Cleaning Up the Lease Option Mess in Working-Class Housing

Home ownership may be the most iconic emblem of economic stability for American families, but the pursuit of that goal has drawn too many working-class families into the deceptive agreements knows as “lease option purchase contracts.” To understand the impact of these contracts, visit Youngstown’s South Side, as organizers with the ACORN Home Savers Campaign have been doing, talking with people who signed leases with Vision Property Management.

Picture this: About a third of the lots in the neighborhoods are empty, some the site of demolitions so recent that you can still smell the dirt. On other two thirds, about half of the houses are abandoned and in disrepair, if not all but destroyed. In some cases, parts of them have collapsed.

The occupied houses have their own issues, but they bear the hallmark signs of occupancy: children’s toys, trash cans at the side of the house, lawn chairs on the porch if not a car in the driveway and lights on. Many need work, including all of those owned by Vision or one of its associated corporations. In some cases, they need major repairs.

When organizers knocked on the door of one of those houses, the skeptical woman who came to the door first tried to get rid of them. But when the organizers repeated their mission, to learn about her experience with Vision, her face changed.  “Hold on,” she said. “I’m going to come out to talk to you guys.”

And for the next 15 minutes, she talked about how she had just lost her job and, for the first time, fallen behind on her payments.  She was stuck.  She had made payments for three years.  She had made thousands of dollars worth of repairs during that period to make the home habitable.  Her situation was precarious now.  By the terms of the “lease option” she could be evicted for nonpayment and lose the house, her down payment, and everything she had worked to achieve. She was clear: she needed to get out of this lease and get on a better track to home ownership.

Her agreement wasn’t a contract for deed, but a “lease option purchase.” Rent-to-own, lease option purchase agreements, and similar instruments involve the opportunity of ownership as well as the burdens of repairs, but owner-occupants only secure the title to a home if they maintain the lease.  Desperation meets exploitation in the perfect definition of a potentially predatory transaction.

Stories like this led ACORN’s Home Savers Campaign to organize local committees in Youngstown, Philadelphia, Pittsburgh, Detroit, and Atlanta to demand Vision renegotiate their leases.  This organized community pressure led to direct negotiations with the company that recently produced a breakthrough agreement to help residents like those on the South Side of Youngstown move from lease option contracts to full ownership and mortgage financing.

First, ACORN had to be convinced that Vision was willing abandon its dangerous “as is” policy of allowing potential owner-occupants to live in housing that was inadequate and potentially unsafe.  To satisfy this demand, the company created a detailed lease-checklist that had to be completed and inspected prior to occupancy. Under the new protocol, most of the major repairs made at this home would have been completed before occupancy, not while our South Side Vision owner-occupant was living under the roof.  Before and after pictures were required.  Timelines for repairs were stipulated and calendared.  Monthly payments on the lease were geared to less-than-market terms to help owner-occupants afford to cover minor repairs.  All conversations were recorded to assure complete understanding of leases prior to execution.

The Memorandum of Understanding between the campaign and Vision then directed that payment records be forwarded to credit agencies so that owner-occupants could develop the credit rating necessary to qualify for conventional mortgages.  The MOU also mandated that Vision create a system to verify the owner-occupant’s out-of-pocket expenditures for repairs to assist in loan approvals. In addition, Vision agreed to develop a system to allow consumers regular access their payment record, balances, and “lease credits” (money set aside monthly by Vision for their closing costs, down payment, or lowering purchase price).  To address the lack of clarity in the original leases, the parties agreed within the next sixty-day period to a line-by-line review and rewrite of the documents. The campaign was especially pleased about this provision, because no one we had met was clear on what they had signed.

The agreement also mandated several pilot programs, one in central Arkansas and the other in the Detroit area, each with 100 properties, where ACORN and Vision would partner to convert the leases to mortgages on an accelerated basis.  Another pilot in one of the organizing cities, possibly Youngstown or Detroit, would identify low-and-moderate income families interested in becoming homeowners, provide housing counseling to repair their credit scores, assist them in putting together a plan to save the down payment, and plan for sustainable ownership. Simultaneously we would work with land banks to match the families with properties that Vision would acquire and repair, so that once these homeowners qualified they could convert to a convention mortgage.

Will these pilots work?  We won’t know for a while.

But given what the Home Savers Campaign found—that rent takes a larger and larger percentage of monthly income, eviction rates are soaring, and a credit desert has forced lower-income families out of the home ownership market since the Great Recession — an agreement with the largest lease purchase option company in the country is an important victory.  These reforms will help the thousands of families currently caught in lease purchase options with Vision.  The agreement prioritizes converting bad contracts into deals that make home ownership a reality — and that’s absolutely a win.  That the campaign also forced Vision to partner with community based efforts to match families that need homes with homes that need families is also a great benefit. Locally-based door-to-door organizing efforts like these might chart a path towards a better future for working-class families in many cities like Youngstown.

Gary Davenport and Wade Rathke

Gary Davenport is the Project Coordinator at the Mahoning County Land Bank in Ohio, where he manages the residential side lot program, strategic acquisitions, and special projects. Before joining the Land Bank, he organized residents in Youngstown to pass the foreclosure bond, legislation that insures abandoned homes against blight.

Wade Rathke is best known as Founder and Chief Organizer of ACORN from 1970-2008, and continues to serve as Chief Organizer of ACORN International working in 13 countries.

This entry was posted in Contributors, Guest Bloggers, Issues, Labor and Community Activism, The Working Class and the Economy and tagged , , , . Bookmark the permalink.

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