10 Years After the Housing Bubble Burst, Hopeful Homeowners Deal with New Threat
When the housing bubble burst, it left a trail of dilapidated homes in Ohio’s cities and rural communities. A decade later, that gave birth to a new problem for those communities: lease-to-own deals that promised a piece of the American dream but often turned out to be nightmares.
Tara Brown remembers moving day, June 12, 2015.
“I was so, so excited. I was like, ‘Zack, yes, we bought a place! We’re going to settle. We’ll make some roots.’”
It was nothing fancy, a kind-of hybrid red and white bungalow on the south side of Youngstown. But it was hers — she thought. No more landlords who disappeared with the rent money or didn’t respond when the furnace cut out. No more bathtubs falling through the ceiling.
Except the next day, when she got home from work, she remembers her boyfriend Zack telling her, “‘I have bad news.’ I said, ‘What do you mean you have bad news?’ He said, ‘There’s no water lines in the house, there’s no gas so we have no heat.’ He’s like, ‘half the electricity in the house doesn’t work.’”
Undaunted, they filled 5- gallon jugs with water from her sister’s house and heated it in a coffee pot. They ripped the bathroom down to the studs, and every two weeks, when their paychecks arrived, they bought another piece of what it would take to make the house a home.
A waitress, Brown chuckles when she recalls spending Christmas tips on a luxury — a $200 toilet with a heated seat.
The downpayment, monthly payments and cost and sweat equity of repairs kept adding up. They held on tighter. “I was like, you know what, whatever this house throws at us we can do this.”
Then the raw sewage bubbled up through the basement floor.
That’s when Brown dug deeper into the details of the deal they’d signed with Vision Property Management and realized — as far as the paperwork was concerned — they were renters who had taken on all the responsibilities of homeowners. They’d signed up for the house as-is. When they couldn’t make monthly payments and fix the pipes, Brown, her son and boyfriend were evicted.
The end of an ordeal
More than four years after it all began — just before last Christmas — they got a check for $25,000, their part of Vision’s settlement with about a dozen Mahoning Valley families with similar stories of high-pressure sales of substandard houses shrouded in confusing paperwork.
They were represented by Community Legal Aid, whose director, Steve McGarrity maintains the Vision Property deals skirted laws that cover renters and those covering home buyers. The deals included no appraisals and no home inspections and no landlord-tenant protections.
“Sometimes people come up with really creative ways to take money from poor people, and this was a really creative way to do it,” McGarrity said.
Accusations and lawsuits
Vision and another large company called Harbour Portfolio have faced similar accusations and lawsuits from Wisconsin to New York. Cincinnati and Toledo have both also taken action against them.
Coming out of the Great Recession, the companies had bought thousands of distressed properties around the country in bulk, and many of them were concentrated in the Midwest.
Ian Beniston of the nonprofit Youngstown Neighborhood Development Corporation said the methods they used to flip the properties spread throughout Youngstown, “which also has an adverse impact on our neighborhood because this blighted house that Harbour cycled three people through is sitting there rotting, and I have to live two houses from it.”
Beniston’s group and another called ACTION tried public shaming two years ago, when they took a bus to South Carolina to protest at Vision’s headquarters. But they also were working government channels. A year ago, they convinced Youngstown City Council to impose new restrictions on land-contracts, requiring sellers to bring houses up to code and get appraisals.
Advocates are also pushing state lawmakers to tighten up financial requirements. But they’re running into resistance from real-estate investors who say land-contract deals are being held to standards that exceed most other home sales.
Jeff Rickerman of the Ohio Real Estate Investors Association said there is a need for better education of buyers. But when it comes to legal sanctions, he said the city and state should enforce existing laws instead of passing new ones.
“If there were companies in Youngstown that were selling properties through land contract that weren’t livable, that shouldn’t have been sold to people — selling them a dream that’s totally broken — Youngstown should have gone after those companies.”
Land contracts are not inherently bad
Kalitha Williams of Policy Matters Ohio acknowledges land contracts are not inherently bad. In fact, as far back as the 1930s when banks drew red lines on maps to exclude African-American and other working class neighborhoods, land contracts were often the only way some people could buy homes.
But she said they’re also easy tools for people preying on poverty and hope, and neither existing laws nor warnings of “buyer beware” are enough.
“A lot of times, people entering into these contracts, the seller has all the information; they have all the power. We want to make sure the consumer has the right information and resources.”
She recalls one Mahoning Valley man who was maintaining his home and making his monthly payments faithfully -- only to discover a foreclosure notice on his door because of old tax liens he knew nothing about. Others who thought they were buying their homes found out they were considered renters when they applied to get grants for homeowners to repair their properties.
Ideally, Williams said, that would mean statewide laws that require home inspections, clear titles and appraisals and perhaps caps on effective interest rates on all land-contract deals.
Meanwhile, Vision Property technically went out of business in December when FTE Networks paid $350 million for Vision’s portfolio of 3,000 properties.
In a written statement, FTE said Vision stopped using its controversial lease-to-own model earlier last year. FTE also said it supports legislation that “strengthens consumer protections and increases transparency for renters.”
But it plans to keep the Vision management team because of its “important experience in managing and maintaining” the portfolio.
Ohio housing advocates aren’t sure what that foretells, but they promise to keep watching. And they’ll have plenty to watch. About two-thirds of recorded land contracts are concentrated in six Midwestern states. Ohio ranked second. They’d fallen largely out of favor in the late 20th Century, but came roaring back following the housing crisis.
A survey of Northeast Ohio
A recent Cleveland Federal Reserve study looked at the last dozen years of recorded land contracts — also known as contracts for deeds — and found the highest numbers in Ohio in Stark, Summit, Mahoning and Trumbull counties. Researcher Lisa Nelson said they’re often in neighborhoods with more African-Americans and vacancies — and fewer options.
“Many of these properties that are sold by contracts for deeds tend to be much lower value property. And that makes it difficult for people to get a mortgage because many banks, there’s not a lot of lending below about $50,000 and a lot of the properties that are land contracts in our study are below this amount.”
The problem isn’t limited to urban areas. Per capita, the study found a large concentration of land contracts in rural counties in southern Ohio. Policy Matters’ Kalitha Williams said the common thread is an abundance of distressed properties — and hope.
“Somebody who’s wanting to live the American Dream and be a homeowner, they’re so excited, they go in and many times they don’t realize all the faults in these properties.”
Tara Brown's dream home
Tara Brown, the waitress who thought she had found her dream home in her Youngstown bungalow, acknowledges, “We made mistakes." She admits she was blind to her home’s faults until after she’d moved in.
The $25,000 she got in the settlement with Vision could have made a substantial down payment on a new home. But given her experience, she opted instead to get her debts in order, pay off her car, pay rent in advance, and invest in a different kind of American dream: she’s taking a cruise.
What you need to know about land contracts
Specifics of seller-financed real estate deals can vary greatly by terms in the contracts, but generally take two forms: land contracts and lease-to-own contracts.
What’s a land contract? It’s a written legal contract to buy real estate and a form of seller financing. Usually, the buyer purchases the property by making a series of payments over time to the seller, rather than a mortgage company or bank. They usually include a balloon payment in two to five years. While lenders of traditional mortgages require appraisals and often require inspections, land contracts often do not include such provisions.
What’s a lease-to-own contract? Like land contracts, they’re types of seller financing, but the payments are listed as rent that can go toward equity in buying the house. The deal is often actually an option to buy at a set price when the contract ends. Under lease deals, the seller is supposed to remain responsible for the property until the final sale is complete.
For more on the differences between the two deals, click this link:
What is redlining? It’s the now illegal practice that limits the availability of loans, insurance and other financial tools to residents of certain areas based on race or ethnicity. Redlining practices beginning in the 1930s limited the availability of traditional mortgages in many minority neighborhoods.
Tips for buying a land contract
Community Legal Aid advises buyers to ensure these items are in a land contract:
- Name and address of the seller and buyer
- Date the contract is signed and legal description of property
- Price of the property and fees
- Amount of down payment and balance owed
- Amount of payments and due dates
- Interest rate and computing method
- Liens or mortgages on the property (ask for a title search or add the cost of a search to the contract)
- The right to pay the mortgage if the seller does not
- Requiring the seller to file the contract with the county recorder (get a copy of the contract with the official recorder’s stamp)
- Information on paying taxes, assessments and other charges
- Pending orders against the property by any public agency
Buyers be aware, you are responsible for paying unpaid bills, code violations and ordered repairs. So Legal Aid advises:
- Ask the county auditor about unpaid taxes on the real estate
- Ask the water department about unpaid bills
- Ask the city about unpaid fines or orders to fix code violations
- Get legal advice before signing a contract
- Get annual statements with the amount paid on principal and interest and the remaining balance
More on FTE Networks
FTE Networks purchased the Vision Property portfolio of some 3,000 properties for $350 million at the end of last year. It plans to keep the Vision Property management team in place to manage the portfolio, but says Vision abandoned the lease-to-own practice in mid 2019. FTE had been de-listed by the New York Stock Exchange amid questions about financial irregularities. Here’s is FTE’s statement responding to questions about Vision. (Harbour Portfolio did not respond to a request for comment):
ON THE RECORD STATEMENT:
A former federal prosecutor, CEO Michael Beys brings extensive business, legal, and real estate experience to FTE. FTE’s leadership team and board of directors are implementing the levels of transparency and oversight required to ensure that FTE and its subsidiary US Home Rentals deliver a service-oriented solution to all of its customers and comply with legal and regulatory requirements at both a local and a national level.
Beys, who has significant experience in real estate, is undertaking a review of US Home Rental operations and is visiting rental properties in several states during January and February. He is committed to restoring shareholder value for FTE and to provide affordable housing options in underserved markets - in a way that makes sense for families and for FTE shareholders.
FTE supports legislation that strengthens consumer protections and increases transparency for renters in under-served markets. The company’s new management is dedicating to better serving its customers by providing affordable housing solutions.
Background facts/clarifications from FTE:
FACT: Vision Property Management is in compliance with all settlement agreements and is confident that all ongoing litigation will be resolved in Q1 2020. The company does not comment on specific litigation.
FACT: Vision has not initiated any new lease-to-own contracts since mid-2019. US Home Rentals, a subsidiary of FTE Networks, is focused solely on affordable single-family rentals and direct sales. As part of the process to exit the lease-to-own model, US Home Rentals will continue to service existing rent-to-own contracts under all applicable regulations.
Similar to the structure of well-known and respected companies, such as American Homes 4 Rent and Invitation Homes, FTE subsidiary US Home Rentals will continue renovating vacant affordable homes and either offering those properties for sale or offering the improved property for rent.
In 2019, Vision had already invested in renovating homes in the southeast; US Home Rentals will continue to aggressively invest in renovations of single-family residences throughout 2020. Moreover, improvements made to these core assets will ultimately provide long-term returns to shareholders as well.
FACT: US Home Rentals is a subsidiary of FTE Networks. US Home Rentals acquired Vision Property Management LLC for $350 million, making it an owner and operator of a portfolio of rental homes consisting of more than 3,000 properties across the US.
Background info on Michael Beys from FTE
A former federal prosecutor, CEO Michael Beys brings extensive business, legal, and real estate experience to FTE. Having moved from his role as an independent board member to the CEO, Beys is turning the company around and has already returned shareholder value through FTE subsidiary US Home Rentals’ acquisition of Vision Property Management. He is putting in place stronger governance and controls so that FTE can quickly move beyond recent events.
As an independent board member, Michael Beys was already fully committed to FTE and was leading the board as it conducted its own investigation and collaborated with authorities on uncovering unauthorized transactions that were undertaken in 2018-2019 by a previous CEO and CFO. FTE shareholders have seen the company’s value nearly wiped out due to no action of their own.
With his background as a prosecutor and his experience in real estate, Michael believes strongly that his role is to restore shareholder value and to put in place strong governance and protocols.
Through its subsidiary US Home Rentals, FTE acquired the real estate assets of Vision Property Management, creating immediate shareholder value. FTE is putting in place stronger controls and governance and improving operations while immediately delivering shareholder value through the transaction. This company has shown a commitment to correcting past errors.
FTE shareholders deserve a second chance and Michael believes this company is on the path for turnaround. The properties provide immediate value to FTE shareholders, who deserve to be rewarded for their patience. Beys and the FTE board are committed to growing company with a new focus on single family residential real estate.