Rules around contract sales endanger Cedar Rapids couple’s retirement

Janice Henley has two new hips and husband Virgil, two new knees.

They're still standing - in fact, they stand a lot during the work day, which finds 70-year-old Virgil and 68-year-old Janice cutting hair, side by side, in their 40-plus-year-old barbershop at 2800 Center Point Rd. NE.

What is crippling the Henleys, financially and emotionally, are laws and rules that they say have little regard for people like them, who were acting something like a bank and selling modest homes on contract when the homes were destroyed by Cedar Rapids' June 2008 flood.

The Henleys are seeking answers from City Hall on four homes and their son, David, on a fifth, all of which are slated to be bought out by the city. City officials say, however, that it is the person buying on contract at the time of the flood who is considered the owner of a property, not the contract seller.

In situations like the Henleys' - where the buyer has forfeited the property and vanished - the Henleys are treated just like the speculator who drops in after the flood, buys property on the cheap and hopes to get a big buyout payment later. Rules designed to protect against that allow the contract seller, like the speculator, to receive only the post-flood value for the property.

In Cedar Rapids, that amount is $5,000 - the value of the lot.

The four Henley contract-sale homes - at 1247 Third St. NW, 1302 Third St. NW, 616 Fifth St. SW and 819 Eighth St. SW - had a total pre-flood assessed value of $207,822. Under current rules, they will receive a total of $20,000 at buyout. Their son's home at 1412 First St. NW had a pre-flood assessed value of $66,903, with $5,000 at buyout.

Nearly all the 1,300 or so properties that the city is expecting to buy out were owner-occupied or rental properties, and those owners will receive pre-flood value for their properties. The city has identified 87 properties, however, that were being sold on contract at the time of the flood.

It's not yet clear, said Rita Rasmussen, the city's senior real estate officer, how many of those contract buyers fled and left sellers like the Henleys holding a house worth only its post-flood value.

The Henleys note that their buyers got early disaster payments from the Federal Emergency Management Agency of up to $28,800. That amount was far in excess of the equity the contract buyers had built up in their contracts with the Henleys, and so now, those buyers have no incentive to reappear for a city buyout. If they did, the Henleys could make a claim on the early FEMA payments. As contract seller, the Henleys got no FEMA money.

Banks and traditional mortgage lenders can find themselves in the same boat, in instances in which the bank or mortgage lender foreclosed on an owner, Rasmussen said.

For the Henleys, the problem doesn't end there. They also own two flood-damaged rental properties on the city's buyout list, which together have a pre-flood value of $99,896. Neither property is among the first group of 100 or so properties that the city is buying out now.

Time, the barbers say, is running out on their financial solvency.

If there is good news, it is that the City Council in December preliminarily identified contract-sales properties as “a gap” in the city's disaster recovery effort for which the city's local-option sales tax revenue might be used. The gap totals about $6 million, the city estimates.

“What worries me is when,” Virgil Henley says.

The Henleys are small-business owners in what they acknowledge is a vastly transformed profession of barbering, which has lost much of its traffic since they started cutting hair in the 1960s. On the side, the Henleys dabbled in property rental, some of which turned to contract sales as Virgil Henley aged and tired of upkeep.

The income from the contracts was supposed to help pay for a retirement that has yet to come.