'Set up to fail': Report details the nightmare would-be homeowners can face in 'rent-to-own' agreements

07 July 2023

In the United States, homeownership has long been regarded as an important symbol of middle class life. But the Wall Street crash of September 2008 and the Great Recession brought a world of misery to countless would-be homeowners, from foreclosures to poor credit scores.

For Americans who are having difficulty obtaining a traditional mortgage, so-called "rent-to-own" or "lease-purchase" agreements can seem like an attractive alternative. But Business Insider's Rebecca Burns, in a report published on July 7, warns that would-be homeowners need to take a close look at such agreements and the companies offering them before they sign anything. Some of these agreements, according to Burns, can turn into a nightmare.

One such company is Home Partners of America, which was founded in 2012 and acquired for $6 billion by private equity specialist The Blackstone Group in 2021. Home Partners, according to Burns, "now owns more than 28,000 homes nationwide.

"In its marketing," Burns explains, "Home Partners emphasizes that it offers 'flexibility, choice and transparency,' providing the opportunity to 'rent your dream home' without making a long-term commitment…. Yet Home Partners tenants, in interviews and court documents, say they got stuck in barely livable dwellings, with leaking sewage, broken air conditioners, filthy carpets, or nonworking electrical outlets. They describe being blocked from seeing home-inspection reports and facing swift eviction filings for a single late payment. One tenant filed a lawsuit claiming she suffered injuries when the ceiling of her home collapsed."

Burns notes that according to Moody's Analytics, over 4000 people who started out as Home Partners tenants ended up buying the homes they started out renting over the past decade. But roughly 15,000, during that same period, moved out without buying the homes.

"An analysis of contracts and sales and eviction data shows that rent-to-own tenants are often left with the worst of all worlds," Burns reports. "They have to shoulder many of the costs and responsibilities of homeownership, and the financial odds are stacked against them to end up as owners. Meanwhile, many are paying above-market rent."

Business Insider, according to Burns, interviewed "dozens of Home Partners tenants in more than ten cities" — and those interviews "may shed light on why the deals so often fall through."

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One of the former Home Partners customers Business Insider interviewed was Atlanta-area resident Erica Hines-Denson, who rented a home listed at $275,000 with the hope of buying it after five years. But the company "locked her out of the online payment portal after she missed a single month's rent," and she later moved out after Home Partners "filed for eviction." Hines-Denson told Business Insider she feels like she was "set up to fail."

"Many tenants said they face pressure from realtors with a financial incentive to close the deal quickly," Burns reports. "The company has blocked access to the homes' inspection reports, so tenants have no idea if serious repairs are needed. And lawsuits allege that opaque contracts and absentee property managers effectively foist the responsibility for maintenance onto the tenants. When it comes time to buy, tenants are locked into annual increases in the purchase price — and stuck lining up their own financing."

The reporter continues, "Yet mortgage approval remains out of reach for many of the credit-impaired tenants that Home Partners targets…. As higher interest rates cool home prices in some markets, many rent-to-own tenants are locked into an inflated purchase price."

Read Business Insider's full report at this link.

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