ClearCast Episode 1: Should Home Buyers Fear Rent-to-Own Arrangements?

This morning, the New York Times published a very interesting exposé on rent-to-own agreements, with the examples cited from South Carolina and Ohio.

The article is worth reading in full, but to quickly summarize: Many folks out there are signing rent-to-buy agreements as a cheap alternative to buying a home. However, people are not aware of the terms of some of these agreements. There are examples cited in the article of people putting $10,000 into repairing their homes, only to be evicted for a missed rent payment.

Do Nevada consumers need to be concerned about rent-to-own leases? Will Nevada law protect you?

 

 

If you would like to see the video produced along with the article, you may see it below:

 

Transcript:

Hi, my name is Jordan Flake. I’m an attorney with Clear Counsel Law Group. Welcome to ClearCast and the goal of ClearCast is to take issues that are in the news and hopefully offer some kind of helpful legal insight or at least move the discussion along, hopefully in a productive manner.

I was reading the New York Times this morning and I learned something that might be of interest to some of our Nevada citizens because it has to do with property.

It seems like Nevada is a state where when we’re talking about real property and homes, a lot of interesting stuff happens in Nevada, California, and Florida. This is something that is happening throughout the country but not as much in Nevada but it’s still something that we really need to look out for.

The article is called “Rent-to-Own Homes: A Win-Win for Landlords and a Risk for Struggling Tenants”. Let me describe what a rent-to-own scenario is.

In the wake of the financial disaster home situations happened over the course of the last several years, several homes stayed vacant and big conglomerates, real estate conglomerates would come along and purchase up these small homes, maybe for $10,000 because they’re just vacant homes sitting on lots, they’ve fallen into disrepair.

Well, they have some options at this point, these conglomerates, these real estate conglomerates could pour a lot of money into these homes and try to sell them or they could pour a lot of money in these homes, bring them up to code and try to rent them out.

They could either sell them or rent them out.

What these real estate companies decided to do is kind of a tricky third option and the tricky third option that they tried to do and they’re trying to do is something called a rent-to-own contract.

The reason it’s tricky and worrisome is because there are a lot of protections for renters and there are a lot of protections for purchasers, but what these sophisticated real estate companies are trying to do is create this third path that really doesn’t offer very many consumer protections and let me show you a little bit what that would like like.

 

An Example of How Rent-to-Own Would Work

They purchase a house in South Carolina for $7,000 because it’s fallen into disrepair, nobody wants it, and it’s far, far below code and there’s all kinds of unpaid violations for this, that and the other, and then they go to a potential tenant and they say, “Hey listen. Not only can we rent you this property but what we’ll do is it will be a rent-to-own situation. You’re not a traditional renter and you’re not a traditional buyer but what you are is you are renting to own this property and we’re going to have you to come move into this. You pay $1,000 down or $1,500 down and you start paying $600 per month, and at the end of the long lease term, then you’ll actually own this property.”

They move in and they’re like, “Okay, good. This is great.” Then they find out that the renter is responsible for making repairs and the way the real estate company gets away with that is they say, “Okay, you’re not a traditional renter. You’re actually renting to own this property so because of that, you have to pay for the repairs.”

They’re not a traditional seller and so it’s not like that the home is actually in their name, they’re not a traditional seller-buyer operation so the home isn’t in their name.

They’re sitting there in this ambiguous third category where the renter is responsible for paying to bring this house up to code and to put money into it.

Guess what? The real estate company is actually still in the driver’s seat because all of a sudden, the renter is using all the money to bring the home up to code and misses two or three rent payments, and they can just kick them out.

Now they have a property that now has that much more value because the renter put money into it. They can then turn around and rent that to somebody else who will then put more value into it.

They keep getting this home that gets more value into it with really no intention to ever have it be sold because they just can arbitrarily kick people out.

This is the type of thing that has come out of this new strange landscape after the housing collapse. This is something that I want Nevada consumers to be very aware of.

 

Make Sure You Read Your Lease Carefully

Are you getting into something that sounds like a rent-to-own type scenario? Are you in a position where you’re being asked to put repairs into your house, but you’re not certain whether or not you should be paying for those repairs? Are you do something that is neither a traditional landlord-tenant type arrangement nor is it a traditional residential purchase type arrangement? Because if you are, you could be on very thin ice.

Landlord and tenant law is very well established and there are certain rights and protections that the tenant has and the landlord has. Residential purchases are very well established and there are certain protections given to both the buyers and the sellers.

What we have is real estate companies and sophisticated parties attempting to come and occupy this strange gray area where they lure people in saying, “Hey, you can own a home. Put down the money on this and start making these repairs and start paying rent and pretty soon the house will be yours.” There’s no protections and there’s no really great established body of law.

We look through the Nevada revised statutes and couldn’t find anything that was directly on point in these situations.

Again, we have established law for landlord-tenant, established law for residential purchase, but nothing in this third category.

If you’re aware of these situations, if you are involved in one of these situations, maybe you’re an owner or a landlord who actually wants to do this the right way.

These are all reasons to give us a call and we can help you figure out how to stay on top of it and how to do this is an honest and accurate way.

In any event, my heart goes out to those tenants who are right now potentially being exploited by these more sophisticated parties and it will probably be years and years and years before the law really catches up and addresses these different situations.

This is basically what I noticed this morning and what had got me thinking about.

Please feel free to reach out to Clear Counsel Law Group if you have any questions or issues and also on our Twitter and Facebook pages or our blog. We’re very interested to hear your own experiences and your own comments.

Thanks so much.

 

Clear Counsel Law group

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