Designed to Fail: The rise of rent-to-own leases

An exclusive 5 On Your Side investigation reveals how a form of predatory lending took hold of Ohio’s housing market after the foreclosure crisis. We uncovered rent-to-own leases and land contracts can leave aspiring homeowners broke and homeless, as they contribute to depreciating home values and force cities to use taxpayer dollars to pick up the pieces. Watch this full investigative report Tuesday night at 11 p.m. on News 5.

The ‘princess palace’

LaJuanna Williams' little girl, Andrea, loved the house near the corner of Elgin Avenue on Cleveland’s east side.

“The house was gorgeous,” Williams said. “It had a princess palace window.”

LaJuanna's house on Elgin Avenue before it was demolished.

Parts of the home were painted purple, one of Andrea’s favorite colors.

“She said, ‘Mommy, I would love to live in that house,’” Williams said.

LaJuanna Williams

After an accidental shooting took Andrea’s life in April of 2008, Williams decided to buy the house her daughter loved so much.

“To me, it was kind of like having a piece of her,” she said.

Then, she lost the house too.

Williams became one of the thousands of people across Ohio still grappling with the aftereffects of the foreclosure crisis when she fell prey to a form of lending that can become predatory.

“I felt like I deceived her,” Williams said of her daughter. “I let her down once again. I couldn’t save her life, and now I can’t save the house she wanted.”

The worst of both worlds

Rent-to-own leases and land contracts, which are similar, are advertised as affordable ways to own homes.

However, housing experts said those who sign them often end up worse off.

“In some ways, it's the exact opposite of a regular mortgage,” said Ben Faller, a professor at the Case Western Reserve University School of Law and an Ohio housing expert.

“You see contracts, in some ways reminiscent of what we saw during the height of the mortgage boom…that are designed to fail.”

Ben Faller

The deals often come with unmanageable conditions.

The buyer secures a low monthly payment that would be put toward the principal, but, like a homeowner, is saddled with the cost of taxes, liens, code violations and repairs.

Like a renter, if the buyer misses even single a payment, they can end up in eviction court and lose any money they’ve invested in the home.

According to Cuyahoga County data, in the last 10 years, 1,723 land contracts were recorded in the county.

A sign advertising a rent-to-own lease sits on the front yard of a Cleveland home.