Hawaii latest to enact law banning predatory real estate contracts

Hawaii has become the latest state to enact a law barring the use of a real estate sales contract known as non-title recorded agreements for personal services, or NTRAPs for short.

So far 30 state legislatures have approved these measures, with a bill in Illinois just awaiting its governor's signature.

"The property rights of American home buyers must be protected," said American Land Title Association Vice President of Government Affairs Elizabeth Blosser. "We have to ensure that there are no unreasonable restraints on a home buyer's future ability to sell or refinance their property due to unwarranted transactional costs."

The title insurance trade group made the announcement in a joint press release with AARP. An NTRAP is when a real estate broker offers homeowners nominal upfront monetary compensation in exchange for an agreement for future services, which is recorded in the property records, the ALTA website said. These arrangements, which can obligate even future owners since they can be binding for as long as 40 years, can create an additional lien against the property involved if they are not adhered to. For this reason, they're commonly seen as misleading and predatory. 

The other 28 states that have passed legislation making NTRAPs unenforceable are: Alabama, Arizona, California, Colorado, Connecticut, Florida, Georgia, Idaho, Iowa, Indiana, Kentucky, Louisiana, Maine, Maryland, Minnesota, Nebraska, Nevada, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, South Carolina, Tennessee, Utah, Virginia, Washington and West Virginia, according to the two groups.

"Enactment of this important consumer protection legislation in 30 states is a monumental win for safeguarding people's property rights," Blosser said in that press release. "We applaud the bipartisan efforts of lawmakers championing homeownership by making clear these types of unfair agreements are unacceptable in their states.

"Hopefully, the swift action taken by lawmakers, along with state attorneys general, will be a strong deterrent to those looking to perpetuate similar schemes that strip hard-earned equity from people's homes." Blosser continued.

Hawaii Gov. Josh Green signed this bill into law on July 2.

"The passage of SB 2861/Act 176 is a continuation of AARP's advocacy efforts, undertaken in collaboration with ALTA in other states, to put an end to this harmful practice," said AARP Government Affairs Director Samar Jha. "We look forward to working on similar legislative solutions in other states to help protect homeowners against this predatory real estate practice."

A June press release from ALTA announcing passage of the Illinois legislation said Gov. J.B. Pritzker is expected to sign the bills "in the coming months."

The day after the Illinois release, the two groups, along with the Louisiana Land Title Association and the Louisiana Realtors announced Gov. Jeff Landry signed that state's NTRAPs bill on May 28.

"This legislation is important to the nearly 20,000 Realtors in Louisiana because it protects homeowners from deceptive and unfair practices that hinder their ability to sell homes," said Norman Morris, CEO of Louisiana Realtors.