Vision Rent-to-Own “Buyers” Meet and Find Out Every Deal is Different

San Francisco  The first organizing meeting in Detroit of the Home Savers Campaign had spirited discussion when families discovered that they only had one thing in common in the contracts they had signed with Vision Property Management or its subsidiaries: the contract itself. When it came to the terms, to everyone’s shock and anger, everyone had a different deal!

The differences were not simply where we might expect to find them in the price of the houses they were hoping to buy or the number of years to term. In fact the prices were all very close to each other. As the campaign has come to expect from visiting so many families in Pittsburgh, Philadelphia, Akron, Youngstown, and now Detroit, some families attending the meeting were still shocked to find out that in seven years they would not own the home as they expected, but simply face wrenching choices between balloon payments, long term agreements, or walking away from extensive investments in money and labor in repairs.

The differences in the contracts were huge. Excitedly talking about their contracts, they found for example that in some contracts as little as $14 of their monthly payment was going to principle on the purchase while in others as much as $150 was being applied. That was often the case when the payments were virtually identical. In several cases, they discovered they had not been clearly told how much of their payment was going to principle at all. Even when the purchase price of the houses were roughly equivalent, families were finding that the amount of their monthly payment being applied for insurance was often different.

Looking at the question of tax payment which is especially freighted with concern, since nonpayment of taxes to the county could lead to loss of the property on tax delinquency sales. Only one family could determine from their payment the amount that was supposedly being paid to taxes, while the other families at this first organizing meeting became worried that since there was no indication, Vision might not be paying their taxes at all. Even in the one case where the tax level was stated at $150 per month or $1800 per year, there was skepticism that the house valued so modestly really was sustaining such a relatively high cost compared to true value.

Many of the people at the meeting were also on their second contract with Vision. The first had given them up to 45 days to make good on their payments, while the more recent gave Vision the right to void their option to purchase if they were late on the payments at all, making the contracts essentially no more than rental agreements, despite the fact that this was a triple-net lease with the “buyer” paying everything including thousands and thousands in repairs. One family was livid having invested over $50,000 in repairs, yet still debating whether or not they should walk away. Everyone at the meeting shared stories of about the “fishing” Vision’s representatives did with them over the phone to try and suss out the amount families had invested themselves in repairs, presumably for the company to guess whether the property might have been fixed off enough for them to seize the first opportunity to evict and flip.

People were happy to meet, but that was the only happiness in the room once the members and organizers cleared the fog away that hung over the legalese of the agreements. There was anger and plans for quick action. On the question of fight or flight, people were ready to fight. Powered by people, the campaign now begins in earnest.

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Assembling the Facts on the Ground about Land Contracts in Detroit

Oakland   The back of the envelope figures from three days on the doors, based on reports logged into the database by our teams in Detroit, indicate that of more than 125 doors hit, half of the properties are abandoned. That’s not good for neighborhoods, the City of Detroit, or the future prospects of building viable communities there. We increasingly began to question how good this level of abandonment of land contract and rent-to-own properties is even for the companies that specialize in this seamy side of the housing market in urban areas.

As a business model that fits snugly in the category of what a reporter for the New York Times termed the dominant modern “flagrant exploitation economy,” the companies operating within this most predatory segment of the housing and rental market face challenges. By process of elimination of usual factors, an economist speculating on principal cause of the 2008 real estate collapse is now arguing that there was an irrational psychology that almost spread virally that vast sums were to be had by “flipping” real estate, which like the tulip craze in Holland and so many other bubbles of the previous centuries, led to the unsustainable inflation of prices until the crash. Detroit Property Exchange is still pushing that myth in lower income communities with its signs that urge potential customers to call 888-FLIP to connect with the company.

Certainly the lease and contract documents starting from “as is” and including the company’s rights to evict the “buyer” immediately for even a single missed payment at any point in the term of the agreement, lead one to believe that these companies are making their money by flipping the contracts from one “sucker” to another, as an on-line Detroit magazine called the Bridge, writing about our campaign described the buyers. We are not convinced that theory translates into facts on the ground from our doorknocking. Additionally, Professor Josh Akers shared with us an overview of research he and a colleague are soon publishing on land contracts in Detroit over the 10-year period from 2005 to 2015. The largest dozen contract sellers were involved in almost 7500 acquisitions, which was less than 10% of the over 80,000 properties in Detroit that had been acquired through tax auctions or REO’s from various governmental foreclosures. In that period contract sellers had gone through eviction procedures for about 1 out of every 3 properties, but evictions with specific properties acquired by all buyers involved eviction procedures at the ratio of 1 out of every 4 properties, which is not a world of difference. Over a 10-year period that doesn’t translate into a constant churn, likely because there is tepid demands that these practices have inevitably created in these neighborhoods.

Because there is not a robust market for these properties from stories the Home Savers Campaign is hearing on the doors, it seems that tenants wanting or willing to stay in these properties are able to negotiate a fair amount of forbearance even when missing payments because the sellers realize there isn’t a line waiting to open the door behind them. It also explains stories we have heard from several buyers where they are able to negotiate shorter terms when they are willing to take over the properties.

One reason may be the fact that many of these companies are not forwarding payments made by the buyers to resolve tax payments nor are they disclosing past liens on the properties. Lawsuits like those filed against Harbour Properties and Vision Property Management in Cincinnati to collect back taxes, fines, and penalties for their properties in that jurisdiction reveal a business model of nonpayment that seems to typify this part of the industry. That’s a ticking time bomb for the tenant-buyer for sure, especially given the rigid collection and delinquency procedures of Wayne County, and we have heard cases falling into this bad basket every day in Detroit, but it also seems to be leading to shorter term contracts and more negotiating opportunities if the campaign could engage the parties successfully.

We’re finding the handles, but we are not convinced yet that people want to grab them, given that many still see themselves as renters, rather than potential owners. That’s the puzzle we still need to find, even as we are understanding more and more about the market and these companies exploiting it.

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