Amid housing affordability crisis, the bill ends predatory rent-to-own housing scams
WASHINGTON, D.C. – Oregon’s U.S. Sen. Jeff Merkley and U.S. Sen. Tina Smith (D-MN) today introduced the Residential Rent-to-Own Protection Act, legislation that would create a safe, viable pathway to homeownership by reforming traditionally predatory rent-to-own housing contracts, also called land contracts or contracts-for-deed.
“Rent-to-own housing agreements could provide access to homeownership for people who may not be able to get a traditional mortgage,” said Merkley. “But for decades, these agreements have often been scams that rip people off and turn the dream of homeownership into a nightmare. That has to change.”
“Rent-to-own contracts can create valuable pathways to homeownership and security, but they don’t always protect consumers. We want to change that,” said Smith. “This bill would establish standards for rent-to-own contracts so that residents do not have to live in fear of being treated unfairly or having the rug pulled out from under them and their families.”
“The Merkley bill would regulate land contracts and leases to own in a meaningful way by ensuring that the consumers using them as a means to achieve homeownership are protected,” said Margot Saunders, Senior Counsel to the National Consumer Law Center. “The bill will require that the homes which are the subject of the contracts are habitable, the contracts are recorded in the public records, and that terminations are dealt with fairly in a judicial setting. We applaud Senator Merkley for taking this step to protect some of the most vulnerable Americans.”
A typical rent-to-own housing contract requires tenants to make payments directly to a seller over a set period of time, generally in the form of rent plus a premium. In exchange, the seller promises to transfer the legal title of the home when the full purchase price has been paid. However, because of a lack of regulations or consumer protections, many tenants never receive the deed.
For example, tenants may face surprise evictions, having signed a contract that did not disclose what repairs were required, while setting a deadline for making sure the home is up to local housing code. Others vitiate the landlord’s requirement to surrender the deed if the tenant is late with even one rental payment. Tenants end up left with nothing, after having sunk money into higher rent payments and repairs for homes they had once expected to own.
For decades, these agreements have disproportionately targeted people of color and low-income Americans, making it virtually impossible for these groups to become homeowners.
The Residential Rent to Own Protection Act would provide consumer protections against the predatory practices often associated with rent-to-own housing agreements by:
· Establishing minimum habitability and safety standards for residential rent-to-own contracts by requiring sellers to ensure homes meet state or local rental habitability requirements;
· Protecting tenants from arbitrary evictions;
· Allowing tenants to seek damages should the landlord violate the contract;
· Creating an exemption for non-profit organizations that offer residential rent-to-own contracts with wrap around housing counseling services;
· Directing the Consumer Financial Protection Bureau to regulate residential rent-to-own contracts; and
· Directing the Government Accountability Office to study the market conditions, prevalence, and outcomes of residential rent-to-own contracts.
The bill is endorsed by National Consumer Law Center, Americans for Financial Reform, and Consumer Action.