Indiana House Bill 1495 (2019 Session) made its way to a Conference Committee, but the Committee Report was rejected by the Senate on a 30 to 19 vote. HB 1495 would have unnecessarily restricted the use of land contracts, when the buyer intended to use a home as the buyer’s principal dwelling. In fact, this proposed law would have made it harder for land contract buyers to get a home through seller financing than through traditional bank financing. The irony is that the bill, had it passed into law, would have eliminated the opportunity for many buyers and sellers to use a land contract as a means of transferring a home to a willing buyer. Here’s the bill’s original synopsis, before amendments-
Principal dwelling land contracts. Defines "principal dwelling land contract" (contract) as a land contract for the sale of real property: (1) designed for the occupancy of one to two families; and (2) that is or will be occupied by the buyer as the buyer's principal dwelling. Provides that the seller under a contract must provide the buyer with certain disclosures at least 10 days before the contract is executed. Sets forth disclosures that must be included in a contract. Requires all preexisting liens on the property to be satisfied by the seller by the end of the contract term. Provides that a contract must permit a buyer to pay the balance owed and receive the deed at any time. Prohibits prepayment penalties or additional charges for an early payoff. Provides a three-day cancellation period for both the buyer and seller. Allows the seller and the buyer to transfer their respective interests in the contract to other parties, subject to certain conditions. Requires the seller to provide the buyer with an annual statement of account. Sets forth certain rights and responsibilities of the parties upon default by either the buyer or the seller. Sets forth acts and omissions constituting violations and establishes remedies for these violations. Provides that a violation of these provisions constitutes an incurable deceptive act that is actionable by the attorney general under the deceptive consumer sales act. Authorizes the attorney general, in consultation with the department of financial institutions, to adopt rules to implement these provisions. Provides that a buyer who has completed the buyer's obligations under the contract is entitled to the homestead deduction regardless of whether the seller has conveyed title. Requires that a title search be conducted, and that a statement regarding title insurance be provided by the seller to the buyer. Requires that the executed principal dwelling land contract or a memorandum of land contract be notarized. Provides that, if the buyer defaults, then the seller and buyer may execute a notarized release of land contract quitclaim deed, and both shall be recorded by the seller within 30 days of execution.
Because HB 1495 would have placed so many restrictions on land contract sellers, fewer investors would offer seller financing. Seller financing of single-family owner-occupied homes is already a challenging and risky business for investors. HB 1495 would have made seller financing (1) more expensive, (2) more risky, (3) less profitable, and (4) more difficult to complete a transaction.
To make matters worse, there is a significant number of non-investors who need to sell a home and turn to seller financing as a means of doing so. When times are tough and real estate prices are stagnant or financing is difficult, many people get “stuck” with a home and cannot sell the home on the open market. Often in these scenarios, the seller has a mortgage and needs payments from a land contract buyer to make the mortgage payments. HB 1495 would have made it unlawful for those sellers, particularly the sellers with a mortgage, to sell on land contract.
Sometimes, a land contract buyer agrees to make improvements to a home in exchange for credit against the purchase price. That type of deal structure is a win-win for the buyer and seller. HB 1495 would have made those types of land contracts virtually impossible.
Unfortunately, I would not be surprised to see this proposed law return in 2020. This bill progressed all the way to a Conference Committee, so it was close to passing. HB 1495, like many laws, is akin to a sledgehammer being used to kill a flea. There may be good cause to impose certain restrictions on land contracts, but HB 1495 was a sledge hammer. It was unnecessarily broad and penal in nature. Thankfully, the bill died and did not become law. If this concept is introduced again in the Indiana General Assembly, hopefully a more focused and less onerous version of the bill will be offered and more balance will be included.
While this author is not a fan of sellers using land contracts, except in rare circumstances, there are situations where a land contract can be beneficial to buyers and sellers. Fair and reasonable restrictions on land contracts make sense. But our governmental should not enact any law that imposes so many restrictions on a deal structure that the deal no longer presents a win-win opportunity. In short, laws don’t need to be sledgehammers.