June is National Homeownership Month. It is a month when we celebrate the American Dream of homeownership and reflect on the current challenges that homeowners are facing today. The purchase of a home is one of life’s largest and most important investments, and it is critical that homeowners remain vigilant to protect this investment.
During this National Homeownership Month in particular, homeowners should be wary of a new business practice preying upon vulnerable homeowners — non-title recorded agreements for personal service (NTRAPS), long-term listing agreements that entrap consumers. In this business practice, real estate brokerage firms offer homeowners a small upfront payment in exchange for the exclusive right to list and sell the property in the future. These complex contracts make selling, refinancing or transferring real estate difficult for homeowners.
These companies know how to make their agreements sound good. The one-time cash reward provided by NTRAPS — which are sometimes as little as $300 — are enticing to homeowners in need of immediate financial assistance. These homeowners, who are not real estate professionals and don’t have the benefit of counsel, often do not fully understand the long-term implications of what they are agreeing to.
After signing one of these listing agreements, homeowners are stuck in a contract that can be binding for up to 40 years. They risk facing a penalty of 3% of their property value if the property is transferred, or if they use another brokerage firm in the sale of the home.
The American Land Title Association (ALTA) is committed to protecting homeowners and their investments in all circumstances. When we first learned about NTRAPS last summer, we immediately began developing strategies on how to stop these exploitative and predatory business practices.
We soon realized that prohibiting these unfair agreements altogether is the best course of action to protect consumers, and we quickly sprang into action. Alongside industry partners, ALTA developed a model bill for state legislatures that would prevent the enforcement of NTRAPS, prohibit the recording of these agreements in property records and enable the removal of NTRAPS from property records and recovery of damages.
Now, states are taking action. At the beginning of the year, Utah became the first state to ban NTRAPS with the passage of H.B. 211. The success in Utah created a domino effect for other states’ regulatory and legislative victories. To date, six state attorneys general have filed complaints against these agreements. 21 states have introduced legislation and 11 states have passed legislation that bans or severely limits the parameters of these agreements.
But while we have seen great progress in our advocacy against NTRAPS already, more still needs to be done to best protect homeowners and their investments. We encourage our industry partners to join us in our advocacy efforts with state legislators and regulators and help us educate homeowners about the financial consequences of these agreements. Together, we can end this predatory business practice once and for all.
Elizabeth Blosser is the vice president of government affairs at ALTA, the national trade association representing the land title insurance and settlement services industry, which employs more than 120,000 people working in every county in the United States.
