Transcript
LEILA FADEL, HOST:
When someone needs cash and owns a home, borrowing against their house is a tried-and-true approach used by millions of Americans. That's why we have home equity loans and home equity lines of credit. Now there's a crop of new companies offering something called a sale leaseback, where the person actually signs over ownership of the house.
NPR's Caitlin Thompson has been looking into one of these companies and the lawsuits and government investigations alleging that these deals are costing people tens of thousands of dollars and, in some cases, their homes.
CAITLIN THOMPSON, BYLINE: Lester Shreffler is standing outside his old house in Hurst, Texas. He's a single father, and this is where he raised his daughter.
LESTER SHREFFLER: I have an old Jeep that - I have memories of her. I'd be underneath working on it, and she'd crawl under there with me. And, you know, we'd just talk.
THOMPSON: The two of them lived in this house for 13 years, but it's been a while since he's been back.
SHREFFLER: My plan was to have either a place to retire in or some kind of equity to sell to go somewhere else. But unfortunately, it didn't turn out that way.
THOMPSON: His money troubles started soon after he bought the house in 2007. He was laid off. It took him a while to find a new job. He couldn't keep up with the bills plus his daughter's college tuition. Shreffler stumbled across a company offering what he thought was an alternative to a home equity loan.
SHREFFLER: So I was kind of desperate to try to get it refinanced. So I found a company called EasyKnock, and they made it sound really good and promising.
THOMPSON: Companies like EasyKnock say sale leasebacks are a way for people to access the equity in their homes without having to move. The homeowner gets some cash up front. They keep a partial stake in the property. But on paper, EasyKnock owns it. The homeowner, now tenant, rents it back. On its website, EasyKnock says customers can get 100% of the value of their house through the deal.
SHREFFLER: I thought, well, this is the answer. I can get a little bit of money out of it and pay my bills and stay in the house.
THOMPSON: Shreffler had about $138,000 in equity. But after fees, closing costs and some rent was deducted, he wound up getting about $66,000 in cash - less than half. He says the rent was more than his mortgage and other housing costs. When it went up, he fell behind and, facing eviction, had to leave. His debt came right back.
SHREFFLER: And here I am. I'm thinking, this is going to help me. Well, it didn't help me. It made it worse.
THOMPSON: An NPR investigation dug deep into these deals in Texas and found Shreffler is not alone. They can cost people a lot of money. Most don't buy their houses back, and some are even evicted. Shawn Davis even ended up owing money to EasyKnock when they sold his house for less than they bought it for. He couldn't pay his rent, and a judge ruled to evict him. And once EasyKnock subtracted fees, the rent he owed and thousands in court costs for his eviction, Davis actually owed close to $30,000.
SHAWN DAVIS: Feel like someone just stole your house (laughter). I mean, that's what it feels like - like someone just came in and stole your house.
THOMPSON: Of course, people like Davis do sign contracts that make it clear they're selling their house to EasyKnock. The company says most customers use these deals to improve their finances. They say they work with people to avoid eviction, and even then, people can get any appreciation from a sale to a third party. Still, officials in two states allege these deals are, quote, "unfair and deceptive."
Shreffler and Davis told their stories in lawsuits against EasyKnock. More than two dozen other people are suing as well. The company denies any liability in the lawsuits and investigations and says it has cooperated with authorities. If residents are losing money on these deals, the company says, that's because of the local housing market. Jarred Kessler is EasyKnock's cofounder and CEO.
JARRED KESSLER: When we buy a home and match appraised value and the house goes down in value, we have no control over that. So it's unfortunate that their goals were not met, but that's not because of EasyKnock. That's because of the market.
THOMPSON: NPR looked at the 10 most-populated counties in Texas and tracked more than 400 sales to EasyKnock using property and eviction records. We reviewed court documents, including contracts, closing statements and accounting records for over a dozen transactions where the resident sued EasyKnock. To be clear, EasyKnock says its deals have helped hundreds of people, but NPR also found some people who got a lot less than their house is worth. EasyKnock calls these examples outliers.
PRENTISS COX: They're sold as solving people's financial problems without really emphasizing the real consequences of such a complex financial product.
THOMPSON: Prentiss Cox used to run the Consumer Protection Division at the Minnesota Attorney General's Office. He says these deals, which are also provided by other companies besides EasyKnock, serve people who can't get traditional loans because of bad credit or insufficient income. But it's risky.
COX: It's taking people who are often in a difficult situation, and it's taking their home. And it's doing it in a way that doesn't fully compensate them for the equity they have in their home.
THOMPSON: Late last month, Michigan's attorney general sent EasyKnock a cease and desist letter, calling the company's marketing, quote, "misleading" because it claims people will get the full value of their home, when some actually get substantially less. EasyKnock denied any wrongdoing. They say this is a misunderstanding of how the product works, and they're transparent with consumers. The AG also alleged it's, quote, "extremely unlikely" that residents get their houses back. Actually, according to EasyKnock, 4 out of 5 people didn't buy their houses back.
STACEY TUTT: That's what breaks my heart about these is that it is probably hurting those who are trying every avenue they can think of to save their homes.
THOMPSON: Stacey Tutt is a lawyer with the National Housing Law Project. She says there are more consumer protection regulations for a loan, a reverse mortgage or even a foreclosure.
TUTT: So let's say that homeowner never did the leaseback program. They would have so many more protections.
THOMPSON: As for Shreffler, he dreamed of owning a marina on a lake for as long as he can remember. He wanted it to be a home base for his daughter.
SHREFFLER: I always pictured her being there and having a place for her and her family to come visit.
THOMPSON: He says the sale leaseback deal cost him his retirement plans.
Caitlin Thompson, NPR News.
(SOUNDBITE OF NOVELLER'S, "ALONE STAR") Transcript provided by NPR, Copyright NPR.
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