Rent-to-own site skirts around broker regulations

Rent-to-own site skirts around broker regulations

Rent-to-own site skirts around broker regulations

A handful of con artists misusing the rent-to-own model are increasingly running afoul of provincial mortgage broker legislation, claiming they can arrange home loans without broker accreditation.

“Unfortunately it is not uncommon,” CAAMP CEO and President Jim Murphy told MortgageBrokerNews.ca. “It is the second or third source of complaints in Ontario (unlicensed activity). It sends a message that people should use licensed Realtors and brokers.”

A new CBC report is detailing the growing number of websites popping up and offering to bring together buyers and sellers in rent-to-own deals, an enticing offer for buyers who can’t get conventional financing and owners who can’t sell in slow market. They are distinctly different from the many reputable rent-to-own programs that operate within the law, many relying on mortgage professionals to refer deals.

Still some sites specifically claim to arrange mortgages, outside the involvement of brokers.

“There’s no accountability with this kind of system,” Samantha Gale of the Mortgage Brokers Association of B.C. told CBC investigative news unit Go Public, spurring Go Public to begin inquiries about a specific website in that province.

Gale later reported the rent-to-own website to that province’s mortgage regulator over her concerns of unregulated operators leaving clients without recourse when deals go south.

“You don’t have some kind of standards which are adhered to and you don’t have any kind of recourse” by not using an accredited broker or agent, said Gale.

The site states, “Whether you are buying or selling, need a mortgage (or a second mortgage)… our sole purpose is to be at your service.” The website goes as far as to invite financing for mortgages from potential investors: “If you have some available funds to lend… we will contact you soon.”

The website is still active, touting itself as “Your Local Real Estate Professionals.”

“Certainly CAAMP has a role to help police in this,” said Murphy, “and the public needs to ensure they are dealing with professional people.”

4 Comments
  • todd 2013-02-14 4:33:53 AM
    By not knowing the details of the contracts everything in this article about 'leaving clients without recourse when deals go south' is meaningless. maybe the contracts do have all that figured out.. i'm not saying they do, but with out those details this article is meaningless and paints rent-to-own deals in a bad light.
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  • Paul Therien - CENTUM 2013-02-14 5:05:07 AM
    Rent-to-own has been around a long time, and it probably will be around for a long time. Although it may seem like a good option for some consumers who would otherwise not be able to purchase a home due to poor credit or inability to save a down payment, there has to be some serious caution taken before anyone considers entering into this type of an arrangement. Recently I spoke to some people who did the rent-to-own plan for their own home and what I heard was a common theme I have been hearing for the past 20 years.

    They made a purchase agreement at a set amount and after their 2 year contract was due they proceeded to source mortgage financing - through a mortgage broker, sadly not CENTUM, but at least they were smart to use a broker. The issue was that the purchase amount they committed to on the original contract – was greater than the actual value of the home today. (Most rent-to-own contracts use a “future value” estimation and do not take into account market flux. In fact many contracts have stipulations in place that allow for an increase in value up to a certain percentile, but they do not ever account for decreased value or flat valuation.) When they attempted to source a mortgage the value of the home was 25K less than the contract price, and as a result they could only get financing on the reduced amount – plus a vendor take back mortgage, which means that they are now owners of a home, but can barely meet their financial obligation due to a total cash outlay each month that is significantly higher than they had planned. If they did not close on the purchase, they lost the down payment ($15,000.00) that they had accumulated. Add to that they were told, “we have an offer on the place - if you do not close they will”. There may very well have been an offer, but unlikely.

    This puts the consumer in a sticky situation… lose the accumulated funds that they have paid, or purchase a home that is valued at less than the sale price. Rock; meet hard place. The number of people who end up not being able to qualify for the necessary financing is higher than most think, and that means they end up with a high interest private mortgage they can barely afford.

    In any rent-to-own situation there should be a “right of first refusal” registered on title in favour of the renter, but this rarely happens, and as a result people end up with very limited protection. Rent-to-own agreements almost always will favour the seller of the home.

    Any consumer who is considering a rent-to-own scenario should be seeking independent legal advice for a full review of the agreement. The challenge is that most people who enter these agreements are not savvy consumers and they easily fall prey to the dream of being a home owner. A dream that any skilled mortgage broker could also help them achieve with careful planning, coaching and time.
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  • Rhonda - Verico 2013-02-14 6:06:51 AM
    It is the numerous fly by nighters that give RTO a bad name. Paul has brought some very good points. Use a RTO company that has researched the market where properties are being purchased and apply very moderate appreciation factors to determine the future PP of the property. ILA is critical. RTO certainly has its place in society...you just need to research the companies who offer the program.
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