NY Regulator Issues Consumer Alert on Rent-to-Own and Land Installment Contracts

The New York Department of Financial Services (NYDFS) recently issued an alert, warning consumers to use caution before entering into any rent-to-own, land installment contracts, or other forms of alternative home purchase finance agreements.  This alert also indicated that the NYDFS is currently investigating whether such transactions constitute “unlicensed, predatory mortgage lending.”  The NYDFS is concerned that such financing options, which promise a path to homeownership, are marketed to financially distressed consumers when such agreements may actually be putting consumers at risk.  Thus, this alert notifies consumers that lease-to-own, rent-to-own, and land installment contracts may be in violation of New York laws and regulations regarding fair lending, mortgage protections, interest rates, habitability, property condition and/or real property disclosures.

This alert further advises consumers that companies that engage in the rent-to-own or lease-to-own business tend to deal in severely distressed properties that often require a substantial amount of repair work and maintenance.  Because some rent-to-own agreements impose obligations to repair the properties and the substantial cost of the repair work falls on the consumer, the NYDFS urges consumers to be cautious of arrangements that create a false sense of transparency.  For example, consumers who are given access to inspect the properties may be at a disadvantage because the NYDFS warns that such property tours are usually conducted when utility services are not turned on, depriving consumers of the opportunity to test whether the property has basic services.

The NYDFS also advises consumers who are currently living in homes financed by rent-to-own or other similar arrangements that they may be entitled to certain legal protections when they accumulate equity in the homes, such as in the case of a foreclosure proceeding.  Thus, this alert advises that consumers who default on payments and face eviction in these circumstances should seek legal counsel and inquire about the “equitable mortgage” defense.