rent to own scam

In recent years, some real estate entrepreneurs have begun marketing homes under so-called “rent-to-own” deals.  While the notion of renting-to-own can appeal to consumers as an affordable path to homeownership, in practice rent-to-own is most often a predatory scheme that saddles consumers with all the costs and burdens of home ownership (such as making repairs and paying the taxes and insurance) but none of the benefits and protections (such as building equity).  Sadly, there are hundreds of homes currently being advertised as “rent-to-own” in Virginia, with an unknown number already under contract.

Buyers who enter into rent-to-own transactions tend to make significant down payments and then devote additional funds and efforts into repairs and improvements, only to forfeit those investments when—for various reasons—they wind up unable to complete the purchase.  Not only are rent-to-own contracts notorious for containing tricks and traps that may enable a seller to forfeit the buyer’s interest, but often the properties are in poor condition and sold for well above their market value—preventing the buyer from obtaining the needed financing.  After the seller declares a forfeiture, the buyer can be evicted from the home and loses her entire investment—and the seller then puts the property back on the market and cycles another family through the same ordeal.

Not only are rent-to-own deals financially harmful to consumers, but the properties marketed through rent-to-own companies are often in substandard or even dangerous condition.  Rent-to-own operators use these transactions as a way of essentially collecting rent for their unsafe properties despite avoiding the obligations that honest residential landlords owe to keep premises safe and fit for occupancy.

Therefore, the VPLC is advocating for new legislation in the 2018 General Assembly session that would require basic fairness in rent-to-own real estate transactions.  If enacted, this legislation would:

  • Require all the key transaction terms to be disclosed to consumers in a clear manner using standard calculations;
  • Require all taxes must be paid and liens disclosed at the outset of a contract, and for all contracts must be recorded;
  • Provides a right to pre-pay the contract without penalty (so that a buyer who is able to secure financing from a more trustworthy source can do so);
  • Ensures 60 days’ notice and a meaningful right to cure before a buyer’s interest can be forfeited for default; and

The seller must foreclose (rather than just forfeit the buyer’s equity) when a delinquent buyer has paid more than 25% of purchase price.