Erica Hines-Denson was facing challenging odds. Her credit score had taken a hit due to student loans and a recent divorce. However, she and her new husband, Elquinton Denson, had a dream of purchasing a home in the greater Atlanta area for their blended family. Traditional mortgage lenders had turned them down, but a realtor mentioned an alternative option: a lease-purchase or rent-to-own agreement.
Hines-Denson saw this as an opportunity to fulfill her dream of homeownership. They quickly found a house they loved- a beautiful four-bedroom home 30 miles southeast of Atlanta, within their price range of $275,000. However, there was a catch. Rather than buying the house directly, a Chicago-based company called Home Partners of America would make a cash offer and then rent the house back to them, with the option to buy within five years.
Although the deal seemed promising, it soon turned sour for Hines-Denson. After missing a single month’s rent, the company locked her out of the online payment portal and imposed hefty fees that made catching up impossible. After missing a second month, the company filed for eviction, even though a judge temporarily halted the case due to the federal COVID-19 eviction moratorium. Despite this, the company’s management agency continued to threaten Hines-Denson, making her feel helpless. In the end, the company also refused to return their two-month security deposit.
Home Partners of America, founded in 2012, now owns over 28,000 homes across the country, making it the largest company offering “a clear path to homeownership” for those not yet ready or unable to buy. It has attracted attention from big players in Wall Street and Silicon Valley, such as BlackRock and KKR. However, while these companies market themselves as providing flexibility and transparency, tenants’ experiences tell a different story. Many tenants find themselves living in subpar conditions with issues such as leaking sewage, broken air conditioners, and nonworking electrical outlets. They are often left responsible for homeownership costs and face high eviction rates and above-market rents.
An analysis of Home Partners’ contracts, sales, and eviction data reveals that many rent-to-own tenants end up with the worst possible outcomes. They bear the burdens of homeownership without the guarantee of becoming owners, and often pay inflated rents. Many tenants are credit-impaired, making it difficult for them to secure mortgages when the time comes to buy. As a result, they are locked into annual increases in the purchase price and forced to line up their own financing.
The rent-to-own industry has faced criticism for its predatory practices, resulting in negative impacts on the economic growth and stability of marginalized communities. The National Association for the Advancement of Colored People (NAACP) has called for better regulation and consumer education on rent-to-own schemes.
Home Partners of America was founded by Lewis Ranieri, a renowned bond trader known as the father of mortgage securitization. Ranieri, feeling guilty for the role he played in the 2008 housing market crash, proposed a federal program to support foreclosed homeowners in renting and eventually buying single-family homes. When Congress didn’t create such a program, Ranieri took matters into his own hands and launched Home Partners of America in 2012.
In summary, while rent-to-own companies like Home Partners of America promise a path to homeownership for those facing challenges in the traditional mortgage market, the reality often falls short. Tenants find themselves facing eviction, subpar living conditions, and financial burdens without the guarantee of becoming homeowners. Better regulation and consumer education are necessary to protect vulnerable communities from predatory rent-to-own schemes.
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