THE WASHINGTON POST.
SATURDAy, MARCH 14, 2020EZ14
moved into the townhouse HPA
bought on their behalf in 2017 for
nearly $270,000. They had to put
a deposit of first and last month’s
rent, which HPA usually counts
toward a down payment when
tenants decide to purchase.
While the Hilliards’ rent ex-
penses did not grow equity in the
townhouse, they had five years to
buy out HPA for their home.
Every year, however, the home
price would inch up by a percent-
age the family and HPA had
agreed on.
The home price “went up about
maybe $9,000 every year,” said
Stephen Hilliard, who in late 2019
walked away from the lease op-
tion with HPA to acquire a larger
single-family house.
“We really want to make sure
that we’re being fair to the resi-
dents,” said Jeter, vice president
of marketing with HPA. “If they
decided it is not the home for
them, there’s no penalty to them,
there’s no obligation for them to
purchase.”
At the start of the new year, the
Hilliards were still moving into
their new residence. Severing the
rent-to-own contract with HPA
presented no major challenges,
said Stephen Hilliard. Ye t, there
were some specifics the family
had not realized earlier — l ike the
fact that the lease automatically
renews at the end of each one-
year term. Unlike conventional
leases, it does not roll into a
month-to-month rental that
bears flexible end dates when the
initial contract expires.
“We had already started our
process of buying a new home
when we found out [about this]
but it wasn’t anything on [HPA’s]
part,” said Stephen Hilliard, add-
ing that he reread HPA’s lease
documents, which outlined the
policy.
The Hilliards had to submit a
60-day notice of their intent to
abandon the lease. Awaiting a
move-out inspection of the HPA
home, they nonetheless expect to
pay no penalties and to receive
their security deposit back.
In the overall rent-to-own seg-
ment, purchasing a house at a
predefined price, often set some
years earlier, not only leaves little
room for negotiations; it may be
unwise when home values depre-
ciate.
In such circumstances, HPA
customers may shun a purchase,
taking no losses because they do
not own equity in the homes they
rent. Divvy and Verbhouse cli-
ents, though, may see their home-
ownership stake diminish in val-
ue and face the decision to over-
pay for the residence or cash out
of the lease option.
“In some respects, the tenant is
taking some of the risks of home-
ownership,” said Schultz. “They
have some of the risks and some
of the benefits.”[email protected]rental properties.
“Sometimes homes that are
listed for sale are of a [better]
quality than rental homes or an
apartment,” s aid Tracey Jeter, vice
president of marketing with HPA.
Many lease-option companies
operate in the low-to-median
range of home prices in any given
market. Divvy, for example, pur-
chases houses, listed from
$60,000 to $ 350,000, depending
on the city, said Hefets. The aver-
age price Divvy pays is “$165,000
for a three-bedroom, two-bath-
room, certainly 1,800-square feet
home,” she said.
On its website, HPA states it
considers houses with an asking
price between $100,000 and
$450,000.
But rent-to-own companies
work with their clients to estab-
lish the maximum price they
would pay for a home. Then, the
company presents a cash offer to
the seller, which carries an appeal
in many real estate markets.
Some firms also pay for inspec-
tions, closing costs and repairs.
Ye t before they do all that,
lease-option companies evaluate
houses (assessing details such as
proximity to commercial hubs
and location in a flood zone) and
vet clients. The latter is more akin
to a lease prequalification check
than a stringent mortgage screen-
ing. However, unlike tenants and
similar to homeowners, rent-to-
own customers often share some
of the burden of maintenance,
especially regular upkeep. Some
companies, though, t ake on ma-
jor expenses.
“Divvy did replace a water
heater for me when they still
owned the home,” said Harmon.
“They gave me the contact infor-
mation for a local plumber, I
booked the appointment, and
they covered the cost.”
Buying a home comes with
piles of documents. So do lease
options. Depending on the rent-
to-own company, there might be
an accord to make an offer on a
house, a document on joint ex-
pectations, a lease contract, an
option-to-purchase agreement, a
separate covenant on exit clauses.
“There are documents for each
phase,” of the rent-to-own pro-
cess, said Andrew Schultz, part-
ner at t he law firm Manatt, Phelps
& Phillips, which helped Verb-
house craft its legal framework.
“This whole process has to be set
out so that people know what to
expect and what their financial
obligations will be.”
Aside from a purchase price
and monthly payments, the docu-
ments should also state the price
at which a tenant-buyer can pur-
chase the home outright, or exer-
cise their lease option, at any
time.
With HPA, for instance, the
agreed-on buyback price grows
every year at a predetermined
rate to factor appreciation expec-get your foot in the door,” S tephen
Hilliard said. “It was a great pro-
gram for not necessarily second-
chance credit but it gave you the
opportunity to get into a home
without having all the same re-
quirements of actually buying.”
Stephen Hilliard said rent-to-
own emerged as a viable solution
after touring properties and talk-
ing with Drewery, his agent,
about the family’s background,
current situation and goals.
The Hilliards paid about
$2,000 a month in rent when theymarried. They sought a single-
family rental in White Plains,
Md., to accommodate their blend-
ed family of six children, three of
whom still lived with them.
The couple, facing wedding
costs and career changes, were
reluctant to make the huge com-
mitment, financial and other-
wise, to homeownership. But
HPA’s lease option spurred them
to change their minds.
“With the option to buy the
home that you’re renting, it was a
good opportunity to just kind oftations. Meanwhile, Divvy and
Verbhouse lock in the price at
which a tenant can acquire the
house.
Customers get the deed only
when they purchase the home. In
the time they spend as tenants
(and in some cases, partial own-
ers), the title of ownership be-
longs to the rent-to-own compa-
ny.How to get out of it
In 2017, Stephen and Mercy
Hilliard were preparing to getELIJAH NOUVELAGE FOR THE WASHINGTON POST
“Divvy allowed me to get the exact home I wanted at the correct time,” says JB Harmon. Three months
after entering the rent-to-own agreement, Harmon said he bought the house outright for $134,000.