Rhode Island Abolishes NTRAPs to Protect Homeowners

Categories: Rhode Island Business NewsRhode Island News

Rhode Island's new law aims to protect homeowners from predatory real estate practices and NTRAP agreements.

News Summary

Rhode Island has passed a law to eliminate non-title recorded agreements for personal services (NTRAPs), safeguarding homeowners from predatory real estate practices. The bipartisan legislation prohibits NTRAPs from being recorded on property documents, preventing harsh penalties tied to early contract termination. This move comes as part of a growing trend across New England to enhance homeowner protections, following similar actions in New Hampshire. Advocates highlight the significant legal and financial burdens posed by NTRAPs, which can trap homeowners in long-term agreements that limit their financial flexibility.

Rhode Island has recently enacted a significant law aimed at abolishing NTRAPs (non-title recorded agreements for personal services) in an effort to safeguard homeowners from predatory real estate practices. This move marks a critical step in protecting the rights of homeowners who often find themselves ensnared in long-term, restrictive contracts with real estate brokers.

The legislation received bipartisan support in both chambers of Rhode Island’s state government and was signed into law last month. The new law explicitly prohibits the attachment of NTRAP agreements to property records, rendering them unenforceable. This is a notable change, as such agreements can previously impose severe penalties for early termination and complicate refinancing opportunities for homeowners.

Rhode Island’s action follows a similar law enacted by New Hampshire in July. New Hampshire’s governor approved the proposed legislation, which had been introduced earlier in January, signaling a growing legislative effort across New England to counteract these detrimental agreements. Currently, a total of 34 states have implemented protections against NTRAPs, highlighting the expanding recognition of the need for homeowner safeguards.

Understanding NTRAPs

NTRAPs often entice homeowners with cash gifts to sign agreements granting a single broker exclusive rights to sell their property for an extended period—up to 40 years in some instances. These contracts create substantial financial burdens, with removal fees sometimes reaching 3% of a home’s value when an owner wishes to free their property from these encumbrances. The complexities grow even greater during life changes such as divorce, death, or foreclosure, leading to additional fees and challenges when attempting to refinance or access home equity.

Legislators like Rhode Island’s Rep. Susan Donovan have described these agreements as roadblocks for homeowners seeking to make financial moves such as refinancing or securing equity loans. The consequences of NTRAPs have been especially pronounced since they emerged in property records in 2018.

Legal and Industry Reactions

Elizabeth Blosser, representing the American Land Title Association, has pointed out the necessity of ensuring that homeowners’ rights are preserved against unreasonable constraints imposed by these agreements. The new Rhode Island law includes stipulations that will penalize brokers who try to work around the law and record NTRAP agreements. In cases where brokers evade the regulations, these agreements will be erased from property records.

Simultaneously, MV Realty, a noted provider of NTRAPs, finds itself in legal turmoil across 11 states as it declared bankruptcy in 2023. At that time, the company had around 38,000 agreements under contract. It has since consented to release thousands of clients from these agreements in Florida in response to state compliance pressures. The company’s CEO also heads Stone Brook Partners in North Carolina, which is currently under scrutiny for similar practices.

Future Developments

The ongoing discussions about NTRAP legislation coincide with a broader examination of the real estate industry’s dynamics in relation to existing home sales, which are not factored into GDP calculations but can significantly influence market activities. Scenes of legislative progress are matched by increased foreclosure rates observed in early 2024, followed by a decline later in the year, as reported by Attom.

Advocacy groups, such as the American Association of Retired Persons, are committed to fostering similar protective legislation in other states, aiming to extend the reforms initiated in New England. The trend reflects a growing awareness of the need for legislative frameworks that protect homeowners from exploitative real estate practices.

This concerted response across New England underscores the urgency of addressing predatory tactics in the housing market. By establishing more robust legal protections, states are taking crucial steps to empower homeowners and thwart problematic practices that jeopardize their property rights.