When Your Fixer-Upper Isn’t Yours: The Struggle for Rent-to-Own Deed Rights

Maria and Enrique, a real couple with one young child, signed a contract for deed. They believed they were buying themselves a fixer-upper home. They restored the plumbing, electricity, heating and AC, and finally moved in.

But when they felt ready to sell their fixed-up home, they were told their seller never fully owned it in the first place.

Let’s look at how rent-to-own agreements can backfire, and why.

When a Contract for Deed…Isn’t

With a contract for deed, renters get a really attractive promise. They get the opportunity to try and buy their home before the lease agreement is up.

Some businesses offer such contracts to consumers who could be rejected by mainstream finance companies. But because they lack the regulations that apply to bank loans, these agreements have been highlighted by the Federal Trade Commission as high-risk.

Maria and Enrique paid a $10,000 nonrefundable fee up front. They thought it was a fair down payment for the home, which was priced at $85K. But the $10K wasn’t a down payment.

Recently, a District Court judge sitting in Sedgwick County, Kansas ruled that the contract Maria and Enrique signed was both fraudulent and “unconscionable.” The main issue? The sellers didn’t have the right to transfer the deed.

Turns out the sellers never had full ownership of the home — they themselves were still buying it —  even though they signed a contract saying they owned it free and clear, and were giving Maria and Enrique the option to buy it. And this all happened despite the fact that the couple worked with a licensed real estate professional.

Humiliated and angry, Maria and Enrique moved out of their home.

But they did haul the seller into court. And the judge decided the contract misrepresented the seller’s right to transfer the deed, and the couple were owed $10,000 back.

Post script: Because the couple pulled the systems out of the home that they’d installed, the court wouldn’t make the seller pay back that $10,000. The couple was out the costs of renovations — including $5,000 to restore plumbing and $8,000 to install a heat pump system — and several years of lost equity building they could never get back.

Language Barrier

Maria and Enrique are in Kansas, just south of Wichita. In their area, contracts for deeds are fairly common tools for home seekers. This is also an area where many of the residents speak Spanish.

Rent-to-own contracts can have plenty of unclear or hard-to-understand language, even for people whose native language is English. So, for Spanish-speaking people like Maria and Enrique, the paperwork can be treacherous.

Sandra Lopez, of the Register of Deeds office in Finney County, Kansas, told a representative of the Kansas Leadership Center about meeting several Spanish-speaking home buyers. They’ve come in asking for copies of deeds to homes they believed they owned. The buyers who sign contracts for deeds, says Lopez, are vulnerable to misreading their sellers’ legal agreements.

And the contracts themselves can be misleading. The contract Enrique and Maria signed was written in English, and titled Lease Agreement With Option to Purchase. So the purpose seemed straightforward enough. Their agreement does refer to the couple as tenants — but also refers to them as buyers.

“It Ought to Be Illegal…”

It’s common for rent-to-own residents to lose their homes for falling behind by even one month. A mortgage is more protective than that.

Granted, some of these contracts work. When they do, they open a route to homeownership for hardworking people, who might successfully buy out a home seller over a decade or so. But the buyer has to know that the seller is above board.

There are sellers out there who abuse rent-to-own contracts by charging large sums up front, leaving households in a weakened position when it’s time to pay the monthly rent bills. When the buyers fall behind, unscrupulous sellers evict them, keeping their upfront money. Then, these unethical “sellers” look for other hopeful buyers to exploit.

Federal consumer-protection watchdogs consider the contract for deed a common tool for predatory lenders, and they’re cracking down on Truth in Lending Act violations. The Feds are also forcing seller-financers to give hopeful buyers more time if they make late payments.

Some states are also on this issue. A bill introduced in Kansas would require sellers to have full ownership of the properties they purport to sell. Where a Kansas seller has taken out a mortgage on the home and that lien is still on the title, the future law would force disclosure.

Reformed laws could make it too burdensome for small, fair players to keep working in this area. But it could prevent massive rip-offs, too.

Meanwhile, in Pennsylvania…

Remember the Vision Property Management lawsuit? Pennsylvania’s Attorney General sued the company back in 2019 for trading in illegal rent-to-own agreements. Here’s how it played out:

• The company settled the legal action this year. With the money they had to give up, people who entered into “agreement for deed” contracts but never got their deeds will get restitution payments from Archway Community Properties and Vision Property Management.

• The state’s action also resulted in Allegheny County’s Common Pleas Court ordering Vision Property Management to cough up deeds for about 250 households.

Attorney General Michelle Henry of Pennsylvania has also announced recent settlements with companies supplying rent-to-own furniture. Pennsylvania has acted on unfair rental agreements from Mattress Firm, Big Lots, Snap Finance, Ashley HomeStore, and also Progressive Leasing of Utah, which was charging Pennsylvanians as much as 152% interest on rental items.

Is a rent-to-own agreement the same as a contract for deed? Vision Property used both, although the terms aren’t precisely interchangeable. We explain the nuanced differences between the two forms of seller financing ← here.

Renting to Own: Pro Tips

If you enter into a rent-to-own arrangement with a business:

• Explore past histories and customer reviews for real estate businesses before considering them legit.

• Consider hiring a lawyer. It’s usually cheaper than hiring an agent, and then the legal knowledge is there.

• If English isn’t your first language, use a translator for any documents involved.

Finally, avoid the urge to trash a home if a deal goes awry. As the Kansas case illustrates, you might want to preserve your options in court. A judge could subtract the costs of improvements you’ve undone from any award of damages you receive — even if you made the improvements.

Whenever you think about legal action concerning a deed dispute, think about hiring a reputable lawyer in the state where the property exists.