A new Illinois law strengthening the disclosure requirements on homes sold with seller financing went into effect in January 2018. The new law gives buyers of seller-financed homes more protection from eviction if they miss a payment. The move by state legislatures is in response to a lawsuit filed in federal court by the Consumer Financial Protection Bureau against a major player in the area of high-interest, contract for deed loans. Investors, in particular, have long used seller financing to move homes in poor condition to vulnerable home buyers, often evicting buyers for missing just one payment.
Illinois Installment Sales Contract Law
Prior to the new installment contract law, on-contract buyers in Illinois did not have the same protections as home buyers obtaining traditional financing through mortgage companies and banks. Traditional lenders require that homes appraise for at least the amount financed, meet certain condition standards, and have a clear title. The requirements of banks and mortgage companies are primarily in place to protect their own interest but benefit home buyers as well. Additionally, consumer protection laws regulate loan modifications, the foreclosure process, and other buyer protections that ensure fairness.
Although seller-financed deals and rent-to-own leases often provide a path to homeownership that some buyers would likely never see through traditional lending, the lack of regulation has led to a high risk for abuse by sellers. The new Installment Sales Contract Act helps to reduce the risk.
Under the new law, sellers are required to record their contract within 10 days of the transaction closing or the purchaser has the right to rescind the contract until it has been recorded. The new law also requires all installment sales contracts to include a statement in a large, bold font that the buyer has the right to a third-party inspection of the subject property. Sellers must also disclose if the property has been condemned or has any building code violations.
A more reasonable eviction process
Previously, buyers who purchased homes with seller financing could be quickly evicted for missing just one payment. The new law provides a 90-day cure period if a buyer falls behind on payments. Buyers can now catch up all payments, including fees associated with late payments, to cure the default.