The nation’s top consumer finance watchdog told a U.S. Senate committee this week that practices uncovered by ProPublica’s investigation into HomeVestors of America are “very troubling” and said the Department of Justice and state attorneys general should be made aware of such actions.
Rohit Chopra, the director of the Consumer Financial Protection Bureau, also highlighted work his office is doing in the wake of reporting by ProPublica and Sahan Journal on predatory contract for deed practices targeting Minnesota’s Somali immigrant community.
At the CFPB’s semiannual report to Congress, U.S. Sen. Tina Smith, D-Minn., asked Chopra what his agency can do to better protect consumers from house-flipping franchises that can deploy deception and coercion while trying to buy homes from people in vulnerable situations at rock-bottom prices.
“Even where we might not have jurisdiction to go after a scam, we want to tell the Justice Department and tell the state AGs,” Chopra said. “A lot of people are looking at older homeowners who are sitting on a lot of equity.”
The day after the Senate hearing, U.S. Sen. Cynthia Lummis, R-Wyo., co-signed a letter with Smith to the National Association of Attorneys General asking for a more coordinated approach to preventing cash homebuyers from trapping sellers in unfair sales contracts. Smith and Lummis are the chairperson and ranking member of a Senate subcommittee on housing.
“I believe that homeowners should be protected from exploitation and I was deeply concerned by the practices uncovered by ProPublica’s investigation,” Smith said in a written statement. “The predatory tactics reportedly employed by HomeVestors to rip off vulnerable homeowners and communities must be stopped.”
In response to the letter, a HomeVestors corporate spokesperson said the company supports efforts to shield homeowners.
“As an organization committed to ensuring a fair and equitable homeowner customer experience, evidenced by our 96% customer satisfaction rating and strict code of conduct for our franchisees, we welcome initiatives to protect homeowners from unscrupulous actors,” she said.
ProPublica’s investigation into the “We Buy Ugly Houses” company found some HomeVestors franchisees used deception and targeted the elderly, infirm and people close to poverty. While the company said it doesn’t target any homeowner based on age or other demographics, ProPublica found HomeVestors aims its massive advertising apparatus at the types of houses often owned by people in desperate situations or who don’t fully understand the value of their home. The company also teaches its franchises to build relationships with nursing home administrators and probate lawyers and to scan neighborhoods for signs of desperation such as water shut-off notices, police tape and burn scars.
In response, HomeVestors’ spokesperson said ProPublica’s examples represented a fraction of the company’s transactions. She also said that such predatory behavior isn’t taught or tolerated and that “lying is against our code of ethics and our culture.”
In their letter, Smith and Lummis asked the nation’s attorneys general to consider alerting the public to these practices, work together to monitor trends and look for patterns at the local level. They recommended states create “cooling-off” requirements to give homeowners time to back out of contracts they regret. They also asked AGs to work with local officials to make it easier for homeowners to view real estate records online and be notified when documents are recorded that affect their properties.
ProPublica’s investigation found HomeVestors franchisees have often recorded notices on properties that make it nearly impossible to back out of a sales contract once signed — a practice the corporate office prohibited in reaction to ProPublica’s reporting.
During the Senate hearing, Chopra emphasized the importance of monitoring ground-level real estate activity and complaints for early warning signs of broader predatory practices.
In the run-up to the 2007 financial crisis, mortgage lenders issued predatory loans to people who couldn’t afford to pay them back. The ensuing wave of individual defaults sparked an escalating domino effect that brought the world’s largest banks to the brink of collapse.
“One of the big mistakes in the lead up to the financial crisis is federal regulators ignored stories from the ground, and that proved to be a pivotal mistake,” Chopra said.
Staci Schneider, a spokesperson for the National Association of Attorneys General, said the group doesn’t take positions without the direction of its members.
“We are in receipt of the letter and have circulated it to our attorney general members for their review and consideration,” she said.
Also during the hearing, Smith expressed concern about a tactic unrelated to HomeVestors: the targeting of Somali immigrants in her state by lenders offering “contract for deed” financing that avoids interest but often makes unsuspecting homebuyers responsible for an unaffordable balloon payment at the end of the contract’s term. When they can’t make the balloon payment, they lose the house and are unable to recoup the monthly payments they had been making on the contract. A ProPublica-Sahan Journal investigation last year shed light on the practice.
Smith said the CFPB’s complaint form, which is geared toward mortgages, makes it difficult to report predatory contract for deed practices.
“So what happens is folks can’t figure out how to use it … and so some people who have been victims are just sort of dissuaded from participating,” she said.
Chopra said his agency is working to improve the form by testing how it is used by people from various backgrounds.
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