The New York State Department of Financial Services (NYDFS) has issued a “consumer alert,” warning consumers about the pitfalls of using alternative forms of home-purchase finance agreements—especially rent-to-own contracts and land installment contracts. In an April 16, 2018, release, NYDFS Superintendent Maria Vullo emphasized that alternative home purchase agreements “often are being marketed to financially distressed consumers, promising a path to home ownership, but putting consumers at risk without the protections of a mortgage.” In keeping with the state regulator’s investigation of lease-to-own programs in the central and upstate regions of New York, the consumer alert seeks to raise awareness about the potential risks of “predatory lending” and to notify New York residents that these lease-to-own, rent-to-own, and land installment contracts “may violate applicable New York laws and regulations regarding fair lending, mortgage protections, interest rates, habitability, property condition and/or real property disclosures.”
Concerned that consumers may be vulnerable to signing “onerous and illegal home finance agreements” that often do not lead to home ownership, the NYDFS is urging consumers to use caution before entering into any alternative home-purchase finance agreement. Underscoring that consumers should consider their options, investigate the property, and seek legal counsel before executing an alternative home-purchase finance agreement, the consumer alert notes that:
- frequently, the agreements contain harsh terms and do not provide standard consumer safeguards;
- many lease-to-own and rent-to-own contracts involve properties requiring a substantial amount of work, and the obligation to repair the properties—and the accompanying expense—typically falls on the consumer;
- while an offered “property tour” may give a consumer the impression of a company’s transparency, the tour may not reveal problems and hazards lurking beneath the surface of the property, and tours are often conducted when utility services are not turned on; and
- consumers may have certain legal rights and protections, including the New York common-law doctrine of an “equitable mortgage,” and may be entitled to free legal representation in eviction, foreclosure, or other state legal proceedings.
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