The dream of homeownership can quickly sour when lenders and agents take advantage of homeowners and buyers. MV Realty, a company that operated in several states, including Illinois, recently came under scrutiny for such practices. The company signed people to homeowner benefit agreements, attaching these contracts to 658 properties throughout Chicago and its surrounding counties.
If you were pushed into signing a homeowner benefit agreement, or entering into another real estate contract, without time to review and understand the terms, you may have options. Call our real estate lawyer, Roger Stelk, today to discuss your options. 847-506-7330.
What Are Homeowner Benefit Agreements (HBAs)?
A homeowner benefit agreement (HBA) is a contract between a homeowner and real estate agent. The agent offers the homeowner a cash payment, typically a few thousand dollars. In exchange, the homeowner agrees to use the agent’s services exclusively when selling the property within a specific timeframe, typically 30 to 40 years. HBAs differ from traditional listing agreements, which are for a set period, usually a few months. Further, traditional listings let the homeowner choose a different agent if they’re unhappy with the service.
HBAs come with a catch; they aren’t just binding for the original homeowner. The obligation to use the agent can be attached to the property itself. As such, it can remain in effect after the homeowner’s death, or transfer to future owners, even if they were never aware of the agreement. For unsuspecting buyers, this can create a major headache, and significantly limit their selling options. Many view them as one of the mistakes when investing in Illinois real estate to avoid.
The Dark Side of HBAs: How Homeowners Can Lose
The upfront cash payment in an HBA might seem like a quick financial win, but there may exist long-term consequences. Such has been the case for many Chicago homeowners who signed HBAs with MV Realty. One man, for instance, took advantage of what he thought sounded like a good deal in 2022. His home was already paid off, and he’s retired and living on a fixed income. It wasn’t until he went to get a reverse mortgage to do some repairs on his home and start up a new business venture that he understood the full terms of the deal with MV Realty.
Predatory Practices
Some real estate agents target vulnerable homeowners, particularly those facing financial difficulties. They exploit the allure of easy money by downplaying the long-term commitment and drawbacks of HBAs.
Such seems to have been the case with MV Realty in targeting homeowners to pitch the HBA program to. During a bankruptcy hearing, the company’s CEO testified that MV Realty bought leads, separating their targets out by looking at those who had more than 40% equity in their homes, and cause to seek to get cash out of that equity.
Hidden Costs
HBAs often lock homeowners into using an agent regardless of their performance or market expertise. The agent’s commission, negotiated at the time of the HBA signing, may be higher than the standard market rate, costing homeowners more money when they finally sell. It may seem so, but such costs are not just tricks of the trade in a competitive real estate market.
Limited Options
With an HBA, homeowners lose the flexibility to choose a different agent who might be a better fit for their needs, especially in a competitive market. Even if they find a better agent, they could still be on the hook for the HBA agent’s commission if they sell without using their services.
What Is the Impact on Chicago Homeowners?
HBAs are a growing concern in the Chicago housing market. The city’s strong median household income makes it a prime target for agents looking to capitalize on homeowners eager to tap into the rising home prices. Unfortunately, many Chicago homeowners are signing HBAs without fully understanding the long-term implications. Finding out if a property has an HBA attached is one of the questions to ask when hiring a real estate lawyer.
HBAs restrict homeowners’ ability to shop around for the best agent, potentially limiting their negotiating power when it comes to commission rates. In a competitive seller’s market like Chicago’s, where multiple offers are common, having the right agent to secure the best price is crucial. An HBA with an inflated commission can reduce the seller’s net proceeds.
The presence of an HBA on a property can be a major turnoff for potential buyers. Buyers may be wary of the unknown terms of the agreement and concerned about the potential for higher closing costs due to inflated agent commissions. Added costs can be particularly discouraging for first-time homebuyers who are already budget-conscious and may have limited wiggle room in their offers.
If HBAs become more prevalent in Chicago, it could have a chilling effect on home prices. The combination of reduced leverage for sellers and discouraged buyers could lead to a decrease in overall market activity and potentially stagnate or even decrease property values. In turn, this could disproportionately impact neighborhoods with a high concentration of HBAs, creating a cycle where lower home values make it even more tempting for homeowners to sign HBAs for a quick cash infusion.
Fallout from the HBA Deal
MV Realty has filed for bankruptcy, further complicating the HBA deal for many homeowners who signed. The man who sought the reverse mortgage for home repairs was denied the mortgage, and like others wrapped up in these contracts, is seeking other options to get out of the deal.
In the company’s bankruptcy reorganization plan, it established some paths to relief for those stuck in these contracts. Among other steps, the adjudication program will see MV Realty send notices to the HBA parties with information about the contracts and terms. Further, it allows homeowners to opt in to the program, which grants them the ability to rescind the HBA for cause.
Protecting Yourself from HBAs in Illinois
Before signing an agreement related to your property, especially something as significant as an HBA, it’s crucial to protect yourself. Consult with a qualified real estate lawyer who can review the specific terms of the agreement, and advise you on whether it’s in your best interest.
If you have an HBA on your property, contact us today. Our real estate lawyer, Roger Stelk, can review your contract and advise you on your options.
