Largest RTO Company Shut Down in Wisconsin

19 Replies

As many of you are well aware, I am no fan of RTO or LTO as I believe there are serious legal issues at both state and federal levels involving the concept of both of these being a form of a disguised credit transaction and that further individuals or organizations so engaged also fail to comply with other state and federal laws they are subject to. 

That said, you should know the following:

Wisconsin DOJ was successful the other day in stopping Vision Property Management, one of the nation’s largest operators of rent-to-own residential schemes from operating in Wisconsin. The court order also allows Wisconsin residents that are VPM tenants to terminate their leases with VPM without penalty, and seek financial damages against VPM that resulted from the company’s “prohibited acts and practices. “

The lawsuit is far from over so VPM is going to face far more than just their own customers. The State of Wisconsin is out for blood, over what they consider "a deceptive business model".

People already engage in these models in other states should be aware that other A.G.s in other states have been made aware of Wisconsin's actions. They should also be aware that a new report from Kroll Bond Rating Agency throws a wet blanket onto these practices. KBRA cites a primary concern of rent-to-own is the number of legal questions that surround deals of this type, specifically whether rent-to-own deals could be viewed as predatory lending.

“A primary concern was that the legality of purchase options associated with rent-to-own properties are largely untested and there is a possibility that these purchase options could subsequently be found to violate consumer protection and/or predatory lending laws,” KBRA said in its report.

This presents multiple, serious problems for any investors who buy into a securitization backed by rent-to-own  or lease to own properties, KBRA said. In one example provided by KBRA, if it was determined that the purchase option attached to a property violated consumer protection laws, tenants would then stop making rental payments, which could cause significant shortages in the funds available to the note holder to make payments to the servicer.

And if that happens, the funds that ultimately flow to the bondholder could dry up as well.

KBRA does caution that rent-to-own and lease to own securitizations are in their extreme infancy, and said that it expects to see “significant diligence and disclosure” surrounding the deals’ inherent risks. There is also considerable concern that these transactions could be reclassified as loans which would mean the transactions themselves would be violations of both civil and criminal law.

So, does anyone still think that lease to own, or rent to own, or rent credit schemes are a good idea?


This was an interesting read. Thanks for sharing. 

@Ken Rishel  Lease Options are a great way to sell a property when structured correctly and not performed in a predatory manner.

You make it seem like they were shut down for simply conducting lease option transactions. You didn't include exactly why that particular company was targeted. Its not that they were simply doing lease options; Its that they were operating in an extremely predatory manner.

"VPM requires the tenants to front the costs to rehabilitate the property, pay all the overdue taxes, and resolve any outstanding building code violations associated with the property, Wisconsin’s complaint states.

And, if the tenant does not remedy those issues within a short period of time, VPM evicts the tenant and “repeats the cycle by renting the uninhabitable property to yet another Wisconsin consumer,” the Wisconsin DOJ said in a statement.

According to the complaint, VPM rented properties with sewage in the basement; black mold; lack of water, heat, or electricity; insect infestation; and multiple code violations; among other issues."

@Rebecca Holmes  Awesome company name lol !! :) 

Originally posted by @Lloyd Stanton :

@Ken Rishel Lease Options are a great way to sell a property when structured correctly and not performed in a predatory manner.

You make it seem like they were shut down for simply conducting lease option transactions. You didn't include exactly why that particular company was targeted. Its not that they were simply doing lease options; Its that they were operating in an extremely predatory manner.


@Rebecca Holmes  Awesome company name lol !! :) 

 Lloyd - First of all, there are a major legal differences between Rent-to-Own, Lease-to-Own and Lease Option. The Wisconsin A.G. noted that difference in their early paperwork. So, this post does not deal with Lease with Option to purchase.

Second - The Wisconsin A.G. clearly was not happy with RTO, but they were even more unhappy with the method in which the company conducted its business. The RTO operation might have gone unnoticed if it were not for consumer complaints that derived from other aspects of how the company operated. Consumer complaints are the number one way regulators catch people, followed by bitter ex employees or spouses, and by competitor complaints.

None of this is relevant to the greater issue of if RTO or LTO are disguised credit transactions. The truth is the process of determining that, and then choosing (as a regulator) to do something about it has as many layers as an onion. The further truth is that most people so engaged are doing so to avoid proper licensure to lend, and they are hoping to fly under the radar and not get caught. Certainly, there is some basis for doing so because many states have not even addressed the issue at all, thus allowing many to go unchallenged in their operations - so far.

I simply wanted to present information to people because I believe - which I was clear about - that RTO and LTO are a very shaky business model that could have long-term consequences for those so engaged, as a counterpoint to all of those gurus who post here espousing those methods to help promote their get rich quick schemes.

I'm curious whether the RTO option would run afoul of regulations if (1) the RTO seller partnered with a lender, and (2) pre-qualified all potential RTO renters as purchasers before any transaction began. The only potentially misleading part of the process would be listing a house "for rent", whereas the house would never be rented but would be sold at the outset of the transaction to the renter/buyer. The rent application would include all information required for a lender to assess whether the renter would qualify for a mortgage (e.g. 2 years of steady employment, tax returns, no bankruptcies or outstanding judgments, etc.). If so, the house would immediately transition from a rental to a sale and no rental or lease transaction would ever be part of the process. If not, the rental application would be denied.

I'm proposing this scenario because I've run across versions of this business model in Wisconsin. Let's assume for argument that the RTO seller is a licensed real estate agent and that the lender is a registered lender, both of which appear to be the case when I've seen this done. If you work through some numbers with this model, you can see how a house could be sold at a price on the upper end of a price range. The renters/buyers who apply for this RTO program would be self-selecting, since they would know ahead of time that they would be required to submit a lot of information to qualify.

I don't see how a lease option, at its core, could ever be considered predatory lending. In this case, if the renters were being asked to rehab the property, then maybe.

There is always a way around that though. Charge higher rent and have no lease option fee.  

If you were to list a house for rent right from the get go for say 1700 (instead of the 1500 that its probably worth), and then agree to sell the house after 2 years with a 5k credit, I don't see how the govt could stop you.

You have the right to rent a house for whatever someone is willing to pay for it. And you have the right to sell a house for whatever someone is willing to pay for it. 

@Mike H.

I can easily imagine a situation where it's predatory lending even if they just charge extra rent in exchange for the option. 

If the owner does a credit check and only agrees to contracts with people he has high certainty will not be able to qualify for a loan come contract expiration.

Originally posted by @John Franczyk :

I'm curious whether the RTO option would run afoul of regulations if (1) the RTO seller partnered with a lender, and (2) pre-qualified all potential RTO renters as purchasers before any transaction began. The only potentially misleading part of the process would be listing a house "for rent", whereas the house would never be rented but would be sold at the outset of the transaction to the renter/buyer. The rent application would include all information required for a lender to assess whether the renter would qualify for a mortgage (e.g. 2 years of steady employment, tax returns, no bankruptcies or outstanding judgments, etc.). If so, the house would immediately transition from a rental to a sale and no rental or lease transaction would ever be part of the process. If not, the rental application would be denied.

I'm proposing this scenario because I've run across versions of this business model in Wisconsin. Let's assume for argument that the RTO seller is a licensed real estate agent and that the lender is a registered lender, both of which appear to be the case when I've seen this done. If you work through some numbers with this model, you can see how a house could be sold at a price on the upper end of a price range. The renters/buyers who apply for this RTO program would be self-selecting, since they would know ahead of time that they would be required to submit a lot of information to qualify.

 To be clear - I am not an attorney, nor am I representing myself as an attorney nor Rishel Consulting Group as a law firm. We are a consultancy staffed by people with long experience in manufactured housing finance and we help other organizations set up or fix finance companies. Because of the SAFE Act and the resultant issues (like Dodd-Frank, et al) we have had to expand our practice to understand the laws in many states in order to help our clients stay out of trouble. To do this we have several regulatory law firms on retainer to help us understand issues and to review educational materials we produce.

That stated, it is important to understand that what may work in one state, may not work in another, so what can or cannot be done in Wisconsin is not the same thing as exists in the bordering state of Illinois.

Here are some things to consider:

Licensed lenders (meaning a state licensed lender with at least one MLO on their payroll) and depository institutions cannot legally partner with an unlicensed entity, but they can enter into a joint venture relationship that has many compliance requirements the lender must do, and compliance requirements the lender must require of the third party.

It is a violation of federal law to artificially increase a price in order to hide fees or other requirements under several federal laws. 

A seller cannot dictate credit guidelines to a lender, and the lender needs written guidelines and credit matrix and their own process for discovering the credit worthiness of any applicant. Those standards cannot violate either Fair Lending or Fair Housing standards and those require additional written policies and procedures. A seller who offers to share a credit report could have their own set of problems as they would be subject to the Fair Credit Reporting Act, and perhaps in violation of any agreement they might have with the source of their information.

If I understood what you wrote to mean that if they did not qualify on the lending side for a RTO agreement the offer to rent would be withdrawn, you should be worried about a number of federal laws and possibly state laws regarding advertising and general acts and practices.

In the past, Wisconsin has been very sporadic about enforcement at the state level. It is possible that RTO might be legal in Wisconsin provided their law would allow a licensed lender to participate in this type of activity. Frankly, I have no idea, as RCG has never investigated that scenario in Wisconsin. Assuming it could be done legally, the responsibilities for complying with all of the 28 federal laws and the 12 Wisconsin laws required of a lender making purchase money loans on manufactured homes would still be part of the process.

Meh. If you have a licensed realtor involved with a lease option or rent to own transaction, you hear no complaints.

Which proves it's all about licensed brokers/agents defending their turf and membership fees in their club.

@Vince Mayer   totally disagree with that statement.

@Ken Rishel I have never liked the RTO.. I first saw it in earnest in Detroit.. guys were buying homes for 500 bucks selling them on a RTO as is for 25k.... houses were a wreck.. just another form of subprime.

then you have this rampant in Texas to the Hispanic community.. then you have the West coast investor who falls for it as an investor.. IE hey your not a landlord we are Renting to own so we do no maintenance etc etc.. well thats a pipe dream these are still renters at heart.. so very few ever get to the point they can buy.. the failure rate of these contracts is far better than 50% and the folks who lose usually have paid higher rent higher deposit and had to ( if they were following the contract pay for on going maintenance ).. they would be far better off being renters and saving money and buying a house..  

Bottom line its basically sophisticated investors totally screwing unsophisticated buyers.. at least the majority.. this is why the DOJ's or AG's will step in its about consumer protection

And has zero to do with the brokerage community as Vince stated :)  I bet a bunch of the offenders are local brokers.

Originally posted by @Jay Hinrichs :

@Vince Mayer   totally disagree with that statement.

@Ken Rishel I have never liked the RTO.. I first saw it in earnest in Detroit.. guys were buying homes for 500 bucks selling them on a RTO as is for 25k.... houses were a wreck.. just another form of subprime.

then you have this rampant in Texas to the Hispanic community.. then you have the West coast investor who falls for it as an investor.. IE hey your not a landlord we are Renting to own so we do no maintenance etc etc.. well thats a pipe dream these are still renters at heart.. so very few ever get to the point they can buy.. the failure rate of these contracts is far better than 50% and the folks who lose usually have paid higher rent higher deposit and had to ( if they were following the contract pay for on going maintenance ).. they would be far better off being renters and saving money and buying a house..  

Bottom line its basically sophisticated investors totally screwing unsophisticated buyers.. at least the majority.. this is why the DOJ's or AG's will step in its about consumer protection

And has zero to do with the brokerage community as Vince stated :)  I bet a bunch of the offenders are local brokers.

 James McMurtry wrote about these guys in a song - 

"Uncle Slayton's got his Texan pride, Back in the thickets with his Asian bride, He's cut that corner pasture into acre lots', He sells 'em owner financed, Strictly to them that's got no kind of credit 'Cause he knows they're slackers, When they miss that payment, Then he takes it back"

@Jay Hinrichs

Generalize much? You will always hear about the bad guys, never the good guys. Don't know why anyone would say that a certain thing happened here so it must be bad everywhere. 

Originally posted by @Vince Mayer :

@Jay Hinrichs

Generalize much? You will always hear about the bad guys, never the good guys. Don't know why anyone would say that a certain thing happened here so it must be bad everywhere. 

 Human nature? Look at the reaction to the mass shootings, including the one recently in Las Vegas. According to many media and political folk every gun owner in America is responsible for those shootings. According to Hillary, everyone who didn't vote for her is a deplorable. (For the record, I voted Libertarian.)

Originally posted by @Mike H. :

I don't see how a lease option, at its core, could ever be considered predatory lending. In this case, if the renters were being asked to rehab the property, then maybe.

There is always a way around that though. Charge higher rent and have no lease option fee.  

If you were to list a house for rent right from the get go for say 1700 (instead of the 1500 that its probably worth), and then agree to sell the house after 2 years with a 5k credit, I don't see how the govt could stop you.

You have the right to rent a house for whatever someone is willing to pay for it. And you have the right to sell a house for whatever someone is willing to pay for it. 

Actually, Mike, I think you are mistaken, at least in the part about giving them partial credit toward the purchase as a result of their paying higher than market rent.  I believe that was eliminated with Dodd Frank.  

Then I'd be even more confused with how a lease option could be considered predatory lending. Ultimately, the buyers would not be able to overpay for a house because the appraisal would ultimately restrict the purchase price that could be paid.

So where would the seller be doing something with predatory terms? Typically we see that for late fees or something where the payment is 1400/mo and the landlord wants to charge 500 for a late fee or something crazy.

I have only sold one house when I first started (a simple flip) so I'm not as familiar with lease option rules. But I just don't see why its predatory. 

They've been doing stock options for years and that seems like its far worse for someone getting taken. I pay a small chunk of money to gain an option to buy the stock in the future at some higher price than what its at now. And if the stock doesn't go up higher than that price, then I lose my option. 

For a house, you're putting down a small option fee to have the right to buy the house at a future date for an agreed upon price. And the buyer has the option to walk away there too. 

Maybe they would have a problem if the option fee on a 100k houses was say 20k or something. But I just don't see how a 3k option fee would be predatory. 

Mike - First of all RTO/LTO and Lease with an Option to Purchase is not a legal method of conveyance in Illinois because it would require a Illinois lending license to do so legally. There is only one license that would fit the bill, Residential Mortgage Lender's License through the Department of Financial and Professional Regulation and they will not issue such a license for the above activities. Thus, those forms of conveyance become illegal by fiat. Someone would also need to be a licensed MLO in Illinois, but MLOs in Illinois must work for a licensed lender.

The other questions you are asking are complicated and time consuming to answer. My best answer to you is don't do anything but cash sales. 

Originally posted by @Mike H. :

I don't see how a lease option, at its core, could ever be considered predatory lending. In this case, if the renters were being asked to rehab the property, then maybe.

There is always a way around that though. Charge higher rent and have no lease option fee.  

If you were to list a house for rent right from the get go for say 1700 (instead of the 1500 that its probably worth), and then agree to sell the house after 2 years with a 5k credit, I don't see how the govt could stop you.

You have the right to rent a house for whatever someone is willing to pay for it. And you have the right to sell a house for whatever someone is willing to pay for it. 

That is a disguise. That is the problem with people trying to get around laws rather than understand them and stick to them. I believe trouble is coming for many operators in other states, and particularly Florida. This is why I never agree to anything that resembles RTO or even lease with option. Florida courts have held that a lease with option, when broken, must go through the foreclosure process rather than eviction to get someone out. My general rule is: stay the heck out of court! It is never a pleasant experience even if your prevail.

When you say stick to the law. Are you suggesting that these states are saying they will not allow people to lease options? Or are there other ways to do it (i.e. land contract, etc) without breaking the law and these landlords simply aren't getting legal advice? 

I just think it seems ridiculous that a state would prevent lease options when there are so many tenants that want it. And what exactly is the harm to the tenant on something like that? Thats the other part I'm really struggling to understand.  

To me, the only harm would be if a landlord would pocket a deposit and then not sell the home to the tenant as agreed in the option contract. Thats where it would make sense to go after landlords.

What it will eventually lead to, if these states continue to stick their beak in, is that landlords and tenants will start doing verbal agreements where the landlord simply charges more in rent to essentially collect the option fee and then a verbal agreement between the two parties as to what the house will sell for.  But none of that will be in writing and there isn't a thing the states could do to stop it.

And, to me, that problem is even greater. Verbal agreements are not unenforceable when it comes to real estate so now you'll have landlords simply backing out and pocketing the additional rent and the tenant will have no recourse.

What is it about lease options that states feel the need to intervene? They didn't intervene when banks were charging people 15% interest with subprime mortgages. Thats when someone should have intervened on behalf of a homebuyer. I just don't see the risk to someone wanting to buy on contract. Worse case is they change their mind and lose the lease option fee. Its not like the landlord can go after them for additional damages. 

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