Illinois Protects Homebuyers From Rent-To-Own Scams

Sharon Legenza from Housing Action Illinois talks about rent-to-own protectionsNACEDA member Housing Action Illinois led the charge to pass a bipartisan bill protecting homebuyers from predatory rent-to-own scams.

February 7, 2018


“With the Consumer Financial Protection Bureau stepping back from enforcement, states are stepping up to take responsibility for protecting people on tight budgets from predatory scams,” said Frank Woodruff, executive director of the National Alliance of Community Economic Development Associations.  “Illinois is leading the pack, thanks to a consumer protection law effective January 1, 2018 that protects homebuyers from rent-to-own scams,” he noted.  

NACEDA member Housing Action Illinois drafted the initial bill and led the advocacy campaign to get it passed with bipartisan support. “We had been hearing from members and allies about the resurgence of predatory rent-to-own models,” Housing Action Illinois Policy Director Bob Palmer said. “We looked at what other states have done to address this issue, as well as looking at relevant research and the experiences of people who have been taken advantage of in rent-to-own agreements, and drafted a legislation based on our findings.”

The 2008 financial crisis brought a resurgence of rent-to-own offers. Investors bought up foreclosed properties and “flipped” them through rent-to-own offers and low-and moderate-income individuals had a more difficult time securing traditional mortgages. Predatory rent-to-own agreements tend to include inflated prices and high interest rates for homes in very poor physical condition.

“We looked at what other states have done to address this issue, as well as looking at relevant research and the experiences of people who have been taken advantage of in rent-to-own agreements, and drafted a legislation based on our findings.”

- Bob Palmer, Housing Action Illinois

The chief sponsors for the rent-to own bill were State Senator David Koehler and State Representative Jehan Gordan-Booth. Illinois’ Attorney General, Lisa Madigan supported the bill. Housing Action Illinois organized allies to advocate, including housing counseling agencies and others. The bill was signed into law by Governor Bruce Rauner in the summer of 2017 and took effect January 1, 2018.

“During the process, we did face initial opposition from groups representing rental property owners,” Palmer said. “But the bill was negotiated to maintain the most important consumer protections while addressing concerns about overly regulating the use of the rent-to-own model for people who use it in a non-predatory manner. It wound up passing with bipartisan support.”

Among the bill’s many provisions, buyers of rent-to-own properties must receive:

  • written contracts defining who is responsible for repairs, taxes, and insurance with information about any balloon payments due on the property;
  • an amortization schedule prior to closing, showing how much of their monthly payment will be applied to principal and interest and how long it will take to pay off the loan;
  • disclosure of building code violations and fair cash value of the property as reflected on tax bills;
  • a 3-day “cooling off period” after the seller has presented the contract to the buyer in its full and final form;
  • a 90-day period to cure defaults before a seller can try and evict buyers for missing a payment.

"Organizations can look and borrow ideas from other states that make sense for their state.”

- Bob Palmer, Housing Action Illinois

The efforts to protect consumers from predatory rent-to-own contracts in Illinois are being mirrored in Ohio, Michigan and Maryland, where similar legislations have been proposed. Illinois is one of the few states to have enacted rent-to-own consumer protection legislation.

For state organizations like Housing Action Illinois looking to pass consumer protection legislations given the uncertainty of federal protections, Palmer suggests looking to other states for model legislation and connecting with advocates in those states.

“Organizations can look and borrow ideas from other states that make sense for their state,” Palmer said. “They can also connect with advocates from different states to talk about what worked and discuss how they can achieve their goals for their state.”

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