States Crack Down on Predatory Real Estate Deals

Since 2023, dozens of states have passed AARP-backed laws to protect consumers from unfair real estate agreements in which brokers trade a small, upfront cash payment for the future right to sell a person’s home. Also known as homeowner benefit agreements, these contracts have been marketed to cash-strapped homeowners — particularly older adults — and can be binding for up to 40 years.

That means if the homeowner or their heirs later sell the property using a different listing agent, they could be forced to pay a penalty, which is typically up to 3 percent of the home price. Often, the penalty can be far greater than the original cash payout.

New Hampshire is the latest state to enact legislation to protect homeowners from these agreements; Gov. Kelly Ayotte signed the bill into law on July 15.

“This legislation is a critical step forward in protecting New Hampshire homeowners — especially older adults — from deceptive and predatory real estate practices,” Christina FitzPatrick, AARP New Hampshire state director, said in a press release.

Thirty-two state legislatures have passed laws prohibiting these agreements, including in New Hampshire and Rhode Island this year; Minnesota, Illinois, Louisiana, South Carolina, Connecticut, Hawaii, Oklahoma, Indiana, West Virginia, Arizona, Kentucky, Oregon, Virginia and Nebraska in 2024; and Utah, Maryland, North Dakota, Idaho, Georgia, Tennessee, Colorado, Alabama, Florida, Iowa, Maine, Nevada, Ohio, Washington state, North Carolina and California in 2023.

A win for homeowners

Homeowner benefit agreements are being challenged by attorneys general in 16 states. Homeowners entering into these agreements have complained they were unaware the contracts would be recorded in their property records and could complicate future property transactions and sales.

The contracts also carry over to relatives who inherit the property after the homeowner dies, meaning that under this type of agreement, those relatives would be forced to use a specific listing agent for a sale or face financial penalties.

Often, homeowners who have signed these agreements say they were not given time to review the paperwork or did not understand the terms before signing.

In Connecticut, for example, many learned about the terms of their agreement only when they were preparing to close on the sale or refinance of their home, Connecticut Attorney General William Tong said in testimony supporting that state’s legislation in 2024.