Rent-to-Own Eviction and Repossession Laws

Rent-to-own agreements allow tenants to rent a property or item with the option to buy it later. These agreements usually require higher payments than regular rental agreements because a portion of the payment is set aside as ’savings’ towards the purchase. ─ While this may seem like an attractive option, especially for those with a bad credit score, it can actually make the renter’s financial situation worse. The higher payments can lead to missed payments, and ultimately a total loss of the ’savings’ meant to be used to purchase the property or item.

When tenants-buyers fail to make payments, eviction or repossession can occur, so it is really important to understand the laws that govern these processes to protect your rights and avoid any legal issues.

Eviction, Repossession, and Foreclosure: The Differences Explained

• In the real estate market, eviction can take place when a tenant fails to pay rent or violates the terms of the lease agreement. When it comes to evicting a tenant-buyer, landlords must adhere to certain legal procedures. This typically involves providing notice and obtaining a court order, among other requirements. Failure to follow these procedures can result in legal consequences for the landlord.
• Regarding personal property, repossession is the ultimate recourse when borrowers default on their payments. Although the creditor possesses the authority to seize the property without a court order, they must refrain from doing so through unjust methods.
• Foreclosure, ─lengthy and complicated─ is the legal process of taking possession of a property due to a mortgage default. The lender has the right to take the property in this case. In rent-to-own eviction, the process is initiated by the landlord (that’s the main difference).

Rent to Own Tenant Eviction

Since in a rent-to-own agreement, tenants have the option to buy the property, the law requires landlords to follow specific procedures when evicting tenants. The procedure varies by state, but in general, landlords must provide notice and seek a court order before evicting renters.

The notice must be in writing, and the landlord must provide renters with a certain period of time to vacate the premises. The landlord may launch a lawsuit to evict the tenant after the notice period has expired. If the renter does not leave the property after the court order, the landlord may request that the sheriff remove the tenant.

Strategies to Avoid Eviction

Tenants-buyers can proactively prevent eviction by communicating with the landlord and exploring different options to resolve the issue. Here are some strategies to consider:

1. Payment plan: It is basically a schedule of smaller payments made over time to catch up on missed payments, with fees and interest depending on the landlord and agreement.
2. Refinancing: Tenant-buyers could refinance rent-to-own agreements to reduce the payments or extend the payment terms, which means obtaining a new loan or agreement with different terms and conditions.
3. Subletting: First, carefully review your contract to see if this alternative is allowed. If it is, OK! Proceed with finding a tenant who is willing to take over the lease and pay the rent. Keep in mind that you may still be responsible for any missed payments or damages caused by the subtenant.
4. Finding a roommate: same here; review your contract to see if it allows for multiple tenants. If that’s the case, you will need to find a roommate who is willing to share the property and pay their portion of the rent on time. Moreover, finding a reliable roommate can be challenging.

Rent-to-Own Personal Property Repossession

↪️ It is known that the majority of delinquencies in rent-to-own agreements are resolved via repossession.

Repossession Process and Timeline

Rent-to-own contracts often include a grace period that allows renters to make up missed payments before repossession can occur. The exact length of the grace period may vary depending on the specific contract and the policies of the creditor. Once the grace period expires and the renter fails to make payments, the creditor is likely to repossess the items.

Typically, if the delinquency occurs early in the rent-to-own period, repossession can be executed within approximately three weeks after the last payment. However, if the delinquency happens near the end of the contract term, there may be room for negotiation with the creditor.

In such cases, previous instances have shown that delinquent rent-to-own customers with a history of timely payments have often been able to work out refinancing plans with the creditor, potentially allowing them to retain possession of the rented items.

Ownership and Payment Structure

When you sign a rent-to-own agreement, you get to take the item home right away and make regular payments. However, the process is not the same as traditional financing where you own the item upfront. In a rent-to-own contract, you’re technically renting the item until you reach the total contract price.

The issue is that, if you miss a payment you may lose the item (and the money you’ve paid towards it). And you’re taking this risk for the whole period of the contract. This is because all previous payments are considered rental fees.

To what extent does the law permit this? We’ll get to that later.

The debate surrounding Legislation and Regulation

There is some controversy surrounding the legality of rent-to-own contracts, particularly in regards to the Consumer Rental Purchase Agreement Act. Some experts argue that rent-to-own agreements are essentially credit sales and should be subject to federal consumer protection laws. Others argue that rent-to-own agreements provide an important opportunity for individuals with poor credit to obtain necessary items, and that increased regulation could limit access to these agreements.

At the federal level, rent-to-own property transactions are not subject to specific regulations, as there are NO federal laws governing them.

In recent years, many states have introduced legislation to guarantee protections for consumers’ rights. California, for example, has the Karnette Rental-Purchase Act, which defines the terms of rent-to-own agreements and provides consumer protection provisions. For instance, it is against the law for rent-to-own businesses to make deals where the total amount paid for an item is more than 2.25 times its cash price.

There are two pending laws awaiting Congressional approval: the Rent to Own Protection Act and the Consumer Rental Purchase Agreement Act.

The Rent to Own Protection Act seeks to classify rent-to-own transactions as credit sales, making them subject to federal laws such as the Truth in Lending Act, Equal Credit Opportunity Act, Fair Debt Collection Practices Act, and Fair Credit Reporting Act.

As of now, nearly all states—47 to be precise—have implemented laws to govern rent-to-own transactions. Businesses are typically obligated by law to disclose all the terms and conditions that rent-to-own contracts must follow. Rent-to-own transactions lack specific legislation in four states: Minnesota, New Jersey, North Carolina, and Wisconsin.

✋🏼 My recommendation is to keep yourself updated with the changes in rent-to-own laws in your state. Talk to a local attorney to help you understand your alternatives and rights.

Repossession Tactics and Legal Proceedings

Repossessing rented property without breaching the peace can be a complex task for rent-to-own companies, considering that the items are usually located inside the renter’s residence. Unauthorized entry into the property would constitute trespassing, leading companies to employ various tactics to regain possession of the items while avoiding legal complications.

Common strategies employed by rent-to-own companies include using deceptive practices, such as informing the customer that the merchandise is being collected for repairs or upgrades when it is actually being repossessed. Companies may also resort to legal actions by engaging attorneys to initiate lawsuits for the recovery of the rented items.

📊 The Association of Professional Rental Organizations (APRO), an industry group that advocates for rent-to-own companies, reports that nearly 70% of rent-to-own clients’ annual household income is less than $36,000.

The Law Behind Foreclosures and Mortgages

Foreclosure implies taking possession of a property due to a mortgage default. If payments are missed, the lender can begin the foreclosure process to recover the amount owed. It is possible to stop foreclosure by working with the lender to modify the loan or by selling the property.

ℹ️ Note that foreclosure laws vary depending on the state.

Foreclosure Timeline: From Default to Eviction

As explained before, the process of foreclosure begins when a borrower defaults on their mortgage.

In some states, the lender must obtain a court order before foreclosing on a property, while in others, the lender can foreclose on a property without obtaining a court order.

The states that do not require a court order for foreclosure are called non-judicial foreclosure states. The non-judicial foreclosure states are:

Preventing Foreclosure: Forbearance, Repayment, and Modification

If you’re facing foreclosure, several strategies can help you prevent it. One approach is called forbearance; an agreement made between you and your lender to temporarily pause or reduce your mortgage payments. This can give you some breathing room and time to get back on your feet financially. The states with forbearance laws are the following: California, Colorado, Connecticut, Hawaii, Illinois, Maine, Maryland, Massachusetts, New Jersey, New York, Oregon, Vermont, and Washington.

Another option is a repayment plan; basically spreading out your missed payments over a set period of time. This will make it easier to catch up on missed payments without having to come up with a lump sum of money.

Finally, a loan modification; basically changing the terms of your loan to make it more affordable for you to make payments. This can include lowering your interest rate, extending the length of your loan, or even reducing the principal balance.

Considering the intricacy of these methods, it is super important to seek counsel from a proficient authority who can assist you in determining the most suitable option for your needs.

Manufactured and Mobile Homes Rules

One question that often arises in the realm of housing is whether manufactured or mobile homes can be foreclosed upon. What does the law state regarding this matter?

This will always depend on whether the home is characterized as personal property or real property.

Courts typically conduct 3 specific tests; annexation, adaptation, and intention, to determine whether an object is a real property or not. But in general, we use this rule: If the property is a building attached to the land, then it’s considered real estate (real property). If it’s a trailer, shed, or mobile home that isn’t attached to the land, the rules are different, more like repossessing a car.

👨🏼‍⚖️ It’s important to note that there are restrictions on foreclosing properties that are the buyer’s residence and purchased under a contract for deed.

Conclusion