[Home Partners entices Americans locked out of traditional
mortgages with rent-to-own deals. But an Insider analysis of three
major markets found that eviction filings were more common than sales.
] [[link removed]]


‘RENT-TO-OWN’ OR ‘RENT-UNTIL-EVICTED’?  
[[link removed]]


 

Rebecca Burns
July 7, 2023
Insider
[[link removed]]


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_ Home Partners entices Americans locked out of traditional mortgages
with rent-to-own deals. But an Insider analysis of three major markets
found that eviction filings were more common than sales. _

"EZ Rent To Own", by Steve Snodgrass (CC BY 2.0)

 

Erica Hines-Denson had no idea how bad the odds against her were.

Student loans and a recent divorce had dinged her credit score. But
she and her new husband, Elquinton Denson, were building a blended
family and they dreamed of buying a home in the greater Atlanta area.
After lenders turned them down for a traditional mortgage, a realtor
told her there might be another way. Something called a
lease-purchase, or rent-to-own, agreement.

"This was our way to own a home finally," Hines-Denson said. "It was
like we found a loophole."

It took just a weekend of house hunting to find a house they loved: a
stately four-bedroom, 30 miles southeast of Atlanta, with a built-in
bar in the basement where they pictured hosting family and friends.
Listed at $275,000, it was in their price range. 

There was a catch. The couple wouldn't be buying. Instead, a
Chicago-based company called Home Partners of America would make a
cash offer and rent the house back to them, with an option to buy
within five years. 

Home Partners supplied a lengthy agreement detailing the terms,
including built-in annual increases to their rent and to the eventual
purchase price. The document was more than 50 pages long; Hines-Denson
said the company gave them just 24 hours to review it and sign. But
the opportunity seemed too good to pass up. "You're like, 'Oh Lord,
this is my chance,'" she said. "So you're moving quick." 

The deal quickly turned sour. The company locked her out of the online
payment portal after she missed a single month's rent, adding hefty
fees that made it impossible to catch up. After she missed a second
month, the company swiftly filed for an eviction.

While a judge stayed her legal case under the federal COVID-19
eviction moratorium, the company's management agency continued to
call, Hines-Denson said, threatening to remove her belongings. In a
final insult, the company kept their two-month security deposit when
she and her family finally moved out.

PRIVATE EQUITY MOVES IN

Home Partners, which launched in 2012, now owns more than 28,000 homes
nationwide. It is the largest of a handful of new companies
promising "a clear path to homeownership"
[[link removed]] for families not yet ready or
able to buy.

The company's success has inspired startup competitors such as the New
York-based company Landis, which boasts of investments from
entertainers Will Smith and Jay-Z. Once dominated by fly-by-night
operators, rent-to-own is now attracting some of the biggest players
from Wall Street and Silicon Valley. Andreessen Horowitz led
[[link removed]] a Series A funding round for a
rent-to-own competitor, Divvy Homes, in 2018. BlackRock and
KKR purchased a majority stake
[[link removed]] in
Home Partners by 2014, before private-equity giant Blackstone Group
bought the company in 2021 for $6 billion.

In its marketing, Home Partners emphasizes that it offers
"flexibility, choice and transparency," providing the opportunity to
"rent your dream home" without making a long-term commitment. "Home
Partners has created a path to home ownership for tens of thousands of
people who may not otherwise have had one," a company spokesperson
told Insider. "We are tremendously proud of our business."

Yet Home Partners tenants, in interviews and court documents, say they
got stuck in barely livable dwellings, with leaking sewage, broken air
conditioners, filthy carpets, or nonworking electrical outlets. They
describe being blocked from seeing home-inspection reports and facing
swift eviction filings for a single late payment. One tenant filed a
lawsuit claiming she suffered injuries when the ceiling of her home
collapsed.

Hines-Denson said she felt like she'd been "set up to fail."

More than 4,000 Home Partners tenants have purchased their homes over
the past decade, according to a July 2022 paper from Moody's
Analytics,
[[link removed]] coauthored
by an advisor to the company. But over the same time, nearly four
times as many tenants — roughly 15,000 — moved out without buying.

An analysis of contracts and sales and eviction data shows that
rent-to-own tenants are often left with the worst of all worlds. They
have to shoulder many of the costs and responsibilities of
homeownership, and the financial odds are stacked against them to end
up as owners. Meanwhile, many are paying above-market rent.

"I'm very sympathetic when someone says they've identified a large
segment of the population not being served by the current housing and
mortgage landscape," said David Reiss, the research director for the
Center for Urban Business Entrepreneurship at Brooklyn Law School. 

"What you don't want to hear next is, 'Therefore, we can do whatever
we want to them.'"

HIGH RATES OF EVICTION FILINGS

These next generation rent-to-own companies say they're bringing
greater equity and opportunity to the housing market, leaving behind
the model's unsavory reputation. "We succeed when our residents
succeed," Home Partners declares on its website.  

Insider, in partnership with the McGraw Center for Business
Journalism [[link removed]], reviewed 10 years worth of
property sales and court records in three of the company's large
metropolitan markets — Atlanta, Chicago, and Tampa — to find out
how frequently Home Partners actually sells homes to its rent-to-own
tenants.  

In Chicago, the company's oldest market, we looked at the 195 homes
Home Partners purchased through 2016, where tenants' five-year
purchase window had expired. Property records show the company has
sold less than a third of those homes, and not always to its tenants.
Some buyers, we found, purchased the homes in traditional sales after
rent-to-own tenants had been evicted. 

In all three markets, Home Partners has filed for eviction against
tenants in more properties than it has sold.

When presented with Insider's findings, the Home Partners spokesperson
responded, "Any implication that a resident is more likely to be
evicted than to be successful in acquiring their home in our Lease
Purchase program is patently false." But the company declined repeated
requests to provide its own data.

A spokesperson for Blackstone, which now owns Home Partners, said that
both staffing levels and tenants' purchase rates had increased under
its ownership but declined Insider's request to provide data for
review.

Interviews with dozens of Home Partners tenants in more than 10 cities
may shed light on why the deals so often fall through. Many tenants
said they face pressure from realtors with a financial incentive to
close the deal quickly. The company has blocked access to the homes'
inspection reports, so tenants have no idea if serious repairs are
needed. And lawsuits allege that opaque contracts and absentee
property managers effectively foist the responsibility for maintenance
onto the tenants. 

When it comes time to buy, tenants are locked into annual increases in
the purchase price — and stuck lining up their own financing. Yet
mortgage approval remains out of reach for many of the credit-impaired
tenants that Home Partners targets.

Home Partners executives did not agree to be interviewed. In response
to detailed questions_, _a company spokesperson disputed Insider's
findings, calling Insider's reporting "agenda-driven." The previous
majority owners, BlackRock and KKR — which has a stake in Insider's
parent company, Axel Springer — both declined to comment for this
story.

As higher interest rates cool home prices
[[link removed]] in some markets, many
rent-to-own tenants are locked into an inflated purchase price. 

And what about those who don't buy? Thanks to the company's aggressive
eviction filings and steep late fees, some tenants walk away with
worse credit and less savings than when they started. Many, like
Hines-Denson, lose a substantial security deposit. 

In 2019, the NAACP
[[link removed]] passed
a resolution urging the federal government to better regulate
"rent-to-own schemes" and educate consumers that "unfair clauses,
terms, and provisions are included in these contracts in order to
place the buyer in an inequitable position." 

Predatory rent-to-own agreements "negatively impact the economic
growth and stabilization of African Americans," according to the
NAACP. 

GROWTH FUELED BY SECURITIZATION

Home Partners of America is the brainchild of Lewis Ranieri, the
pioneering bond trader dubbed the father of mortgage securitization
who, as the housing market went into freefall in 2009, confessed to
feeling "guilty" for the havoc his creation had wrought. 

Shortly afterward, Ranieri pitched the federal government on a
possible solution: federal support for programs allowing foreclosed
homeowners to pay rent on single-family homes that might otherwise sit
empty, with an option to buy once their credit recovered. 

Congress never created such a program, but in 2012, Ranieri seized the
opportunity himself. With the former Goldman Sachs banker Bill Young,
he launched Hyperion Partners, named after the Titan who ruled the
stars in Greek mythology. Later renamed Home Partners of America, the
company began gobbling up on the cheap the unwanted inventories of
empty homes that banks had repossessed. Ranieri argued in a white
paper
[[link removed]] that
year that a well-designed rent-to-own program could benefit investors
and the broader economy while creating "a once-in-a-lifetime
opportunity to enfranchise a large number of Americans who might not
under ordinary circumstances be able to afford homeownership."

One of Home Partners' first major markets was Chicago, where the
company remains headquartered. But much of its business has shifted to
Sun Belt cities such as Atlanta, Phoenix, and Tampa, Florida.

To fuel its rapid expansion, the company turned to a form of financing
familiar to its founder; in 2016, Home Partners offered
the first-ever bonds
[[link removed]] backed
by monthly payments from rent-to-own tenants. 

Home Partners' first offering — $371 million in certificates backed
by more than 2,000 rental properties across 17 states — earned AAA
ratings from the bond-ratings companies Moody's
[[link removed]] and
Morningstar. The company has since issued 11 more
[[link removed]] transactions,
most recently a 2022 issuance of $100 million worth of bonds
[[link removed]],
all of which earned AAA ratings for their top tranches. 

There's good reason those deals are attractive to investors, according
to a 2021 ratings report on Home Partners' bonds. The Home Partners
spokesperson said the company offers "locked-in rents that at times
are significantly below market rents." But the ratings report, from
Morningstar, says that in Home Partners' rent-to-own properties,
"contractual rents are usually higher than market rents." The
company's tenants are unlikely to leave, according to the report,
since "moving from a house may be more difficult than moving from an
apartment."

A Fast Company investigation
[[link removed]] last
year into Home Partners competitor Divvy found that company also
charged above-market rents — with a markup as high as 43% in some
cities.

One ratings firm, Kroll Bond Ratings Agency, declined to rate Home
Partners' first transaction in 2016 and instead issued a report
warning
[[link removed]] that
the deals could be risky for investors due to "a possibility that
these purchase options could subsequently be found to violate consumer
protection and/or predatory lending laws." 

A REGULATORY GRAY AREA

So far, no courts or regulators have made such a determination about
the Home Partners model, though a pending lawsuit in Minnesota claims
that the company's lease terms run afoul of state law. Some smaller
rent-to-own companies in Michigan, Pennsylvania
[[link removed]],
and Ohio
[[link removed]] have
run into legal trouble
[[link removed]] and
been sued, accused of using deceptive contracts or failing to disclose
the dilapidated state of the properties. 

[A tearsheet from a Minnesota case with language about opaque
contracts]

A group of former rent-to-own tenants in Minnesota are seeking class
action status to sue Home Partners over alleged deceptive practices in
their agreements. 

Minnesota State Court

The rent-to-own industry as a whole currently falls into a regulatory
gray area, with fewer consumer regulations and legal protections than
either standard landlord-tenant relationships or conventional mortgage
lending. And unlike home sales, no public body records or tracks the
"right-to-purchase" agreements signed by Home Partners tenants; the
agreements even include a clause prohibiting their recording in public
records. So it's difficult to say even how widely the model is used. 

According to a first-of-its-kind national survey
[[link removed]] by
Pew Charitable Trusts last year, roughly one in five Americans has
used a mortgage alternative at some point in their lives — including
rent-to-own arrangements. The survey found that Black and Hispanic
households are more likely than white ones to rely on alternative home
financing. 

In fact, alternative-home-financing models are deeply connected to
historical inequities in the housing market — in particular, the
legacy of redlining, which forced African Americans and others
excluded from mortgages into predatory-lending arrangements
[[link removed]].
During the 1950s and 1960s, speculators took advantage of Black
homebuyers by selling them homes "on contract," retaining the title to
the home until it had been paid for in full. That day rarely came,
thanks to high interest charges and hidden fees. 

Rent-to-own, a cousin of this infamous contract-sales model, has
thrived amid persistent racial disparities in access to credit. Long
the domain of scammers and schemers — including a Florida
real-estate guru who was investigated in the mid-2000s after being
accused of refusing to sell homes to people who had paid thousands of
dollars under rent-to-own contracts — rent-to-own gained momentum as
the credit market tightened in the wake of the financial crisis. 

"Rent-to-own has this really sordid history," said Reiss. "It's an
area of the housing market that remains underregulated. That's part of
the attraction for many operators." 

INSIDE A RENT-TO-OWN DEAL 

"Do you want to become a homeowner, but you have some obstacles
standing in your way?" a Dallas-Fort Worth realtor asks in a YouTube
video [[link removed]] posted two years
ago. "I have a solution for you!"

Dozens of similar videos
[[link removed]] by
real-estate agents advertising the Home Partners program, some with
tens of thousands of views, hint at how the company finds its
customers. Home Partners has invested heavily in recruiting and
training real-estate agents from the get-go, and they now generate a
substantial portion of its leads, a former employee said. Most of the
Home Partners tenants who spoke to Insider and the McGraw Center said
they were referred by agents; others were drawn in by web searches or
ads on social media. 

Prospective customers apply through the company's website. Following a
recent change to the program, applicants must have a minimum credit
score of 620
[[link removed]].
That's slightly higher than the 580 minimum score, considered a "fair"
credit record, required for Federal Housing Administration-backed
loans — a popular choice with first-time homebuyers due to the lower
credit and down-payment requirements. But Home Partners'
other eligibility criteria
[[link removed]-(DTI)-and-rent-to-income-ratio-(RTI)-calculated],
related to debt-to-income ratio
[[link removed]-(DTI)-and-rent-to-income-ratio-(RTI)-calculated] and
past bankruptcies, are more flexible than those used by many
traditional lenders and the FHA
[[link removed]]. 

Once approved, tenants get a "budget" to look at for-sale homes, based
on how much Home Partners believes they can afford in rent. (The
company considers rent payments amounting to 40% of a tenant's monthly
income to be affordable, though the FHA considers anything above
one-third to be unaffordable.)

From there, tenants go through a process that looks a lot like
traditional homebuying, touring homes with real-estate agents until
they find one they like.

But the agent represents Home Partners, not the tenant, and Home
Partners makes the offer. Since Home Partners pays cash, the offers
are often accepted quickly.  

To close the deal, tenants must sign a lease to rent the home for at
least a year, plus a separate "right to purchase" agreement outlining
the opaque process the company uses to determine a tenant's ultimate
purchase price, which rises each year. With a home closing on the
line, tenants who spoke to Insider felt pressure to sign quickly. 

[Screenshot of of Hines-Denison breakdown of costs]

One of the final pages of Hines-Denson's 50-page right-to-purchase
agreement specifies how her purchase price would escalate each year. 

Courtesy of Erica Hines-Denson

JoAn Carrasco, a Home Partners tenant near Atlanta, said that on the
day of her 2019 move-in, she arrived to find the basement flooded;
soon after, she also discovered mold in the walls. She asked the
real-estate agent she was working with for a copy of the
home-inspection report, but she wasn't permitted to see it. She wasn't
the buyer — Home Partners was. 

Carrasco's agent worked for the brokerage Coldwell Banker, an early
partner 
[[link removed]]of
the rent-to-own company — a fact that its agents don't always
disclose. 

While Home Partners doesn't pay agents directly, there's a clear
financial incentive for them to steer customers who would most likely
end up in renting its way. Agents can make a small commission on
apartment rentals, typically a month's rent
[[link removed]],
but sales commissions are generally higher: about 3% for the buyer's
agent. For a typical Home Partners home — valued at $410,000,
according to a pool of homes securitized in 2021 — that comes out to
about $12,000. So the opportunity for a quick sale from a client who
wouldn't otherwise qualify for a mortgage is attractive. 

"Their turnaround time is pretty fast, so we get to flip a contract
pretty quickly," said Rick Bolivar, an agent who covers the Tampa,
Sarasota, and St. Petersburg metro areas and has been referring
clients to Home Partners for about two years. "From a self-serving
standpoint, that's great, because that's the jingle in your jeans." 

The lightning-fast process doesn't always benefit tenants. While
real-estate agents often refer clients who have been turned down for a
mortgage to Home Partners, some tenants said they were rushed into the
program even though they may have qualified for a conventional
mortgage. 

The Home Partners spokesperson denied that the company's relationships
with real-estate agents conflict with tenants' interests and said the
company does not condone high-pressure sales tactics.  

Kristy Lane, a Home Partners tenant outside Dallas, said that when her
realtor recommended rent-to-own, she was intrigued since she hadn't
managed to save for a down payment. She later discovered that she
might have qualified for down-payment assistance through a Texas
state program 
[[link removed]]for
first-time homebuyers. 

Such assistance programs vary widely by state and locality, creating a
"confusing landscape" for homebuyers, said Bruce McClary, a senior
vice president at the nonprofit National Foundation for Credit
Counseling. He said buyers should always speak to a nonprofit housing
counselor who can advise them of these options.

Lane learned more about assistance options only once she became a
realtor herself. After moving into a Home Partners property in
November 2019, Lane, newly pregnant with her third child, decided to
study for her license. She got it just before her daughter's birth. 

Lane went on to promote Home Partners to several clients. But once the
company increased its credit-score minimum to 620 — the same minimum
score required to apply for down-payment assistance in Texas — Lane
began to question what benefits the program actually provided. 

Many applicants with that score would also qualify for FHA-backed
loans, she said. 

Lane also grew frustrated with what she saw as the company's
laissez-faire approach to maintenance, which she said left her with a
broken air conditioner in 105-degree Texas heat at one point. Home
Partners initially told her repairing it was her responsibility, she
said, and so she paid out-of-pocket to have it fixed. After a week
spent calling and emailing the company, it credited her account for
the cost of the repair, Lane said. 

In another instance, a former tenant in Pennsylvania said that after
months of back-and-forth, she successfully pressed Home Partners to
reimburse her $4,000 she spent replacing filthy carpeting, which her
realtor had told her the company would do. 

In return, Home Partners asked her to sign a release form, provided to
Insider, agreeing not to disparage the company and waiving all claims
related to the condition of the property. The tenant refused and soon
moved out. 

SHIFTING THE BURDEN OF HOME REPAIR

While landlord-tenant laws vary by state, almost all put the burden on
landlords to maintain basic standards for their tenants, from
providing heat, hot water, and electricity to remediating toxic
exposure such as lead or black mold. When they fail to do so, many
states allow tenants to withhold rent or sue for damages. Some cities
also impose fines.

But Home Partners' agreements are far less straightforward. Its leases
and purchase agreements stipulate the company is leasing the property
"as is" and that the "Tenant will be responsible for the maintenance
needs of the Premises." Yet the company also says it will cover
repairs "as otherwise required or specified by Applicable laws." This
contradictory language leaves individual tenants like Lane without
clear standing when they seek basic repairs

[Screenshot of a lease]

A 2019 Home Partners lease shows that the home is being rented "as
is," a clause that lawsuits allege shifts responsibility for repairs
onto the tenant. 

Home Partners lease obtained by Insider

The legality of as-is agreements has been challenged in multiple
courts. In a 2020 appeals court ruling in Texas, a judge upheld the
clause that Home Partners tenants rented their homes "as is" and ruled
that the company wasn't liable for a mold problem in one of its homes.

But a lawsuit pending in Minnesota state court claims this language
amounts to an "elaborate" and "extralegal" effort to unlawfully shift
the burden of repairs onto tenants. The suit — brought last March by
three former rent-to-own tenants in Minnesota, all of whom claim they
paid above-market rent for homes where the company did not perform
basic repairs — seeks certification for a class action covering all
Home Partners tenants in Minnesota.

One of the plaintiffs is also seeking the return of his $5,940
security deposit, which the complaint says Home Partners kept to put
toward the cost of remediating water damage in the house — a problem
a court filing says he did not cause and reported repeatedly to the
company's maintenance team during his tenancy. A company spokesperson
said the claims in the case are "without merit."

Home Partners filed a motion to dismiss, defending the legality of its
leases and asking the judge to prevent the case "from ballooning into
a needlessly complex and costly dispute" that risked invalidating some
3,000 leases in the state.

The judge denied the motion in January. 

In May, three former and current Home Partners tenants in Colorado
filed another proposed class action lawsuit, this one alleging that
the company had improperly withheld security deposits, failed to
perform necessary repairs, and wrongfully filed for eviction. One
couple alleges that when Home Partners failed to repair a
nonfunctioning furnace during winter, the temperature inside their
home dropped to 28 degrees, forcing them to rush their infant to the
hospital.

"We vehemently dispute these claims and look forward to having these
matters settled in a court of law," the company's spokesperson said.
"We always have been and always will be fully committed to promptly
addressing any maintenance issues in our homes."

As of 2021, Home Partners was the second-largest owner of
single-family residences in the Twin Cities, a study
[[link removed]] by
the Minneapolis Federal Reserve found.

A review of Minnesota court records by Insider and the McGraw Center
revealed that, since 2018, nearly 50 additional tenants in the state
have sued Home Partners or its property-management subsidiary,
Pathlight Properties. In one case, a tenant's home was declared
uninhabitable by the city of Apple Valley after inspectors found it
lacked running water and had sewage leaking onto the floors. 

It's not just tenants who say they are unaware of the problems lurking
in their homes. A former Home Partners employee who worked on
acquisitions for the company spoke to Insider on the condition of
anonymity because they still work in the industry. That former
employee said the pace of the company's purchases in recent years made
it difficult to review inspection reports thoroughly before putting in
an offer — meaning the company itself might not know what shape some
of its homes are in. 

That's what a former Home Partners tenant in Broward County, Florida,
alleged when she sued the company over injuries she sustained when the
ceiling of her home collapsed in 2018. Home Partners settled the
lawsuit in 2021 for an undisclosed amount. 

The Home Partners spokesperson said that the company does not purchase
homes without thoroughly reviewing inspection reports and that it
assumes all the home's liabilities, including responsibility "for
major repairs and maintenance."

HIDDEN COSTS

Housing experts said that many problems rent-to-own tenants face trace
back to Home Partners' 50-page lease and "right to purchase" agreement
— the document Hines-Denson said she had only 24 hours to review. 

The Home Partners spokesperson described its agreements as "clear and
transparent" and said renters receive a sample contract once they're
approved for the program and are encouraged to review it with an
attorney. (Hines-Denson said she couldn't recall receiving one and
could find no record that a sample contract was sent.)

Sarah Bolling Mancini, a staff attorney with the National Consumer Law
Center who reviewed a company contract for Insider, said the length
and legalese of the contract contradict the company's stated goal of
helping borrowers failed by traditional lending. "It should be
expected" that many people won't fully understand it, she said.

While traditional mortgage agreements are subject to federal and state
regulations that typically impose plain language disclosures and
review periods, Home Partners' are not. 

Mancini, who represented low-income clients in a class-action suit
against Vision Property Management
[[link removed]],
a now-defunct rent-to-own operator, looks for several common red flags
in alternative home-financing contracts. Among them: Are up-front fees
refundable if the tenant fails to buy? How much more will tenants have
to pay for the house than what the company spent to acquire it?

Home Partners requires tenants to pay a security deposit equivalent to
two months rent. Such deposits must be refunded under landlord-tenant
law, except to cover unpaid rent or physical damages caused by the
tenant. But Home Partners claims the right to retain the deposit for
those purposes or "any other reason permitted by Applicable Law" —
and requires tenants to submit to binding arbitration for any disputes
over the deposit. 

Tenants do not know exactly what their ultimate purchase price will be
when they sign the agreement. The agreements include fixed annual
purchase price increases of up to 5%. But Home Partners also passes on
its closing costs and something called "make-ready costs" to the home.
While tenants receive cost estimates prior to signing, tenants don't
learn the final "make-ready" costs until after closing.

In theory, the "make-ready" costs include only cleaning and
renovations needed to make the home habitable, plus special requests
from the tenant. But some tenants told Insider they ended up with a
hefty price tag and little explanation.

One Georgia tenant requested blinds, a shower door, and the repair of
a fireplace insert for a 15-year-old house she said was otherwise in
"immaculate" condition. She expected the bill to come to no more than
a few thousand dollars; Home Partners added nearly $17,000 to her
purchase price and refused to give her an itemized breakdown. 

[Screenshot of Atlanta, acquisition costs]

The purchase price for a tenant often spikes in the first year, after
Home Partners adds on acquisition and "make ready" costs. In this 2022
agreement, a Georgia tenant had nearly $17,000 added to her purchase
price. 

Home Partners right-to-purchase agreement obtained by Insider

When Home Partners bought Hines-Denson's Atlanta-area home for
$270,000 in cash, she understood her purchase price would go up each
year. But she acknowledges that she didn't read the lengthy agreement
to the end. The final page, she discovered later, said her purchase
price would immediately jump by nearly 12%, to $302,300, once the
company's closing and acquisition costs were added on. That's the
price she'd have to pay for the home during the first year of her
lease, from October 2018 through September 2019, a period during which
median home-sale prices in her county rose by just 3.3%, according to
data [[link removed]] provided by Redfin, a
national real-estate brokerage. That hike risked pushing her purchase
price above the home's assessed value — and lowering her chances of
qualifying for a mortgage.

Hines-Denson, now 43, discovered soon after her October 2018 move-in
that her elegant house was full of problems. The electrical outlets in
the upstairs bedrooms didn't work, and the downstairs ones stopped
working, too. The family ended up stringing an extension cord from a
working outlet in the backyard to run their indoor appliances.
Hines-Denson, a nurse, said she and her husband, a truck driver, ended
up spending about $3,000 to have an electrician rewire the house after
a maintenance visit failed to solve the problem and further requests
to Home Partners were ignored. 

The couple didn't worry too much about the cost at the time, because
they still planned to buy the house. Before the first year of their
lease was up, they'd already begun conversations with mortgage
lenders. They were all discouraging. Hines-Denson was working on
paying down student loans from her nursing degree, and the couple's
credit scores were improving. But they couldn't qualify for a loan
large enough to fund the $317,000 purchase price their agreement had
jumped to in the lease's second year.

A DREAM ENDS IN EVICTION

Former employees familiar with the company's underwriting process told
Insider and the McGraw Center that when Home Partners determines the
amount it will spend purchasing a house for a tenant, it considers
only a tenant's ability to pay monthly rent. It doesn't assess the
tenant's ability to qualify for a mortgage at the higher prices baked
into the contract. 

The longer tenants take to buy, the more they have to pay — meaning
tenants who need a few years to fix their credit or save for a down
payment are at a significant disadvantage. 

The Home Partners spokesperson denied the company fails to consider
customers' ability to get a mortgage and said the company examines
customers' debt-to-income ratio and takes steps to help tenants
strengthen their credit.  

After being turned down for a mortgage in year two, Denson suffered a
debilitating stroke. Hines-Denson had to reduce her hours at work to
care for him, and the couple's financial stress mounted. In December
2020, they missed a rent payment. 

By then, the third year of her lease, their rent had climbed to
$2,110, due the first of each month, plus a 10% late fee if rent
wasn't paid by the fifth. As soon as they missed that deadline,
Hines-Denson said, she was locked out of the virtual tenant portal
where she made rent payments. When she contacted Pathlight, the Home
Partners subsidiary, to arrange to catch up, she was told the company
had already sent her case to their attorney. 

Hines-Denson and her husband missed the January payment, too. She had
the rent, though not enough to cover all the fees. But the company
would not accept partial payment, she said. Within three weeks, Home
Partners filed for eviction, seeking nearly $6,000 for two months of
unpaid rent and fees, according to eviction paperwork filed in court.
By the time they pulled that money together, another month's rent,
plus fees, was due.

Though they were granted a stay of eviction in February under the
federal COVID moratorium, Hines-Denson said Pathlight began calling
her repeatedly, suggesting that they move out. "They told me, 'This
way you don't have to worry about anybody coming to your door and
putting your things outside,'" she said. "I'm thinking about my kids
at this point."

Hines-Denson and her family moved out in mid-March 2021. A few weeks
later, she was astonished to receive a call from Pathlight's realtor
asking her for photos of the home's interior so they could re-list it.
By April, another family was renting the home she and her husband had
hoped to buy. In December, that family was evicted, according to Henry
County court records. 

Hines-Denson told Insider that Pathlight made a verbal agreement to
drop the eviction suit and not pursue the unpaid rent if she moved out
within 30 days. Still, the company retained her $3,900 security
deposit for unspecified damages and reported the eviction to credit
agencies. 

Hines-Denson's eviction case was one of more than 50 Home Partners
filed in Henry County between September 2020 and June 2021, while the
federal eviction moratorium was in place. As of publication, Home
Partners had filed for eviction against more than half of the 430
properties it had purchased in Henry County through the end of 2021,
the last year for which county sales data is available.

The Home Partners spokesperson said that the company's policies on
security deposits and attorneys' fees follow the law, that evictions
are "a last resort," and that its eviction moratoriums "in many cases
exceeded federal and local requirements." According to the
spokesperson for Blackstone, which acquired the company in 2021,
"During the pandemic, Blackstone recognized that many were
experiencing extreme hardship and chose not to make a single eviction
for non-payment across our U.S. rental housing portfolio," though Home
Partners eviction filings resumed late last year in the counties
Insider examined.

After leaving their Home Partners property, Erica Hines-Denson and her
family spent three months staying with friends and family. They
finally secured stable rental housing last summer, and her husband has
recovered enough that they are both back at work full time.

But their plan to buy their own home is back at square one. 

STEEP ODDS OF SUCCESS

How common is Hines-Denson's story? 

Until last year's report from Moody's Analytics, Home Partners had
never revealed how many of its renters had become owners. 

That report
[[link removed]] was
authored by two former Treasury Department officials who are now
advisors to Home Partners of America and its rent-to-own competitor
Trio. In it, they presented data for the first time showing how many
renters successfully purchased homes through each company and how many
had moved out without purchasing. 

In analyzing Home Partners tenants who moved in during 2020, for
example, the report noted that 513 had purchased their homes by the
end of 2021, while 843 moved out without buying. Moody's calls this a
"success rate" of 38% — and says this is double the success rate of
tenants who entered the program prior to 2018.

But that 38% number leaves out all the tenants who were still renting
after year one.

"What is the number of people who have attempted to go through this
program, gotten to the end of their original term, and still haven't
exercised their option to buy?" asked Mancini, the National Consumer
Law Center attorney. The companies, she said, are the only ones who
know.

That opacity is especially important given that Trio has gained access
to low-interest federal FHA loans, typically reserved for individuals
and nonprofits, on the basis of its claimed success in turning tenants
into homeowners. Trio did not respond to requests for comment.

Michael Stegman, a Home Partners advisor who coauthored the Moody's
report, spoke to Insider and the McGraw Center about the data and
defended its underlying methodology. 

Capturing how likely tenants are to succeed in purchasing is "not a
straightforward exercise," said Stegman, a visiting professor at Duke
University's Sanford School of Public Policy. Since tenants have up to
five years to purchase, he argued, looking at those who exit the
program each year, whether by buying or moving out, is the most
straightforward way to measure success. 

To get a better idea of the longer-term picture, Insider and the
McGraw Center examined nine years worth of property-sales records in
the Chicago metro area, one of the company's first major markets.

From 2012 through 2021, Home Partners purchased 333 properties in Cook
County, according to public records. By the end of 2021, the latest
year for which county sales data is available, the company had sold 76
— less than a quarter — of those properties to new owners. But
Home Partners filed for eviction more often — filing against tenants
in 107, or nearly a third, of those homes.

To understand Home Partners' success rate in more detail, Insider and
the McGraw Center decided to find out what happened with 195 of those
333 Home Partners properties — the homes purchased before the end of
2016, where the five-year window to buy had already expired.

Home Partners had resold just 58 of those 195 homes — or 30% — by
the end of 2021. 

What's more, when we canvassed those 58 properties, we learned that
many of the sales were not to rent-to-own tenants. 

While many homeowners were unavailable or declined to speak, at least
10 had purchased from Home Partners through conventional sales —
after the original Home Partners tenants were evicted, moved out, or
otherwise failed to buy.

That leaves Home Partners' success rate in Cook County for this period
no higher than 48 out of 195, or 25%.

Three former Home Partners employees, all of whom left the company
within the past two years, said that the actual success rates
discussed at internal meetings were far lower. "There was kind of an
unwritten rule," said one of the employees who worked directly with
Home Partners customers. "The people who have the most success are the
people who only need one year to buy."

One of the conventional buyers, William Titus, paid $210,000 for a
home in Elgin, Illinois, in 2018; Home Partners said the company took
a loss on the property because it had been left in such bad condition.
Home Partners had bought it for $320,000, and the rent-to-own tenant
would have had to come up with $364,500 to buy, according to documents
filed in a Home Partners' eviction suit.

The tenant had vacated the home after its faulty heating system
resulted in her treatment for carbon-monoxide poisoning, according to
a court filing. Home Partners continued to pursue her for unpaid rent
and late fees until the case was settled in late 2018. 

Thirteen of the 58 purchasers Insider canvased confirmed they were
successful rent-to-own buyers. Most had bought in their first or
second years of renting. Some were new to the city and weren't ready
to commit to a neighborhood yet; others chose rent-to-own because they
needed another year or two to repair their credit following a short
sale or to finish paying off student loans but otherwise had solid
finances. 

One homeowner, Matthew Phelps, 53, successfully saved for a down
payment and purchased his home in the final year of his agreement. He
said Home Partners had been flexible when it came time to buy, and the
program was "a good option for middle-class families." 

His experience puts him in the minority among Home Partners' renters.
In six Atlanta metro-area counties where sales data was available,
Home Partners had sold just 17% of the 528 homes whose five-year
purchase window had expired by the end of 2021. In Tampa, Home
Partners had sold 34% of the 237 homes it purchased in that time
frame. In both cities, it's unclear how many of the purchases were by
rent-to-own tenants as opposed to conventional buyers. 

Tampa data shows that at least seven of the 80 sales Insider and the
McGraw Center identified were to LLCs registered to separate
addresses, indicating the buyer didn't live at the property. 

The track record of several other major rent-to-own operators also
appears overstated. Trio cites an 85% success rate in its marketing
materials. But Insider's review of property-sales data in Atlanta, one
of its largest markets, found that Trio's success rate was no higher
than 45%. 

A COOLING MARKET

Some of those successful buyers likely benefited from several years of
rapidly rising home prices that eclipsed their contractual increases
— a hot market driven
[[link removed]] in
some localities by the flood of investors like Home Partners. 

Anyone trying to buy a home in Chicago in 2020 — where median
home-sale prices leapt 15.1% between January 2020 and January 2021,
according to real estate brokerage Redfin — would have been happy
with the 5% annual increase written into Home Partners' agreements. 

When home prices are rising quickly, locking in a purchase price
through a rent-to-own contract might make financial sense, Daryl
Fairweather, the chief economist for Redfin, said. 

But now interest rates are rising and the housing market has slowed
down, including a cooling of interest
[[link removed]] by
institutional investors. Fairweather said that means it's an
especially disadvantageous time for potential buyers to turn to
rent-to-own. When prices are falling and rent increases are slowing
down, she said, "I don't think there's an advantage to locking
anything — you'd be better off saving that money and buying later."

Insider recently spoke with the Georgia tenant who complained of Home
Partners adding nearly $17,000 to her purchase price for improvements
and repairs. That charge meant she'd have to pay nearly 13% more than
Home Partners did to buy during her first year. Meanwhile, median
home-sale prices in her county rose by just 2.3% over the same period.

She tried to exercise her right to purchase in December anyway, and
paid to have the house appraised. The appraisal came in nearly $27,000
below the purchase price in her contract. Home Partners refused to
budge on the price, she said. For now, she'll continue renting as a
regular tenant. 

"Purchasing is just not a realistic option," she said.

KKR has a stake in Insider's parent company, Axel Springer.

_Rebecca Burns [[link removed]] is a
Chicago-based reporter at The Lever. Her award-winning features and
investigations have appeared in outlets including Bloomberg Green, the
Chicago Reader, ProPublica Illinois, and USA Today._

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