Rent-to-own contracts offer Kansans low barrier path to homeownership – at a higher risk of fraud
(KANSAS NEWS SERVICE) - The home in Haysville was meant to be a safe place, a sanctuary, for Maria Robledo and Enrique Perez.
The house had one more bathroom and bedroom than their former home. It had a big backyard for their 10-year-old son, Mateo. And it was within walking distance of his grade school.
“There was more space for me to explore. For example, there was a lake nearby,” said Mateo, speaking in Spanish. “It was big outside; it was very beautiful.”
In August 2020, the Spanish-speaking Perez-Robledo family signed a contract for the home written in English, thinking they were buying it. The family spent months and thousands of dollars on repairs before moving in in January 2021.
But three months later, Perez and Robledo realized they did not, in fact, own the home. The $10,000 they paid to the sellers had not been a down payment.
The contract they signed for the house was a lease agreement with an option to purchase – a unique payment structure similar to rent-to-own contracts.
In these contracts, buyers typically rent the home for a certain amount of time, with the option to buy it directly from the owner before the lease expires. In some cases, a percentage of the monthly rent goes toward the purchase price. The sellers might also ask for an up-front cash payment, which mimics a down payment but doesn’t necessarily guarantee equity in the house.
Rent-to-own contracts mean buyers can avoid banks and credit checks. But skirting traditional lenders can be risky, as the Federal Trade Commission has warned.
Perez and Robledo faced that reality when a judge ruled this fall that the contract they signed was fraudulent. The sellers didn’t have complete ownership of the house, despite saying so in the contract.
“Unlike rental situations, which are governed by the Landlord Tenant act, Kansas has no regulations about rent to own,” said Marty Keenan, the lawyer who represented the Perez-Robledo family in court. “So, it's like the Wild West.”
Some lawmakers are trying to increase regulations on contracts like this. A bill introduced to the Kansas Legislature last year would require sellers in most cases to have total ownership to use a contract for deed, which is similar to a rent-to-own agreement.
But it’s too late for the Perez-Robledos, who weren’t awarded any money as a result of the fraud they experienced. That’s because the judge said the family moved out of the house with “unclean hands”: Perez and Robledo removed many of the home improvements they’d made.
The sellers, Myrna Muniz and Carlos Rodriguez, argued the house was left in poor condition, with damaged electrical wiring and plumbing.
Perez and Robledo dispute this.
“If something is affixed to the house, it becomes part of the house,” said Sedgwick County District Court Judge William Wooley in his ruling. “So you did not have the right to remove the windows. You did not have the right to remove the doors. You did not have the right to remove the air conditioning and the furnace.”
Language barriers and a new home
The Perez-Robledo family started looking for a bigger house in the summer of 2020. Perez works in construction, so he could fix up anything the family bought.
“We thought about looking for another house to build something for ourselves, when we were older, when we got to where we could no longer work,” Perez said. “And also, for our son, for his future.”
They found Muniz, a licensed real estate salesperson, on Facebook. Perez and Robledo liked the house she showed them in Haysville.
In August, both parties showed up to sign the contract. That’s where their two stories diverge.
The contract – titled as a “lease agreement with option to purchase”– was written in English. In it, Perez and Robledo are labeled as both tenants and buyers.
The agreement required them to pay about $1,000 a month in rent, which the contract said would not be credited toward the home’s $85,000 purchase price. The contract also said Perez and Robledo would pay a $10,000 nonrefundable fee, which would be credited toward purchasing the house if they opted to buy it.
Perez and Robledo don’t speak English. They said the sellers told them the contract was a purchase and sale agreement for the Haysville home, and that the $10,000 was a down payment.
Muniz and Rodriguez did not respond to requests for comment. But their lawyer, Jerry Bogle, spoke on their behalf. He said his clients verbally translated the contract for the Perez-Robledo family.
“It's not fair for (Perez and Robledo) just to say after the fact that, ‘Oh, gosh, we didn't understand that,’” Bogle said. “My clients testified that they read it to them in Spanish.”
In his ruling, Judge Wooley found the two parties did discuss the contract, but it wasn’t translated word for word.
“There’s just so much wrong with this contract,” Wooley said in his ruling. “Using this contract is unconscionable.”
Hispanic or Latino families are particularly at risk of misinterpreting rent-to-own contracts. Jason Probst is a Democratic state representative in Hutchinson, which has grappled with contracts for deeds for years.
Probst helped introduce the bill to regulate the contracts. He’s heard anecdotally that Spanish-speakers tend to suffer from confusion about them.
“They do all this work on this house,” Probst said. “And then … because there's a language barrier and a misunderstanding of the legal mechanisms, they think that they can sell the house. And then they find out that they can't.”
Sandra Lopez is the deputy register of deeds in Finney County in southwest Kansas. She said in her two years at the office, four families have come in asking for the title to their home – homes they didn’t own because they were buying them on a contract for deed. All were Spanish speakers who Lopez thinks didn’t receive a thorough explanation of the contract.
“Because of the wording on the document, a lot of Hispanic people don't understand it,” Lopez said. “And so they feel like they've been kind of robbed.”
The Haysville house was in rough shape when Perez and Robledo signed the contract in August 2020. Neither the Perez-Robledo family nor the sellers dispute that it was uninhabitable and had been without power for years.
“We started cleaning everything, putting in new walls, the ceiling,” Robledo said.
She said electric wires in the house had been chewed on by animals and needed serious repairs. Court documents say Perez and Robledo spent about $2,000 to restore electricity and about $5,000 to restore plumbing to the house.
The family also put in wood floors and redid the bathrooms, Perez said. Receipts from the family show hundreds of dollars in purchases at Sutherlands and $8,000 spent on the installation of a heat pump and electric furnace.
Perez, Robledo and their son moved in in January 2021.
Rent-to-own buyers often spend time and money fixing a property, said Jason Roach, the chief attorney for the Sedgwick County District Attorney’s Consumer Protection Division. That’s risky because those investments – as well as any up-front cash payment – could be lost if the buyers don’t end up getting title to the home.
In rent-to-own contracts, the buyers typically don’t get the title to the house until they’ve completed all the payments.
“We would discourage people from entering into those types of transactions because they're highly risky,” Roach said. “And your only remedy, when you don't get title, is to sue. And by that point, it can be very difficult for you to get priority over, say, the mortgage company.”
In many rent-to-own contracts, buyers who miss a payment can be evicted – like tenants who rent – and lose the property.
That doesn’t happen all the time. Benji Mast owns Golden Rule Property Management in Hutchinson, which oversees some rent-to-own contracts. He said 95% of the company’s buyers keep up with their payments on the contracts, and many end up with the title to the property.
Mast said he’s seen how these contracts can offer working-class residents a path to homeownership. He said his company worked with a single dad who signed a contract for deed to buy a house over a 15-year-period. Mast said the man ultimately got the title to the house in just seven years, because he paid extra on months when he had tax returns.
“He would always bring his son into the office when he made those payments,” Mast said. “ … And when he made the (last) payment, he said, ‘Now I have a place, it's mine and my son’s, and we don't have to pay rent anymore. And we own it free and clear.’”
But Mast said he’s met at least one seller using rent-to-own contracts with less ethical intentions: charging the buyer a big up-front cash payment and hoping a payment is missed, so the seller can get the house back and keep the cash. That worries Mast.
“It's hard for me to put into words, like, the contempt that I have for people like that, who (are) operating in this space,” Mast said.
The dream comes crashing down
It wasn’t until March 2021 that the Perez-Robledo family realized their stake in the Haysville home was far less secure than they’d previously believed.
Perez had made a lot of improvements to the home, and the family wanted to sell it. But when they called a friend who worked in real estate, he was alarmed by the contract Robledo and her husband had signed. That triggered Perez and Robledo to start looking for a lawyer.
Keenan took the case. He quickly discovered his main argument: Muniz and Rodriguez did not have full ownership of the Haysville house, despite signing a contract that gave the Perez-Robledo family an option to purchase it.
Muniz and Rodriguez were actually in the process of buying the home – for $45,000 – from a company in Rose Hill. The couple was sending the company between $700 and $900 a month to pay it off.
But the contract Perez and Robledo signed with Muniz and Rodriguez indicated that the two sellers owned the house free and clear.
The judge decided the contract included a “material misrepresentation” of the property’s ownership. Perez and Robledo proved they were owed $10,000 in damages.
Bogle, the sellers’ lawyer, said his clients had used an “awkward” contract. But he said that in most real estate transactions, the sellers don’t have complete ownership and title – because most sellers still have mortgages on their homes.
The bill that Probst helped write would address situations similar to Perez and Robledo’s. Sellers, with some exceptions, would have to hold the title to a property in order to enter a contract for deed. If the seller was paying off any debts like a mortgage, the legislation would require the buyer to be made aware of this.
Mast, the owner of a Hutchinson property management company, isn’t embracing the potential regulation of the rent-to-own industry. He understands why it may be necessary but worries it could make the contracts too expensive to undertake.
“If there was more regulation that was passed for this industry, then it's pretty likely that we would get out of it,” Mast said. “And for some of those families that I mentioned, that would mean that they probably would still be renting today and probably wouldn't have equity in their own home. … But then, there really are bad actors in this space.”
Exiting the house
When Perez and Robledo learned they didn’t have any legal ownership in the home, they were devastated.
“I felt so bad; I felt so humiliated, so defeated, that they did this to me,” Robledo said.
In March 2021, they decided to move out.
“Everything turned dark for me,” Robledo said.
Keenan said he advised the family to remove improvements they’d made to the house.
“I told them, ‘Don't trash the house; don't vandalize. Just remove anything you paid for,’ ” Keenan said.
Perez and Robledo said they followed his instructions and didn’t destroy anything – just removed their belongings. That included new windows and doors.
But leaving the house open to the elements angered and frustrated Muniz and Rodriguez, as did the buyers’ lack of communication, Bogle said. Muniz filed a report with the Sedgwick County Sheriff’s Office in April 2021 describing $46,600 in property loss for the items removed.
“The worst conclusion that could have happened was them leaving the way they did,” said Bogle, the sellers’ lawyer. “There were other alternatives that could have been worked out, even if they wanted to bail out of the house.”
The judge found that the Perez-Robledo family’s exit from the house offset the $10,000 in damages they were owed. They were awarded nothing.
But for Perez and Robledo, the piece of paper with the fraud finding was just as important as the money.
“Maybe I felt a little sad because after all the work that we did, all the investment of money and all the things that we did there, it was zero,” Robledo said. “But that's all right, because the honorable judge saw things and he called it fraudulent, and that's how it was.”
She said she wanted to warn others – especially Hispanic and Latino residents – to take great care if they’re looking to buy a home through nontraditional avenues. Perez and Robledo encourage others to use a translator for legal documents, to consider hiring a lawyer and to seek out reviews or ratings for real estate companies.
“I don't want what happened to us to happen to other people. Because there are a lot of people who don't do anything because they are told that they are undocumented, that you have no right to anything,” Perez said. “ … That's why I did this, not just to get the money back.”