Cash today in exchange for promising to use a specific real estate agent whenever you decide to sell?
For hundreds of Maryland residents, it was a tempting offer. It also may have been too good to be true.
Homeowner Benefit Agreements: How They Work
They are called “Homeowner Benefit Agreements” or HBAs. Provided by licensed real estate brokerages, they gave current homeowners anywhere from $500-$2,000 in up-front cash payments that could be used in any way that the homeowner wished. In return, the homeowner signed a binding agreement that they would use that brokerage for the sale of that residence for the next 25 to 40 years.
To ensure that agreement would be met, it was recorded in the home’s property records. The agreement also included a termination fee should the property owner choose not to use the real estate brokerage for the sale – in an amount up to 3% of the home’s value. Depending on what the home is worth, that termination fee could reach $10,000 or more.
Impacts to Homeowners
Aside from the differential between the upfront payment and the termination fee, these agreements presented other difficulties for homeowners.
First, because the agreements were recorded in the property records, they traveled with the home and not just the property owner. If a property owner passed away, the heirs were still bound by the agreement terms. In some cases, the heirs did not even know that the owner had signed the agreement until they were in the process of selling the home.
HBAs could also present issues when the homeowner was not selling the property. Because the agreements were recorded against the property, the owners could face difficulties when trying to refinance their mortgage or access their home equity. Finally, the agreements are still in effect – and a termination fee due – even if the property was foreclosed upon by the lender.
Often, homeowners stated that they did not fully understand these parts of the agreements before signing.
What Maryland Homeowners Should Know
Starting June 1, 2023, a new law passed by the General Assembly places limits around HBAs. After that date, an HBA cannot be in effect for longer than 1 year. Most importantly, they cannot be recorded in the property records, preventing many of the issues described above.
However, these changes do not impact the nearly 600 HBAs that are already recorded on Maryland properties. For that, consumers will need to follow a separate process through the Maryland Office of Financial Regulation (OFR). They recently wrote:
… OFR has serious concerns regarding the legality of these types of agreements. Notwithstanding the new law, in addition to potentially being deemed unfair, abuse or deceptive, these types of existing agreements may also be deemed to be loans or extensions of credit…
If the entity that offered or is offering the product was or is unlicensed and not exempt from licensing and the agreement is determined to be a loan or extension of credit, that agreement may be void and unenforceable and the entity making the agreement could be subject to penalties and other enforcement actions from OFR. OFR is advising consumers who have previously entered into one of these agreements to seek legal counsel or to file a complaint with OFR if they have concerns over the legality of the transaction.
If you signed an HBA in Maryland before this new law took effect and believe you were mislead by the company, you may file a complaint at the OFR website.
If you have questions, please contact OFR’s Consumer Services Unit by phone at 410-230-6077 or by email at CSU.Complaints@maryland.gov.