NEW YORK – Aug. 23, 2016 – In an effort to turn more of their renters into homeowners, landlords increasingly turn to rent-to-own contracts.
But a recent investigation by The New York Times calls into question some rent-to-own agreements, arguing that some of these deals are risky, lack consumer protections and may not even be enforceable in some states.
Smaller firms, in particular, tend to offer renters the opportunity to lease less expensive homes with an option to buy. But housing lawyers are reporting an increase in disputes involving rent-to-own transactions and cautioning renters to read contracts carefully before they sign.
In one recent case, the city of Columbus filed a lawsuit against Vision Property Management. The company, which owns more than 5,500 homes nationwide, does not offer regular leases or mortgages but instead “rent-to-own” agreements that require tenants to make all repairs, no matter how big.
After signing the rent-to-own agreement, however, some renters discovered building code violations and major problems with their homes. One renter told The New York Times he received an $8,000 bill for the cost to install a new sewage system. The renter says Vision helped him find a contractor to make the repairs but then rolled the cost into a new contract, which then valued the property at $60,000 and increased his monthly cost by $65 a month.
Vision maintains that it offers a “full and unconditional refund” to tenants within the first 30 days of a contract.
“Our goal is to put people into houses and turn renters into homeowners,” Landlord Alex Szkaradek said, and such rent-to-own agreements help residents with poor credit to qualify for mortgages and obtain homeownership one day.
The recent New York Times investigation seems to dispute their lofty goal.
“Most tenants walk away with nothing, having sunk money for rent and repairs into homes they had once hoped to own,” The New York Times reports. “Others faced surprise evictions, having signed a contract that did not disclose what repairs were needed, yet set a deadline for making sure the home was up to local housing code. As different tenants move in and out of the same property over the course of years, many homes fall further into disrepair.”
“We’re seeing an influx in these contracts,” Katarina Karac, a city lawyer for Columbus, who is involved in one case the city has against Vision, said. “It looks like a landlord-tenant relationship, except instead of having the landlord take care of the property, they are putting that obligation on the tenant.”
Some renters now say they were confused by the contracts’ terms and requirements when they signed. They later found they were stuck with big, unexpected bills for repairs.
“They signed their leases and put down an initial payment to reserve the right to buy the house,” The New York Times reports. But “unlike most typical home purchases, rent-to-own contracts have no requirement to obtain an independent home inspection. The customers contend they were not informed of outstanding issues with Vision’s homes, many of which the company had bought for $10,000 or less.”
In addition, tenants who leave before the end of their seven-year contract leave with nothing. They don’t receive any credit for the money spent on repairs or renovations while they lived there, and they don’t receive legal title to the home until they make the last payment to the landlord. Even then, they still often need financing to complete the deal.
Most states require landlords to keep homes and apartments they lease in habitable condition. Housing experts argue that such landlord obligations cannot be waived.
“If it’s a lease and they are claiming that none of the landlord-tenant obligations apply, then I would argue they have to adhere to federal truth in lending rules,” says Judith Fox, a professor of law at the University of Notre Dame. “You can’t have it both ways.”
Source: “Rent-to-Own Homes: A Win-Win for Landlords, a Risk for Struggling Tenants,” The New York Times (Aug. 21, 2016)
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