Rent-to-Own and Land Installment Contracts
New Yorkers should use caution before entering into any rent-to-own or any other form of alternative home purchase finance agreement. The DFS is investigating whether alternative home purchase agreements, such as rent-to-own, lease-to-own or land installment contracts, being offered in New York constitute unlicensed, predatory mortgage lending. These alternative home purchase agreements often are being marketed to financially distressed consumers, promising a path to homeownership, but putting consumers at risk.
DFS is concerned that companies may be targeting vulnerable consumers, playing on their desire to achieve homeownership to get them to sign onerous and illegal home finance agreements that often do not lead to homeownership. The concern arises from a current DFS investigation of lease-to-own programs in parts of central and upstate New York.
The DFS investigation has raised a number of concerns that any New Yorker who has signed, or is considering signing, a rent-to-own or other similar agreement should know. Thus, DFS is providing this consumer information to notify New York residents that lease-to-own, rent-to-own and land installment contracts may violate applicable New York laws and regulations regarding fair lending, mortgage protections, interest rates, habitability, property condition and/or real property disclosures.
Consider Your Options
Residential leases and mortgage agreements are required to provide basic consumer protections. Some companies, however, claim to offer a hybrid agreement – part mortgage, part lease – that does not need to provide any of the standard consumer protections. Although a lease-to-own or other alternative home purchase agreement appears to offer a path to homeownership, these agreements may impose harsh terms with little or no consumer safeguards. Before entering into one of these agreements, consumers should carefully consider whether a traditional lease is a better option.
Know Before You Sign
Companies engaged in the rent-to-own or lease-to-own business tend to deal in severely distressed properties – homes that have been vacant for a long time and often require a substantial amount of work. The rent-to-own agreements impose all of the obligation to repair the properties, and the substantial cost of the repair work, on the consumer, whereas New York law would impose such obligations on the landlord. And, if the arrangement is similar to homeownership, then the homeowner has protection under New York foreclosure law.
In addition, be careful of arrangements that create a false sense of transparency. For instance, a company may provide consumers with lockbox codes allowing them to freely tour a property to assess what work it may need. While a tour might suggest an opportunity to identify issues with a property, consumers typically conduct these inspections at a disadvantage. For example, property tours are typically conducted when the utility services are not turned on, depriving consumers of the opportunity to test whether the property has basic services.
Consumers are further advised to learn what a company offering a lease-to-own or other alternative agreement knows about a property. Although companies may tell you that they do not have any information about a particular property, some companies hire contractors to conduct inspections of properties after they have been acquired. These reports identify issues such as black mold, termites, asbestos and other health and safety hazards before a consumer has even had a chance to tour the property. Accordingly, while offering open property tours may look like a company is being fully transparent, the tours are actually just your opportunity to learn what a company probably already knows. And if you do not identify an issue, the company will not inform you.
Protect Your Rights – You May Be Entitled to Free Legal Counsel
If you currently live in a rent-to-own home or other similar housing, you may have certain legal rights, including in the event of any payment default. In New York, under the common-law doctrine of “equitable mortgage,” residents in single-family homes making lease payments while improving the condition of the home, over time, accumulate equity in the home. One consequence of that equity is that the company cannot just evict you if you fall behind on making payments. Rather, you should be entitled to the protections of a foreclosure proceeding, and if you have received an eviction notice, you should speak with your legal counsel about an equitable mortgage defense. Please see below for the contact information of organizations that offer free legal representation. DFS cannot represent you in court, but is aware of the Legal Aid and Legal Service organizations noted below that are willing to take on eviction cases and might be available to assist you free of charge.
Free legal representation with income eligibility (also depends on geographic location):
- Legal Aid Society of Northeastern New York, www.lasnny.org - with offices located in Albany 1 (800) 462-2922, Amsterdam 1 (800) 821-8347, Canton 1 (800) 822-8283, Plattsburgh 1 (800) 722-7380, and Saratoga Springs 1 (800) 870-8343, serving various counties
- Empire Justice Center, www.empirejustice.org - with offices located in Albany (518) 462-6831, Rochester (585) 454-4060, White Plains, Yonkers(914) 595-0910 and Long Island (631) 650-2306, serving various counties
If you have questions or want to share information based on living in a rent-to-own home in New York, please contact DFS at: www.dfs.ny.gov or (800) 342-3736.