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COLUMBIA, S.C. — Alex Szkaradek is a landlord who seems to have the best of both worlds.
Mr. Szkaradek, 36, collects rent, but he never has to pay for repairs on any of the more than 5,500 homes — many of them rundown — that his firm manages across the country.
The firm, Vision Property Management, blurs the line between what it means to be a renter and a homeowner. These companies do not offer regular leases or mortgages — they offer “rent to own” contracts on homes that require tenants to make all repairs, no matter how big or small.
Mr. Szkaradek says Vision, a leader in the fast-growing market, is bringing the dream of homeownership to Americans who lack good credit or are too poor to qualify for mortgages.
In many communities, housing prices have recovered from the financial crisis. At the bottom end, however, banks have all but stopped making loans for homes worth less than $100,000, leaving millions of people with few options.
But these rent-to-own agreements reside in a gray area of the law. An examination by The New York Times of contracts and court filings, as well as interviews with housing lawyers and more than a dozen of Vision’s customers across the country, found that these deals are risky, lack consumer protections and may not be enforceable in some states.
Most tenants walk away with nothing, having sunk money for rent and repairs into homes they had once hoped to own. Others faced surprise evictions, having signed a contract that did not disclose what repairs were needed, yet set a deadline for making sure the home was up to local housing code. As different tenants move in and out of the same property over the course of years, many homes fall further into disrepair.
A recent report from the National Consumer Law Center found similar issues with certain rent-to-own programs, calling them deceptive in nature.
When Donna Thomas signed a lease for a Cincinnati home with Vision, she said she was not told that it had unresolved building code violations and a standing order from the city to remain vacant.
Samuel Rankin thought he was starting fresh when he and his two daughters moved out of a 1970s trailer home into a three-bedroom Vision rental home in Alexander, Ark. But he soon discovered that the house, located just outside Little Rock, had no heat, no water and major problems with its sewage system that led to nearly $10,000 in repairs.
Ms. Thomas’s and Mr. Rankin’s cases are not isolated, The Times found. It is difficult to measure the size of the rent-to-own housing market. Nobody tracks activity, and few rent-to-own agreements end in actual purchases, so they tend not to be recorded.
Across the country, however, dozens of smaller firms offer to lease cheap homes with options to buy, such as Vision does. Entrepreneurs conduct how-to seminars at conferences for small landlords hoping to strike it rich. And housing lawyers in cities including Detroit, Philadelphia and Columbus, Ohio, say they are seeing an uptick in disputes involving rent-to-own transactions.
Several big Wall Street companies like the Blackstone Group and Home Partners of America offer programs through which people can buy the homes they are renting. But those homes are often relatively new or recently renovated, and worth well over $100,000. The deals at the lower end of the market are the ones that worry housing advocates.
“We’re seeing an influx in these contracts,” said Katarina Karac, a city lawyer for Columbus, who is involved in one case the city has against Vision. “It looks like a landlord-tenant relationship, except instead of having the landlord take care of the property, they are putting that obligation on the tenant,” she added.
Blurred Lines
Every home rented by Vision comes “as is” and has strict contractual terms that require a tenant to pay for any repairs, no matter how big. Renters are given a few months to deal with any outstanding building code violations and to make the homes habitable.
In interviews, as well as in court documents, customers said they were confused by the contracts’ terms and requirements, and were not sure whether they were owners or renters.
They signed their leases and put down an initial payment to reserve the right to buy the house. Unlike most typical home purchases, rent-to-own contracts have no requirement to obtain an independent home inspection. The customers contend they were not informed of outstanding issues with Vision homes, many of which the company had bought for $10,000 or less.
Tenants who are evicted during the tenure of these seven-year contracts walk away empty-handed, receiving no credit for money spent on repairs or renovations.
Rent-to-own leases are similar in many ways to contracts for deeds: long-term, high-interest installment contracts that call for the resident to make monthly payments to the seller. Unlike a contract for deed — which typically lasts 30 years, at the end of a Vision contract, tenants still need to find financing to complete the deal. The buyer does not receive legal title to the home until the last payment is made.
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Federal and state regulators began looking into seller-financed deals after a front-page article in The Times in February highlighted the resurgence of these transactions. Seven United States senators recently wrote to theConsumer Financial Protection Bureau to express concern over the lack of protections for low-income home buyers.
Still, contract for deeds are at least subject to basic consumer-lending regulations like the Federal Truth in Lending Act, which requires firms to detail how much interest they are charging and how many payments prospective buyers must make before they own the house.
In most states, landlords are required to keep the homes and apartments that they rent in habitable condition. Some legal experts said contracts like the ones used by Vision could violate that requirement.
Cincinnati, for example, has an ordinance that requires rent-to-own landlords to adhere to building, housing and safety codes, as well as to “make all repairs and do whatever is reasonably necessary to put and keep the premises in a fit and habitable condition.”
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