Quest for home ownership turns dreams into nightmares
A predatory rent-to-own program run by a company called Vision Property Management has offered the promise of future ownership in low-income neighborhoods, but many of the homes tendered by the company needed expensive repairs. And after fixing the problems, some residents soon found eviction notices on their doors. Karla Murthy reports from PBS Newshour Weekend.
TRANSCRIPT
Hari Sreenivasan:
This month, the Department of Housing and Urban Development announced that homeowners on the verge of losing their homes due to the coronavirus may now have till the end of August. That’s because the agency is extending a moratorium on single family home foreclosures, which was set to end next week.
Still, housing advocates warn that a foreclosure crisis, similar to the one during the great recession, could be looming. That crisis helped spawn the rent-to-own model. It was marketed as a way to help low income people who often couldn’t qualify for a mortgage become homeowners.
Special Correspondent Karla Murthy bring us this report produced – in part – before the pandemic. It is part of our ongoing series about poverty and opportunity in America: Chasing the Dream.
Karla Murthy:
In the spring of 2015, Tara Brown went to look at a little bungalow on Pasadena Avenue in Youngstown, Ohio.
Tara Brown:
And I fell in love with it. This little red White House. And it was like the perfect size for us. And it didn’t seem like it needed much work.
Karla Murthy:
The house was owned by Vision Property Management, a real estate firm that advertised “affordable” ways to turn “renters into homeowners,” without a traditional mortgage.
Because of bad credit, Brown, a waitress who lives with her boyfriend and their son, never thought owning a home was possible. The contract stated they would have to pay about $450 a month to Vision Property along with a small down payment. With a household income of $36,000 a year, it seemed doable.
Karla Murthy:
Why did you want to own a home?
Tara Brown:
It was pretty much about settling, making some roots, giving our child some place he could call home. And we’ve struggled quite a bit. So for us it was, it was the American dream for us to actually have the opportunity to get a house. And we were so excited.
Karla Murthy:
But the excitement quickly wore off. The day after they moved in, her boyfriend tried to get the water turned on.
Tara Brown:
And there was no copper piping in the house. It had been apparently all stripped out of the house. So we kind of panicked. What are we supposed to do?
Karla Murthy:
It took them 6 months to save enough money and put in new pipes. But other issues crept up as well. The electricity in part of the house didn’t work. The furnace was broken. But the worst came when the basement flooded with sewage water, and they had to call a plumbing company for help.
Tara Brown:
And they would not come out because they told us that we were renting our home and they did not have authorization from vision property management to come into our home and do work.
Karla Murthy:
When they said that you weren’t the property owners, what was your reaction?
Tara Brown:
I was shocked. And I told my boyfriend, I said, you know what, honey? I said we had to break out our contract. And we were kind of pretty much in a bad situation.
Karla Murthy:
The contract they signed is called a lease with the option to buy – also known as a rent to own contract. It essentially treated them like renters, but came with all the responsibilities of homeowners. They had the option to buy the house at a later date, but in the meantime, they were responsible for all repairs, paying previously unpaid utility bills, taxes, insurance, along with the monthly payments, or face eviction.
Brown and her boyfriend tried to fix the sewage problem on their own, but the bills started piling up.
Tara Brown:
I felt like these were all my mistakes that I made. And this was our fault that we’re in this situation.This was my home. I was supposed to be excited about this. And I was embarrassed. For me, I felt like I didn’t have a choice.
Karla Murthy:
Unable to keep up with the monthly payments, Tara Brown and her family were evicted. All the investment they put into the house was lost.
Ian Beniston:
This same kind of story kept coming up.
Karla Murthy:
Ian Beniston is the executive director of the Youngstown neighborhood development corporation. YNDC is a non profit that helps low income homeowners with house repairs.
Ian Beniston:
We had received several messages and calls from people saying, you know, I need assistance with my house. But number one, some of them did not fully understand that they did not own their house. They also didn’t understand the condition of the property. I started to see others started to see if possible deception and what people were being told as they were led through these types of transactions.
Karla Murthy:
These kinds of rent to own transactions including land contracts and contracts for deed were originally created to give people who may not qualify for a mortgage the chance to own a home.
Sarah Mancini:
So there were not a lot of these transactions in the 70s, 80s, 90s.
Karla Murthy:
Sarah Bolling Mancini is an attorney at the national consumer law center. She says the foreclosure crisis created a new market for rent to own contracts because cheap houses were available to buy in bulk.
Sarah Mancini:
There were a large number of real estate-owned properties that were available post foreclosure and not a lot of qualified buyers who could obtain a mortgage loan because banks really constricted access to credit during that time period. And in order to draw a stream of income from those properties, they decided to market these properties as rent to own opportunities.
Karla Murthy:
What is known about how prevalent these kinds of contracts are nationally?
Sarah Mancini:
So these transactions really operate under the radar and it’s very difficult to quantify.
Karla Murthy:
She says, that’s because most states don’t keep track of these types of transactions. But she points to research that identified at least 25,000 homes purchased by large real estate companies using the rent to own business model, including Vision Property. And these homes were concentrated in areas hit hard by the foreclosure crisis – like Youngstown, Ohio.
Ian Beniston:
These are properties that would have been owned by some of the companies.
Karla Murthy:
Y.N.D.C. began tracking down houses owned by Vision Property Management which is headquartered in South Carolina. They sent letters to those homes and put information out in the local media.
Ian Beniston:
That resulted in more folks coming forward.
Karla Murthy:
Beniston referred those folks to Community Legal Aid, a non-profit law firm that serves low-income people. In 2018, Legal Aid filed a lawsuit against Vision on behalf of 10 residents, alleging the company engaged in a “pattern of corrupt activities.”
Steve McGarrity:
They had a scheme in place to take advantage of people..
Karla Murthy:
Steve McGarrity is the executive director at Legal Aid. He says many of his clients were told the houses were livable and the purchase prices were often grossly inflated.
Karla Murthy:
McGarrity and his colleague took me to one house owned by Vision that was so deteriorated, it was bulldozed by the city soon after his client got the property.
Steve McGarrity:
How you could sell somebody a property knowing and take their money knowing that the house is condemned. I mean it’s illegal.
Karla Murthy:
What do you say to those people who say they should have read it in the contract? It was in the contract.
Steve McGarrity:
Absolutely. And what I say is that there’s all sorts of protections in place when someone tries to buy a home legitimately. They make sure that they get a home inspection lined up. Most people are not paying cash for properties and so they’re going to get a mortgage. And you can’t get a mortgage from a bank unless the bank gets an appraiser. And so these are protections that stop that potential purchaser from getting a bad deal. None of that happened in this case.
Karla Murthy:
McGarrity believes these contracts were built to fail. A long term study out of the University of Texas looked at these contracts in 8 counties there and showed that only 20% percent actually end up in home ownership.
Outside of Youngstown, Vision has been the subject of numerous lawsuits by state regulators for deceptive practices including Wisconsin, Pennsylvania and New York state.
Tara Brown:
We did not realize that there were other people out there like us
Karla Murthy:
Tara Brown and her boyfriend joined the lawsuit after reading about it in the local newspaper.
Tara Brown:
It made me question, you know what? Maybe I wasn’t wrong. Maybe I didn’t do anything wrong.
Karla Murthy:
In December of last year, Vision Property Management settled the lawsuit in Youngstown. Although the company did not admit to any wrongdoing, they paid the plaintiffs amounts ranging from $5,000 to $25,000.
Steve McGarrity:
You know, these are low income people who don’t have savings in the bank. It was Life-Changing for them. I mean, to be able to get that money back.
Karla Murthy:
FTE Networks, a technology company, recently acquired Vision Property Management in a $350 million dollar deal. In a statement to NewsHour Weekend, the company said it “does not comment on specific litigation,” but that FTE has “begun the process to exit the lease to own model.”
Some municipalities including Youngstown have passed ordinances to protect residents in the future, for instance, by requiring home inspections and appraisals in these types of land transactions.
Sarah Mancini:
So there are policy solutions that would stop this in its track.
Karla Murthy:
But without comprehensive regulation, Sarah Mancini worries about the future.
Sarah Mancini:
The coronavirus epidemic and the economic hardships that so many homeowners are facing will likely lead to another surge in homes that are not accessible to people who then cannot obtain a mortgage loan to buy them. So there is a grave risk that we could see the same history repeat itself in the very near term.