Where Are the Deeds?
In a Allegheny County court ruling issued in November 2021, corporate landlords were ordered to deed 285 Pittsburgh-area homes to their renters. The companies are fighting the decision with an appeal.
The South Carolina company Vision Property Management boasts of its massive inventory of “affordable lease-to-own property opportunities.” But Vision and other rent-to-own companies are often criticized for preying on cash-strapped people. Once these agreements are signed, the residents are expected to repair the neglected homes that these companies buy for profit.
Deceptive Business Practices? Companies Are “On Notice” in Pennsylvania
In 2016, the Pittsburgh Post-Gazette reported on the case of a hopeful homeowner who filed a complaint with the state Attorney General’s office. The individual had signed one of the Vision company’s rent-to-own agreements. Out of the monthly payments of $420, a paltry $33 was actually being directed to the home purchase. At this rate, seven years after signing the agreement, less than $3K of the $48K purchase price was paid off.
Pennsylvania’s Attorney General sued Vision Property Management in 2019.
The state focused on deceptive sales ploys. Companies were expecting people of modest means to spend their own funds repairing foreclosed and dilapidated properties. When the renters fall behind on payments, they face eviction. They have no ownership rights.
On November 18, 2021, Pennsylvania announced a “major victory” against Vision Property Management and its affiliates. The court declared that the contracts are over, and paid off in full. Renters who were “ripped off” will finally be homeowners, said Pennsylvania Attorney General Josh Shapiro, who also vowed to seek “fair compensation” for renters already evicted by the company.
Shapiro added that rent-to-own companies operating in the state are on notice: “My office will investigate and prosecute businesses who use predatory tactics to take advantage of consumers.”
News Investigation Becomes Renter Advocacy in Pueblo, Colorado
Rent-to-own headaches aren’t just for Pennsylvanians, of course. In Pueblo, Colorado, the government itself is under scrutiny for holding up renters’ rightful deed transfers. And a media company’s investigation has evolved into an advocacy project to make the transfers happen.
News 5 Investigates received complaints that a government rent-to-own plan has kept hopeful homeowners paying rent for years longer than their contracts required. It was 20 years ago when the Pueblo, Colorado Housing Authority offered 50 struggling households rent-to-own contracts with minimal down payments. The goal? To provide affordable homes, and to support willing residents’ successful transition to ownership in the Oakshire-Hills community of Pueblo.
When these residents accepted the deal 20 years ago, they agreed to faithfully pay rent for a term of 15 years. And they did. But at least five of these renter households are still waiting for their deeds while being told to sign new leases each year. Where, they ask, are the deeds to which they’re legally entitled? When they ask the Pueblo Housing Authority, they hear that the process is in the lawyers’ hands and still being ironed out.
News 5 Investigates has asked the Housing Authority’s executive director for a firm date for the agreed-upon deed transfer. At the time of this writing, there is no firm date. The Colorado Housing and Finance Authority (CHFA), which manages housing tax credits, is handling the paperwork. So are the developers. To convert rental homes at Oakshire-Hills to homeownership, they must provide deed restrictions, title commitments, and purchase agreements.
In late November 2021, the Housing Authority updated News 5 Investigates on the case: “[W]e have made some huge strides and the drafts and final language is being reviewed by legal teams.” News 5 Investigates is pressing for an announcement of the final resolution.
The Contract for Deed: Similar, But Different
Mortgage lenders turn down many applicants — not just people with high debt or low income. When Covid-19 hit, mortgage companies tightened up their credit profile criteria, fearing a possible default wave. Rather than give up on homeownership, some people consider rent-to-own opportunities.
They could also consider the contract for deed, or installment contract, though which the seller finances the transfer. Sellers might offer installment contracts when their properties are hard to sell, or when they know their buyers personally. This kind of seller is comfortable waiting until the end of the agreement period to receive the full price of the sale.
With a contract for deed, both sides negotiate the down payment, the monthly payment and the interest rate, and the insurance premiums and property taxes that the buyer will pay. The seller holds onto the title and can repossess the property of the buyer defaults. But the buyer holds equitable title — until the home is paid for, and the seller signs the deed over to the buyer. Most state property laws have protections in place for buyers who sign contracts for deed. For example, in cases of default and repossession, buyers may be entitled to money for repairs they made.
Sometimes a lease-to-own agreement, by its contractual terms, evolves into a contract for deed.
Pro tip: Check state law to know if a contract for deed needs to be recorded in the county within a certain time after signing.
Buying Without a Mortgage? Look Out for the Risks
As the recent Pennsylvania and Colorado stories show, renting to own can put buyers in frustrating positions. Moreover, if one side is a corporation, the arrangement can be depersonalizing and seriously skewed. Companies offering rent-to-own or contract for deed options have been known to impose harrowing stipulations on people. They might automatically cancel agreements if even one payment is late, or if the buyer can’t purchase the home or secure funding by the end of the term. (A typical contract for deed requires the buyer to make a balloon payment at the end of five years.)
Another risk is the lack of procedures to confirm and safeguard the property value. Where a mortgage lender is not involved, the parties might skip the professional appraisals and inspections. Appraisals ensure the parties understand the current value of the home in the context of its current surroundings. Home inspections highlight the areas and systems in a home that need attention; for buyers, this is a matter of safety.
Finally, we can’t forget to mention the title search. No buyer wants to get that final payment out of the way, receive the deed, and learn about a debt the seller neglected to pay off or didn’t know existed. A buyer or seller working with seller-assisted financing should hire a local real estate lawyer to be sure obvious problems are properly sorted out. An experienced real estate attorney will also draft the necessary contractual language to control what must be done in the event of buyer default. This guidance is extremely important for the financial safety of each party.
Summing Up Real Estate Installment Contracts: Good Tools, If Used Responsibly
When the parties arrange their own real estate financing, they avert a number of costs. They avoid mortgage costs and fees. And even though they might not have to come up with the standard 20% down payments, buyers avoid paying for private mortgage insurance.
In any case, sometimes a rent-to-own arrangement or a contract for deed is the only workable option. Getting a lender’s approval is simply not possible. And this is why rent-to-own and installment agreements have their place in the world of real estate. Sellers and purchasers can forge mutually acceptable agreements — if both sides are reasonable and neither side wields unfair leverage.
As you can see, though, a mortgage in the middle of a transaction does offer a number of underrated safeguards!
Supporting References
Ryan Deto for the Pittsburgh City Paper:“Rent to Own” Companies Ordered to Deed 285 Homes to Consumers in Pennsylvania (Nov. 18, 2021)
Eric Ross for News 5 Investigates (KOAA News 5, Southern Colorado): 20 Years Later: Pueblo Renters Still Don’t Have Deeds in 15-Year Lease-to-Own Government Housing Program (updated Oct. 14, 2021).
Cynthia Myers for The Nest: Contract for Deed Versus Lease to Own.
Deeds.com: What Is a Contract for Deed? (Dec. 18, 2018).
And as linked.
Photo credits: Liza Summer and Ekaterina Bolovtsova, via Pexels.