Tag Archives: late payment

Rent-to-Ow!

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Bait and Switch

Insider quoted me in Private Equity Sold Them a Dream of Home Ownership. They Got Evicted Instead. It reads, in part,

Erica Hines-Denson had no idea how bad the odds against her were.

Student loans and a recent divorce had dinged her credit score. But she and her new husband, Elquinton Denson, were building a blended family and they dreamed of buying a home in the greater Atlanta area. After lenders turned them down for a traditional mortgage, a realtor told her there might be another way. Something called a lease-purchase, or rent-to-own, agreement.

“This was our way to own a home finally,” Hines-Denson said. “It was like we found a loophole.”

It took just a weekend of house hunting to find a house they loved: a stately four-bedroom, 30 miles southeast of Atlanta, with a built-in bar in the basement where they pictured hosting family and friends. Listed at $275,000, it was in their price range.

There was a catch. The couple wouldn’t be buying. Instead, a Chicago-based company called Home Partners of America would make a cash offer and rent the house back to them, with an option to buy within five years.

Home Partners supplied a lengthy agreement detailing the terms, including built-in annual increases to their rent and to the eventual purchase price. The document was more than 50 pages long; Hines-Denson said the company gave them just 24 hours to review it and sign. But the opportunity seemed too good to pass up. “You’re like, ‘Oh Lord, this is my chance,'” she said. “So you’re moving quick.”

The deal quickly turned sour. The company locked her out of the online payment portal after she missed a single month’s rent, adding hefty fees that made it impossible to catch up. After she missed a second month, the company swiftly filed for an eviction.

While a judge stayed her legal case under the federal COVID-19 eviction moratorium, the company’s management agency continued to call, Hines-Denson said, threatening to remove her belongings. In a final insult, the company kept their two-month security deposit when she and her family finally moved out.

Private Equity Moves In

Home Partners, which launched in 2012, now owns more than 28,000 homes nationwide. It is the largest of a handful of new companies promising “a clear path to homeownership” for families not yet ready or able to buy.

The company’s success has inspired startup competitors such as the New York-based company Landis, which boasts of investments from entertainers Will Smith and Jay-Z. Once dominated by fly-by-night operators, rent-to-own is now attracting some of the biggest players from Wall Street and Silicon Valley. Andreessen Horowitz led a Series A funding round for a rent-to-own competitor, Divvy Homes, in 2018. BlackRock and KKR purchased a majority stake in Home Partners by 2014, before private-equity giant Blackstone Group bought the company in 2021 for $6 billion.

In its marketing, Home Partners emphasizes that it offers “flexibility, choice and transparency,” providing the opportunity to “rent your dream home” without making a long-term commitment. “Home Partners has created a path to home ownership for tens of thousands of people who may not otherwise have had one,” a company spokesperson told Insider. “We are tremendously proud of our business.”

Yet Home Partners tenants, in interviews and court documents, say they got stuck in barely livable dwellings, with leaking sewage, broken air conditioners, filthy carpets, or nonworking electrical outlets. They describe being blocked from seeing home-inspection reports and facing swift eviction filings for a single late payment. One tenant filed a lawsuit claiming she suffered injuries when the ceiling of her home collapsed.

Hines-Denson said she felt like she’d been “set up to fail.”

More than 4,000 Home Partners tenants have purchased their homes over the past decade, according to a July 2022 paper from Moody’s Analytics, coauthored by an advisor to the company. But over the same time, nearly four times as many tenants — roughly 15,000 — moved out without buying.

An analysis of contracts and sales and eviction data shows that rent-to-own tenants are often left with the worst of all worlds. They have to shoulder many of the costs and responsibilities of homeownership, and the financial odds are stacked against them to end up as owners. Meanwhile, many are paying above-market rent.

“I’m very sympathetic when someone says they’ve identified a large segment of the population not being served by the current housing and mortgage landscape,” said David Reiss, the research director for the Center for Urban Business Entrepreneurship at Brooklyn Law School.

“What you don’t want to hear next is, ‘Therefore, we can do whatever we want to them.'”

*.     *.     *

“Rent-to-own has this really sordid history,” said Reiss. “It’s an area of the housing market that remains underregulated. That’s part of the attraction for many operators.” 

Credit Card Debt and Your Mortgage

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photo by B Rosen

Realtor.com quoted me in Fannie Mae Taking a Closer Look at Applicants’ Credit Card Payments. It opens,

If you feel like you’ve been managing your debt just fine, making the minimum payment on your credit cards on time every month, you might want to change your ways before applying for a home loan.

Fannie Mae, which offers government-backed loans to more than a quarter of mortgage applicants nationwide, has just revised its risk assessment software to factor in more details about how borrowers pay off their debts.

Historically, the credit report generated by Fannie Mae—and scrutinized by lenders—mainly showed how much of your available credit you’d used and whether you’d made your monthly payments on time. But the newest version of Fannie’s Desktop Underwriter software (used by about 2,000 lenders and more than 10,000 mortgage brokers) kicks things up a notch. Now, it also details just how much you coughed up each month over the past two years—whether you’re parting with only the minimum, laying out the full monty, or hovering somewhere in between.

Fannie officials say these new details, known as “trended credit data,” can help lenders better assess how well people manage their debts—and, consequently, how well they’ll manage their mortgage payments.

“Generally, the new underwriting model gives weight to how borrowers pay off their credit debt,” explains David Reiss, research director at the Center for Urban Business Entrepreneurship at Brooklyn Law School. “While it is not clear how finely tuned the new system is, there is clearly a move toward a more granular approach to debt repayment.”

How this news affects your prospects of a home loan

So far, FICO and other credit score measures aren’t factoring in this extra info, so your score won’t get dinged. But your application could be affected in another way.

“If you compare two people with exactly the same credit profiles except that one pays more than the minimum amount due or the entire balance, that person would be considered to be a lower credit risk by Fannie Mae,” says Reiss. “As a result, that person would be more likely to be approved for a mortgage.”

But you might not have to pay much more than the minimum to boost your chances of getting that loan.“At this time it’s unclear what impact to mortgage scoring and automated underwriting the payment history will have, but we believe anyone that is paying 30% or more of their balance monthly will see improvement,” says San Diego loan officer Michael Rosenbaum at CrossCountry Mortgage.

Of course, people who pay off the whole balance every month will be favored even more, and with good reason.

“Research has indicated that borrowers who paid off their credit card debt every month are 60% less likely to become delinquent than borrowers who make only the monthly minimum payment,” Rosenbaum adds.

And while this might sound ominous, it could actually be helpful if you had some credit blemishes in your past.

“Fannie has also indicated that paying more than the minimum due will particularly help borrowers with delinquencies on their credit report, because it will allow borrowers to ‘demonstrate that a late payment was not deeply reflective of their general debt repayment ability and behavior,’” Reiss notes.

Evicted by Homeowners Association

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photo by respres

Realtor.com quoted me in Homeowner Evicted for Not Paying HOA Dues: Can This Happen to You? It opens,

Who knew? Even if you pay your mortgage on time every month, your home can still be foreclosed on and sold from under your feet. That, at least, is what Triss McQuiston from Tomball, TX, learned recently when she was notified that she’d have to vacate her place. Why? It turns out she was evicted for not paying her HOA dues.

According to ABC13, McQuiston admits that she was guilty of procrastinating on paying her HOA fees to the Canyon Gate at Northpointe Owners Association in 2014 and 2015. Because she was opening a new business, her HOA bills slipped through the cracks, for a grand total of $1,800 in unpaid dues.

An attorney for the HOA claims that since March 2014, they’d sent McQuiston 12 notices by first-class certified mail to collect these assessments, warning her what would happen if she didn’t. When they received no response, they proceeded with the foreclosure, and sold the home at auction back in September.

Yet McQuiston argues that she’d received no warnings, and was made aware of her dire straits only when she received an eviction notice on her doorstep on May 20. She has since hired an attorney to help fight the case and remain in her home.

“I would never have thought in my wildest dreams that an HOA … would go to these lengths and they’d have this much power,” McQuiston told ABC13.

If this story has you viewing HOAs in a harsh (and terrifying) new light, we don’t blame you. And while the laws vary by state, it turns out that in most cases, HOAs really do have the power to foreclose on your home for unpaid dues, as do condo owners associations.

“Contrary to common perceptions, even if a person is current on a mortgage, the HOA or COA may foreclose,” says Bob Tankel, a Florida attorney specializing in HOA law. “What’s the moral of the story? Pay your assessments. These are not huge amounts. People apparently think that just because assessments are small there’s nothing bad that can happen. But that’s not true.”

To know specifically how your HOA or COA handles late payments, homeowners should “check the Declaration of Covenants, Conditions & Restrictions (CC&Rs),” says David Reiss, research director at the Center for Urban Business Entrepreneurship at Brooklyn Law School. You should check not only what constitutes a late payment, but also how you’ll be penalized; additional fees could include late charges, fines, interest, as well as attorneys’ fees.

It’s also smart to check what rights and recourse you have in your state if you end up unable to pay these assessments. “Some states have enacted some procedural protections for homeowners,” says Reiss. “It’s worth figuring those out if you are not able to pay off your HOA right away.”

Risky Rent-to-Own

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photo by Steve Snodgrass

The Pittsburgh Tribune-Review quoted me in Rent-to-Own Option for Home Shoppers Rife with Pitfalls, Experts Caution. It opens,

Finding the right rental house was more difficult than Phyllis Lombardi anticipated.

“It’s hard to find a big enough house that allows pets, for the number of people we have in South Fayette,” said Lombardi, 45. She and her husband have four children living at home.

The Lombardis are moving because the owners of the house they are renting want to sell. But the couple isn’t ready to buy. The husband’s income was cut by more than half when they relocated to the Pittsburgh area several years ago, and they are repairing their finances after a short sale on a home.

Finding no rentals in South Fayette that meet her criteria and price, Lombardi is going with an option suggested by her real estate broker: Pick a house for sale on the market and do a rent-to-own contract with an investor who would buy it.

Rent-to-own agreements require prospective buyers to pay rent with an option to purchase the house at a later date, usually within two to five years. It can broaden the options for people with checkered credit histories who think they might soon be in a position to buy.

But it is an industry with a lot of shady operators and which can prove costly to prospective buyers who are not careful, said David Reiss, a professor of law at Brooklyn Law School.

“In some cases, these programs are based on the idea of hope springs eternal,” Reiss said. “But a large percentage of them are likely to fail.”

The terms of these contracts vary, but renters often pay a premium above market price, with a portion of that going toward the eventual cost to buy the home.

Many times, renters reach the end of the agreement and are still unable to buy, forfeiting everything they have paid — rent, fees and any premium toward the purchase price — to the owner and walk away with nothing, said Max Beier, a real estate attorney Downtown.

“Traditionally, what you’re going to have in these agreements is a default provision that’s pretty harsh,” he said. “Commonly, you’re going to lose 100 percent of the equity you’ve paid.”

And many don’t come with the same renter protections. For example, maintenance and upkeep costs are often the tenant’s responsibility — just as if they owned the home.

Also, the penalty for late rent payments tends to be more severe than the standard 5 percent for a late mortgage payment, and even cause someone to be kicked out of the home, Reiss said.

“The rights you have as a tenant in a rent-to-own situation are not as clear and not as good as if you were a homeowner,” Reiss said.