As soon as Lisa Casteel learned her 78-year-old mother had agreed to sell her Kansas City home to a “We Buy Ugly Houses” franchise for far below its market value, she contacted the buyer to halt the deal.
In her letter to the company, she invoked a Kansas state law that grants three days to cancel certain sales agreements. She believed it would protect her mother and any other vulnerable homeowners entangled by questionable real estate deals. Her mother had no other place to live and had recently been showing signs of dementia, she said.
But the representative of the franchise, Red Rock REI, refused.
The experience more than three years ago revealed a glaring hole in regulations meant to protect people from unfair and deceptive practices. Even though HomeVestors franchises are in the business of buying properties, they use many of the same methods found in high pressure sales. In Kansas and many other states, laws that require a grace period for getting out of such sales contracts don’t apply to real estate transactions. Neither does a federal law aimed at protecting people from predatory sales practices.
Only after the Kansas Attorney General’s Office intervened at Casteel’s request was her mom able to keep her home. The attorney general ultimately demanded that Red Rock REI release Casteel’s mother from the contract by relying on state laws that protect the elderly from deceptive practices. And while Casteel succeeded in saving her mother’s house, no other action was taken against the franchise.
“I feel bad for others out there who are getting taken advantage of,” Casteel said. “They’ve got no help. And they feel like there’s no place to turn but to go ahead and sell to Red Rock and Ugly Houses and people like that.”
Adam Hays, who owned Red Rock before selling the franchise in 2021, said his sales representative did not observe that Casteel’s mother had any cognitive issues. He said HomeVestors demanded its franchises maintain a “strict standard of integrity and honesty.”
Highlights From This Series
He said his company did not easily release homeowners from contracts because that would make it difficult to stay in business. His practice was to conduct “due diligence” into a homeowner’s reason for backing out of a deal to ensure another party wasn’t interfering with the homeowner’s decision. He said when he received the letters from the attorney general’s office about Casteel’s mother, he realized she had a legitimate reason for canceling the contract.
A corporate spokesperson for HomeVestors said the company was unaware of Red Rock’s dealing with Casteel’s mother and that it is no longer a franchise. HomeVestors recently prohibited some of the tactics Red Rock used to tie homeowners to contracts.
An investigation this year by ProPublica found some HomeVestors of America franchises used deception and aggressive sales tactics to persuade homeowners in vulnerable situations to sell their homes for far below market prices. The investigation also found few jurisdictions have laws or regulations to protect homeowners from aggressive tactics that fall short of outright fraud or elder abuse.
There have, however, been a few attempts by policymakers to protect vulnerable homeowners. A first-of-its-kind law in Philadelphia regulates real estate investors that participate in wholesaling properties — meaning they buy houses and resell them without making improvements or sell purchase contracts signed by the homeowner to another investor.
“A high pressure sales technique isn’t new, and we’ve been trying to protect people against it in all sorts of areas for years,” said Kate Dugan, staff attorney at Community Legal Services in Philadelphia, which worked on the law.
The law attempts to address a flaw in most consumer protection laws: Because homeowners are being pressured to sell rather than to buy something, the laws don’t cover them as consumers.
“The harm is the same, though: Parties with unequal bargaining power are engaging in a transaction, and the less sophisticated party loses,” Dugan said.
Oklahoma recently became one of a few jurisdictions to require licenses for residential real estate wholesalers. Unethical behavior can put wholesalers’ licenses at risk.
“When you don’t have reasonable guidelines, or restrictions or regulations in place to protect very minimum standards of abuse, then you’re going to open up the door for rampant abuse, like we’re seeing right now,” said Grant Cody, executive director of the Oklahoma Real Estate Commission.
ProPublica spoke to experts, including advocates for homeowners, real estate lawyers, a regulator and an individual in the business of flipping houses, about policies that could better protect homeowners. Here are their suggestions for regulations policymakers could consider.
A Cooling-Off Period
Casteel was quick to answer when asked what policymakers could do to help people like her mother.
“There should be at least a cooling-off period,” she said. “And I don’t think three days is enough. Because for seniors who fall victim to this, they may not mention it to a family member within the first couple of days.”
Advocates for stronger homeowner protections agree the law should provide an efficient way to cancel a signed real estate contract within a set period under certain circumstances. Or, as an alternative, policymakers could adopt something similar to Philadelphia’s requirement that wholesalers give a homeowner three days to consider a contract before it’s signed.
Cooling-off periods are common in other transactions that involve high pressure sales or large assets. Many states, for example, have a right of rescission in timeshare sales, and a cooling-off period is built into many annuity purchases.
In particular, homeowners who have never publicly listed their houses for sale should be allowed a quick way out of a contract, said Sarah Bolling Mancini, co-director of advocacy at the National Consumer Law Center. Public listings attract competing offers and can better determine fair market value. Such a regulation would also protect homeowners from cash buyers who solicit sales.
Casteel said she’d also require that cash house buyers leave a copy of the contract with the homeowner along with the paperwork necessary to cancel it.
Asked by ProPublica whether HomeVestors would support such a regulation, a corporate spokesperson said the company is implementing a 72-hour cooling-off period requirement for its franchises.
“We require our franchisees to comply with our Systems and Standards, which generally go above and beyond state regulations, and we regularly update our standards to ensure our franchisees do the right thing and act to protect consumers,” she said.
Penalties for Persistent Solicitation
HomeVestors and its franchises spend heavily on advertising — peppering neighborhoods with billboards and sending postcards to thousands of addresses at a time, promising quick cash and a painless sale process. Other homebuyers call and text endlessly.
Many homeowners view these aggressive, ground-level marketing strategies as a nuisance. And in some cities, policymakers have taken steps to curb them.
In Houston, residents can report illegally placed “bandit signs” to the city’s Department of Neighborhoods. Violators there can face up to $500 in fines, lawsuits and even arrest. Following reporting from WABE, the Atlanta City Council in 2020 prohibited real estate investors from “repeated and unsolicited attempts” to contact a homeowner after being asked to stop. Such overtures now amount to a form of “commercial harassment.” Violators can face fines or up to six months in jail.
And Philadelphia’s “do-not-solicit” list, launched last year, allows residents to opt out of in-person sales pitches, emails, phone calls and mailers. Offenders face up to $2,000 in fines. The city can ask a judge to assess larger fines on repeat offenders.
Restrictions on Recording Claims on a Property Title
ProPublica’s investigation found some HomeVestors franchises routinely recorded documents against a homeowner’s title to trap them in a deal — a predatory practice known as “title clouding.” In response to ProPublica’s reporting, HomeVestors prohibited its franchises from clouding titles. But other cash homebuyers still do it.
Dugan said policymakers should consider restrictions on title clouding, including a waiting period between signing a contract and recording it and an easy way for a homeowner to contest the recording.
Many jurisdictions, including Philadelphia, allow homeowners to sign up to be notified when any document has been recorded against their title.
In many cases, months pass before homeowners learn that a contract had been recorded against the title. Sometimes the homeowner has died and their family must pay the house flipper to release the claim.
For example, six months passed before Casteel learned that Red Rock REI had recorded the sales contract against her mother’s title. When the Kansas Attorney General’s Office pressed Red Rock to remove the recording, the franchise owner tried to justify the action.
In an email to the attorney general’s office, the franchise owner said he recorded the contract to protect his interest in the property in the event Casteel’s mother “was being dishonest” and tried to sell the house to someone else.
Red Rock didn’t remove the recording until the attorney general’s office issued multiple warnings.
“It might discourage this predatory behavior if the bad actor knows that the homeowner will get notice immediately,” Dugan said.
Requiring a License
A professional license, such as those required for real estate agents, isn’t a guarantee against unethical behavior. But experts said licensing could require a basic education so that wholesalers know such things as real estate laws, what should be included in a contract and what disclosures homeowners are entitled to. A licensing board could investigate homeowner complaints.
Philadelphia’s licensing of residential real estate wholesalers has provided transparency into who is wholesaling, Dugan said. The law also allows homeowners to cancel contracts at any time before closing if they’ve sold to an unlicensed wholesaler, which is a strong incentive for wholesalers to become licensed.
Kevin Link, a former Financial Industry Regulatory Authority investigator who co-owns a house-flipping business in Maryland, said he would welcome more regulation of the industry to weed out bad actors and ensure that those in the business have a minimum level of real estate education.
“Right now, the only regulations in place are those that govern white-collar crime,” he said.
HomeVestors’ corporate spokesperson said the company isn’t opposed to requiring wholesaler licenses.
“We look forward to exploring this, as well as other constructive ideas, on how we can best protect consumers within our industry,” she said.
A Need for Federal Regulations?
Real estate regulation is largely the domain of cities, counties and states, creating a patchwork of policies and varying degrees of oversight and transparency. Because many regulatory bodies can only investigate licensed real estate activity, wholesalers often operate without the same guardrails as real estate agents.
Federal regulations to standardize local oversight, similar to the Secure and Fair Enforcement for Mortgage Licensing Act passed 15 years ago in the wake of the financial crisis, could help. The SAFE Act, which passed in 2008 after the explosion in predatory mortgage practices helped inflate a housing bubble and spark that year’s financial crisis, requires minimum local licensing standards for mortgage originators.
“I think a federal statute could be very helpful and meaningful,” Mancini said.
Rather than leaving it to states to enact a regulatory model, however, Mancini said federal rules could be applied to “we buy houses” transactions, such as by allowing a homeowner to cancel a sale if they have never publicly listed the home or obtained an appraisal, didn’t have a real estate agent or were directly solicited to sell the house.
She said states could also follow Maryland’s lead and ensure their unfair and deceptive acts and practices laws explicitly apply to real estate purchases in which high pressure sales tactics are used or a homeowner has been misled about the value or marketability of their house.
Mollie Simon contributed research.
