Rent-to-own agreements reside in a gray area of the law. The deals are risky, lack consumer protections and may not be enforceable in some states.
COLUMBIA, S.C. — Alex Szkaradek is a landlord who seems to have the best of both worlds.
Szkaradek, 36, collects rent, but he never has to pay for repairs on any of the more than 5,500 homes — many of them rundown — that his firm manages across the country.
The firm, Vision Property Management, blurs the line between what it means to be a renter and a homeowner. These companies do not offer regular leases or mortgages — they offer “rent to own” contracts on homes that require tenants to make all repairs, no matter how big or small.
Szkaradek says Vision, a leader in the fast-growing market, is bringing the dream of homeownership to Americans who lack good credit or are too poor to qualify for mortgages.
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In many communities, housing prices have recovered from the financial crisis. At the bottom end, however, banks have all but stopped making loans for homes worth less than $100,000, leaving millions of people with few options.
But these rent-to-own agreements reside in a gray area of the law. An examination by The New York Times of contracts and court filings, as well as interviews with housing lawyers and more than a dozen of Vision’s customers across the country, found that these deals are risky, lack consumer protections and may not be enforceable in some states.
Most tenants walk away with nothing, having sunk money for rent and repairs into homes they had once hoped to own. 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.
A recent report from the National Consumer Law Center found similar issues with certain rent-to-own programs, calling them deceptive in nature.
When Donna Thomas signed a lease for a Cincinnati home with Vision, she said she was not told it had unresolved building-code violations and a standing order from the city to remain vacant.
Samuel Rankin thought he was starting fresh when he and his two daughters moved out of a 1970s trailer home into a three-bedroom Vision rental home in Alexander, Ark.
But he soon discovered that the house, just outside Little Rock, had no heat, no water and major problems with its sewage system that led to nearly $10,000 in repairs.
Thomas’ and Rankin’s cases are not isolated, The Times found. It is difficult to measure the size of the rent-to-own housing market. Nobody tracks activity, and few rent-to-own agreements end in actual purchases, so they tend not to be recorded.
Across the country, however, dozens of smaller firms offer to lease cheap homes with options to buy, such as Vision does. Entrepreneurs conduct how-to seminars at conferences for small landlords hoping to strike it rich. And housing lawyers in cities including Detroit, Philadelphia and Columbus, Ohio, say they are seeing an uptick in disputes involving rent-to-own transactions.
Several big Wall Street companies like the Blackstone Group and Home Partners of America offer programs through which people can buy the homes they are renting. But those homes are often relatively new or recently renovated, and worth well over $100,000.
The deals at the lower end of the market are the ones that worry housing advocates.
“We’re seeing an influx in these contracts,” said Katarina Karac, a city lawyer for Columbus, who is involved in one case the city has against Vision. “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,” she added.
Every home rented by Vision comes “as is” and has strict contractual terms that require a tenant to pay for any repairs, no matter how big. Renters are given a few months to deal with any outstanding building-code violations and to make the homes habitable.
In interviews, as well as in court documents, customers said they were confused by the contracts’ terms and requirements, and were not sure whether they were owners or renters.
They signed their leases and put down an initial payment to reserve the right to buy the house.
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 homes, many of which the company had bought for $10,000 or less.
Tenants who are evicted during the tenure of these seven-year contracts walk away empty-handed, receiving no credit for money spent on repairs or renovations.
Szkaradek, of Vision, said the firm had a small team that worked with municipal officials to address outstanding code violations. In subsequent emails, he said Vision offered “a full and unconditional refund” to tenants within the first 30 days of a contract and the firm had consulted with regulatory counsel in drafting its contract.
“Our goal is to put people into houses and turn renters into homeowners,” Szkaradek said during an interview at Vision’s offices in a two-story building on the outskirts of Columbia, S.C. He declined to comment on specific cases.
Szkaradek refers to Vision’s seven-year contract as a “hybrid lease” that enables renters to build up “implied equity” with each monthly rent payment. Vision works with clients to help them through the process of managing payments, he said.
Vision, which does not provide financing for tenants to buy homes, pointed to Rankin as one client it has worked with to help make a home livable.
In October, Rankin moved into his home after signing a contract that valued the three-bedroom house at $38,000. There was no carpeting and no linoleum on the floors, and the walls were covered with what Rankin described as a tar-like substance.
These issues seemed easily fixable, though, Rankin said, because he runs his own flooring company.
But not even a craftsman like Rankin was prepared for the biggest problem with the house: a condemned septic tank that the local water department said needed to be upgraded.
The cost to install a new system was more than $8,000, Rankin said. Vision helped him find a contractor to make the repairs, but it rolled the cost into a new contract that revalued the purchase price of the home to $60,000 and increased his monthly costs by $65, to $470 a month.
“Financially, they kind of stuck it to me,” Rankin said. But, he added, “When you don’t have any options and someone is willing to work with you, it’s really a blessing.”