2 Investigators: Rent-To-Own Nightmare
(CBS) -- In the wake of the housing crisis, investors have been snapping up foreclosed properties across the city and suburbs and then cutting deals with low-income buyers who don't qualify for traditional mortgages.
The transactions, called "land contracts," are now coming under fire here and in other cities like Cincinnati, which is suing one investment firm over the deals. The deals are commonly referred to as "rent-to-own."
Locally, most of the homes, bought out of foreclosure, were acquired from government-backed lenders for as little as $1,000, according to interviews and records.
Carolyn Smith and her elderly mother bought one of the homes in the city's Austin neighborhood. The seller was Harbour Portfolio Advisors of Dallas. The company bought more than 6,000 U.S. homes, according to the City of Cincinnati lawsuit.
Harbour paid $1,000 for the two-story property in Austin in August 2011, records show. Four months later, Smith entered into a land contract with the firm.
Under the deal, she agreed to pay nearly $35,000, plus cover the taxes, insurance, repairs and maintenance. Harbour charged her an annual interest rate of 10 percent, according to interviews and records.
Her last monthly payment of $298 comes due in 2041.
By then, Smith will have paid over $105,000, not including repairs, taxes and maintenance.
By her own account, Smith has spent more than $15,000 to fix up the home, which needed extensive repairs and came without a furnace, sinks, or a hot water heater. But she will not have any equity in the property until the last payment is made – 24 years from now.
Jack McNamara, a local housing advocate, says some of these deals are "predatory."
"The buyer is responsible for repairs, taxes and insurance but (receives) none of the privileges that go along with home ownership," he says.
Harbour no longer owns the home. It sold it to another investment firm. The terms of the deal, though, have not changed.
As for Smith, she says she spent so much on repairs that she couldn't keep up with her taxes. They were purchased last year in a sale. Smith now has to pay over $7,500 in back taxes and fees by next year, or else lose the home.
"I've been duped," Smith says.
In a statement, an attorney for Harbour defends the deals.
"Every person that buys or gets a mortgage for a home is responsible for repairs, taxes and insurance which is in fact a privilege that goes along with home ownership. There is absolutely nothing predatory about charging people less money than one would pay in rent, yet at the same time fulfilling the dream of home ownership."