who says he was misled into signing one of these agreements, listen to our podcast, The Perfect Scam. 

Natalie Missakian covers federal and state policy and writes AARP’s Fighting for You Every Day blog. She previously worked as a reporter for the New Haven Register and daily newspapers in Ohio. She has also written for the AARP Bulletin, the Hartford Business Journal and other publications.

Also of Interest:

Avoid Real Estate Wire Fraud When Buying a Home
5 Ways to Prevent Elder Financial Exploitation

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