Burzichelli, Schaer Bill Seeking to Rein-In 'Wild West' Rent-to-Own Housing Market Advances

BURZICHELLI/SCHAER BILL SEEKING TO REIN-IN 'WILD WEST' RENT-TO-OWN HOUSING MARKET ADVANCES

Measure Would Ensure Families Are Not Exploited by Unscrupulous Landlord-Sellers

(TRENTON) - Legislation Assemblymen John J. Burzichelli and Gary S. Schaer sponsored to better protect consumers from abusive practices in the unregulated rent-to-own housing market was released today from the Assembly Financial Institutions and Insurance Committee.

"For some families, the dream of purchasing a house through a rent-to-own agreement has turned into a nightmare, thanks to unscrupulous landlords and impossible-to-understand contracts," said Burzichelli (D-Gloucester).  "New Jersey law already protects consumers who enter into rent-to-own agreements for furniture, electronics, and appliances.  That same protection should also be extended to buying a home."

Burzichelli and Schaer crafted their measure (A-1501) after learning how rent-to-own contracts held by some New Jersey residents failed to provide protections from arbitrary and capricious deal cancellations by landlords.  The legislators noted that rent-to-own contracts also lacked detailed financial statements regarding the true costs of the transaction.

An alternative to a traditional mortgage, rent-to-own contracts allow a homebuyer to make installment payments on a line of credit from a seller towards the eventual purchase of a property.  The seller retains the title to the property as security for the life of the contract.  The Assemblymen said that such agreements have become increasingly popular among low- and moderate-income homebuyers and purchasers with poor credit ratings.

The lawmakers noted that many rent-to-own contracts fail to provide buyers with basic financial information - including an amortization table - or establish sound legal procedures for landlords to follow when seeking to cancel a deal.  They added that landlords even retain the right to cancel a contract and evict a tenant if another party offers more money for the property.

Burzichelli and Schaer said some rent-to-own agreements appear to serve as a means for a landlord to skirt the state's existing renter-protection laws, which include limits on security deposits and a requirement that leases be written in "plain language," among other tenant-friendly measures.

"Someone who signs a contract deserves protection against financial and legal exploitation," said Schaer (D-Passaic).  "The 'Wild West' mentality that pervades the rent-to-own market must be reined in so would-be homeowners are not bilked out of thousands of dollars and left with no home and no legal recourse."

The legislation would require rent-to-own installment contracts to be in writing and fully disclose:

• The actual purchase price of the property, including charges or fees for services that are included in the contract separate from the purchase price;
• The amount of the purchaser's down payment;
• Principal balance owed following each monthly installment;
• Amount and due date of each payment; and
• A list of any existing mortgages or liens on a property.

A landlord/seller would be required to record the contract with the appropriate county clerk's office within 20 days of both parties signing the contract.

Under the bill, a buyer would be able to seek a refund of payments - including the value added to the property through improvements - in the event a seller breaches a contract.  The sponsors said such a protection is necessary given that current rent-to-own contracts are not required to provide a purchaser with any means of compensation for a landlord's decision to break an agreement.

The bill also would establish procedures to be followed in situations where a purchaser defaults on a payment, leading a seller to seek to cancel the contract.  That process would include a 30-day grace period to allow a buyer to pay the amount owed.  Additional protections would be available for tenants who have held a rent-to-own contract for more than five years, or who have paid more than 20 percent of the contracted purchase price.

"The balance of power between a purchaser and seller must be restored," said Schaer.

"These reforms are needed to protect the rights of residents who want nothing more than to own their own home against the growing number of sellers who are looking for a quick buck," said Burzichelli.

The measure was unanimously released. It now heads to the Assembly Speaker, who decides if and when to post it for a floor vote.

--30--