'Sale-leasebacks' offer to help homeowners needing cash. Some lose thousands

The home where Lester Shreffler raised his daughter is full of memories — throwing her a birthday pool party, fixing his 1977 Jeep together in the driveway, heading up the street to her elementary school for lunch.

But during the COVID-19 pandemic, he got a notice telling him he had only a few days to leave the house he had owned for more than a decade. He and his daughter, who was home from college, scrambled to pack and find a place to go.

"She was so devastated. She's like, 'What are you going to do?'" he said. "And that's the first time I ever had to tell her, 'I don't know.' I always have a plan, but I didn't."

It has been about four years since Shreffler, a single father, last lived in the house in Hurst, Texas, northeast of Fort Worth. Shortly after he bought the house in 2007, he lost his job at a semiconductor technology company. It took him a year to find another steady gig, and when he did, it paid much less than he had been making when he got his mortgage.

Stretched thin making monthly payments and putting his daughter through college, he was overwhelmed with credit card debt. He tried to refinance his mortgage but didn't qualify because of bad credit.

Just as Shreffler was getting desperate, he found a company online that would buy his house and lease it back to him. It seemed like a way to get the cash he needed without having to move.

Instead, he would later allege in a lawsuit against the company that it cost him his house.

"Here I am thinking I'm going to be in this house forever. I'm doing the right thing by starting this deal. This is going to help me," he said. "Well, it didn't help me. It made it worse financially."

In Shreffler's mind, the transaction seemed similar to a home equity loan, which lets people access cash by using the equity in their homes.

But there is an important difference: Unlike a reverse mortgage or a loan, these deals — called sale-leasebacks — involve signing over the deed to the house. Even though Shreffler still had a stake in the property, on paper he no longer owned it. Instead, he became a tenant, and the home belonged to a company called EasyKnock.

While the homeowners turn into tenants once they sign the sale-leaseback, we're referring to them as "homeowners" in the rest of this story to avoid confusion and simplify language.

"They made it sound so promising and so good that I thought, 'OK, here's my way to keep the house, stay here and have a home for my daughter and myself,'" he said.

Shreffler planned to use the influx of cash to pay off his debts and start fresh. The rent was higher than his mortgage payments and other housing costs, but he thought he'd be able to pay it. At first, he was. But in the second year, the rent increased. He fell behind, picking up a $100 late fee every month.

"I paid down some of that debt. Unfortunately, it just came right back," he said.

Less than two years after signing over his deed to the company, Shreffler lost the house he had owned for 13 years.

Shreffler is among more than two dozen people in Texas who have sued EasyKnock. The company has denied any liability in the lawsuits. In response to questions from NPR, EasyKnock declined to comment on any specific pending lawsuits but said generally that they are "meritless." If residents are losing money on these deals, the company said, that's because of personal circumstances or the local housing market. NPR is not aware of any court that has found that EasyKnock violated the law.

As home prices nationwide have gone up dramatically since the start of the pandemic, the amount of equity that people have in their homes is rising, and many homeowners want to access that increased value. But for people with bad credit or low incomes, loans are often inaccessible. EasyKnock, as well as other companies with similar products, offer sale-leaseback deals as an alternative that doesn't have to follow the regulations that apply to lenders.

NPR used property and eviction records to track hundreds of sales to EasyKnock in Texas since 2018. We reviewed court documents, including contracts, closing statements and accounting records, in more than a dozen transactions where the resident sued EasyKnock. These records show how sale-leasebacks can upend people's lives. NPR's investigation found that these deals cost some people tens of thousands of dollars in equity and that the vast majority of people do not buy their houses back.

EasyKnock says its deals have helped hundreds of people improve their finances.

But over and over, NPR spoke with people who turned to sale-leasebacks out of desperation, only to end up in a worse position. There are lawsuits against EasyKnock in Maryland, South Carolina, Pennsylvania and Ohio. Last November, the Massachusetts attorney general alleged the transactions are "unfair and deceptive" and violate state law. Connecticut's attorney general is currently investigating. And Michigan's attorney general sent EasyKnock a cease and desist letter at the end of May, also calling on the company to end certain "unfair and deceptive trade practices."

EasyKnock denies any liability in these lawsuits and investigations and says it is cooperating with attorneys general. NPR is not aware of any government agency that has concluded that EasyKnock violated the law either.

The evolution of EasyKnock's sale-leasebacks

Similar kinds of deals gained traction in the early 2000s.

Modern companies are now building a business model around sale-leasebacks. EasyKnock, which calls itself the nation's first technology-enabled residential sale-leaseback company, is at the forefront of this evolution.

Its marketing says it can help people "unlock" the equity in their property.

"We're empowering people. We're giving them control. We're giving them choices. We're giving them time. And the home values historically have rarely gone down, so they should be able to get appreciation," said EasyKnock co-founder and CEO Jarred Kessler.

When a homeowner sells to EasyKnock, any remaining mortgages are paid off, and the homeowner receives a portion of the equity in cash — up to 75%. The homeowner also keeps a financial stake in the property.

Homeowners then become tenants and pay monthly rent, as in a normal lease, including any late fees.

Some consumers have the option to buy the house back. Alternatively, the homeowner, now a tenant, can recoup some of the proceeds by directing the company to sell the house to someone else.

The homeowners who told NPR about their experiences with EasyKnock said they were in dire financial straits. They said a sale-leaseback seemed like their best option.

"Credit-distressed borrowers who can't qualify for a loan in the market are being offered these products as a way to unleash the equity in the house," said Prentiss Cox, a University of Minnesota law professor who previously ran the consumer protection division at the Minnesota Attorney General's Office.

Since its founding in 2016, EasyKnock has raised millions of dollars from investors, including the co-founder of Zillow. The New York-based company purchased its first house in 2018, and its business has since spread to around 40 states. Kessler says EasyKnock is the 15th-largest owner of single-family homes in the United States.

The company has expanded its reach through a partnership with LendingTree, the online loan marketplace, which refers people who don't qualify for its services to EasyKnock.

NPR looked at EasyKnock's transactions since 2018 in Texas, an early foothold that property records indicate is a substantial market for the company. In the state's 10 most populous counties alone, NPR found 423 properties that EasyKnock purchased.

We spoke to 20 homeowners who sold their houses to EasyKnock. For some of those people, it helped them out of a tough spot. But for others, NPR found that it cost them their safety net and the roof over their heads. EasyKnock denies any wrongdoing and calls these examples "considerable outliers."

Lester Shreffler was one of them.

Lost equity

For as long as he can remember, Shreffler wanted to live on a lake. In junior high, his family went camping in the Ozark Mountains of northwest Arkansas, where he spent his days pushing a lawn mower over the hilly terrain and then riding water skis on the lake to cool off or sitting around the fire pit in the woods.

As Shreffler got older, he wanted to spend his retirement in the same way. He planned on owning a small marina. He pictured his daughter coming to visit and maybe even running the place one day.

"That's been my dream for a long time," he said.

Shreffler spent 35 years working as an engineering technician. Now 68, he retired this June, but it's a stretch.

His house was integral to his retirement plan. He intended to pay off the mortgage by the time he left his job, so he could sell the house and use the equity to purchase the marina.

"I was always counting on that income from a house sale. That's why people buy houses. For retirement. It just didn't work out that way with this deal," he said.

Shreffler was skeptical of the sale-leaseback, but he didn't have many alternatives. He tried to refinance through traditional channels but didn't qualify because his debt-to-income ratio was too high. He thought EasyKnock would help.

"It sounded like the only option I had at the time to kind of get a little equity out of the house," he said. "They made it sound like I would get it all back, basically." EasyKnock's website includes language such as "Receive 100% of your home's value without having to move."

The company's CEO says its terms with customers are clear.

"The way we tell our customers is very simple. The net sale price minus the initial cash funding plus the fees is what they get every time," Kessler told NPR.

Some people don't get 100% of their home's value, according to allegations by state attorneys general and NPR's analysis of records obtained from documents filed as part of lawsuits against EasyKnock. In late May, the Michigan attorney general's office sent EasyKnock a cease and desist letter alleging that homeowners don't understand the transaction and the losses they could incur. It claimed EasyKnock had "misleading marketing."

"Many of the consumers we have spoken to reasonably expected that they would be receiving the full market value of their home in cash funding, less amounts needed to pay off mortgages and liens, only to find out later in the process that they would be receiving substantially less than that from the sale," said the letter.

EasyKnock says that the attorney general's letter reflects a misunderstanding of how the product works and that the company is transparent with consumers and is cooperating with the attorney general's office.

When EasyKnock bought Shreffler's house for $250,000, he owed about $112,000 on the mortgage. In a traditional sale, he would have received the difference — roughly $138,000 — minus closing costs.

"Typically what happens in a real estate transaction, if you sell your home, you're going to actually walk out of that sale with all of the equity that was in the property," said Stacey Tutt, a senior staff attorney at the National Housing Law Project.

EasyKnock doesn't work that way. Homeowners receive a portion of the equity in their house up front. Sometimes money is set aside for prepaid rent or repairs. In 15 transactions reviewed by NPR using documents submitted to the court in lawsuits against the company, homeowners got between 10% and 52% of their equity in cash at closing — an average of roughly $54,000. EasyKnock also charges a 4.99% processing fee.

EasyKnock says that these transactions offer a limited perspective and that "a broader sample size would provide a more accurate picture."

Based on the contracts reviewed by NPR, the homeowners retain a financial stake in the property. They can cash in that stake by directing EasyKnock to sell the house to someone else.

The homeowner gets the proceeds of that sale minus a precalculated buyout price. EasyKnock also deducts closing costs and any past due rent.

The homeowner also has the ability to buy the house back. But whether they do that or force a sale to a third party, every year that the homeowner chooses to renew the sale-leaseback deal, the percentage that EasyKnock is owed increases, and the homeowner's cut goes down, according to records obtained from documents filed as part of lawsuits against EasyKnock.

"All of that is eating up the equity they had, giving them far less at the end of that transaction," said Tutt, who examined EasyKnock contracts at the request of NPR.

EasyKnock says the homeowner recoups any appreciation if the house goes up in value by the time the company sells it to a third party. The average customer sees 18% appreciation, according to Kessler, the CEO.

NPR analyzed eight examples — using records obtained from lawsuits or shared directly from a homeowner — in which EasyKnock sold the house for less than the company bought it for, decreasing the homeowner's proceeds.

"We have no control over appreciation," said Kessler. "It's unfortunate that their goals were not met. But that's not because of EasyKnock. That's because of the market."

Although EasyKnock's marketing says homeowners will receive the full market value of their house, EasyKnock sets the purchase price and recoups what it's owed before anything is distributed to the homeowner.

NPR obtained records from four deals, three from lawsuits and one from a homeowner, in which EasyKnock breaks down the homeowner's proceeds after the house is sold to a third party. All of them got less than half the equity that they had in the house when EasyKnock first purchased it.

That's what happened to Shreffler.

After EasyKnock sold his house, he got $27,318.32. Adding that to the amount he received when he first entered into the sale-leaseback, he received about $66,000 in total — less than half of his roughly $138,000 in equity when it all started.

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About six years after selling his house to EasyKnock, Shreffler's dream of purchasing a marina on a lake feels more out of reach than ever.

"When you have something that you think about for many years and then all of a sudden something happens that forces you to change the plan, it's kind of rough. You have to scramble to figure it out," he said.

The lease at his current rental is up at the end of July. He doesn't know where he's going to go.

Michigan's attorney general raised this problem about the equity that people are losing through these sale-leaseback deals.

"These financially desperate consumers were not given an understanding that EasyKnock would strip their home equity from them through fees, closing costs, and an increasing monthly rent and repurchase price," alleges the Michigan attorney general’s cease and desist letter.

EasyKnock says that this represents a misunderstanding of its product and that it is transparent with consumers.

Ira Rheingold, the executive director of the National Association of Consumer Advocates, thinks that a lot of homeowners feel the pressure that the attorney general describes. For someone who feels like this is "the only chance to save their home, they're going to sign it without realizing all the rights they're giving away," he said. "The fact is they're losing a ton of money in the process."

Even when they hold what EasyKnock represented to them as "retained equity" in their home, sometimes people walk away with none of it.

Shawn Davis was one of them. He had owned his house in Richardson, Texas, since 2008. It's on a quiet, tree-lined street near his son's elementary school. "Just a typical neighborhood in a suburb," Davis said.

Davis had about $112,000 in equity in his house when his health problems began in 2017. He started having seizures and fainting at work. Eventually, he lost his job.

Desperate for help covering bills, he sold to EasyKnock in August 2018. He received almost $27,700 in cash, and his mortgage was paid off.

Without income, he fell behind on the rent. According to his contract, obtained by NPR through his lawsuit, defaulting on rent equated to terminating the deal. EasyKnock sold his house for $52,000 less than the company bought it for.

That left Davis not only without any equity, but after fees, the rent he owed and thousands of dollars in court costs for his eviction were deducted, Davis owed the company $29,492.31 — more than he received in cash in the first place.

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Looking back, "it feels like someone stole your house," he said.

Davis is now suing EasyKnock. The company says it "will show the courts the many ways our customers are protected."

Desperate for money

EasyKnock markets its sale-leasebacks as a way to get cash to navigate a life event. Homeowners who spoke to NPR were facing medical emergencies, carried significant debt or had been laid off during the pandemic. They desperately needed money.

But the rent that people pay to EasyKnock eats up that cash quickly, according to accounting records from the lawsuits. Rent is the main way EasyKnock makes money. EasyKnock says it charges fair market rent.

On top of that, even though EasyKnock is the landlord, in contracts spanning 2018 to 2019, which NPR obtained from documents filed as part of lawsuits against EasyKnock, the company shifted the cost of repairs to the tenant. EasyKnock says that in more recent transactions, it covers repairs.

"EasyKnock has developed a product that minimizes their risk almost completely," said Tutt, the attorney at the National Housing Law Project.

EasyKnock says that most customers use the deals to improve their finances and that these sale-leasebacks have helped hundreds of people.

For Shreffler, it didn't work out. Even with the money he got from selling his house to EasyKnock, his financial situation didn't get much better.

"It stayed about the same level as far as the ability to pay all the bills, because the rent was so high. So I still had to go back to credit cards," he said.

Most customers aren't able to buy their houses back

Homeowners participating in EasyKnock's flagship Sell & Stay program can buy their houses back. That was Shreffler's plan. To do that, he would have had to pay EasyKnock at least $178,500.

"I intended to attempt to purchase it back within the first year," he said. "I never intended to stay in this deal past the first year because I knew if I did, it was going to kill me."

That's because the repurchase price increased annually by a minimum of 2.5%. So did the rent, and unlike with a loan, those monthly payments weren't decreasing the amount he'd need to pay to own his home. Shreffler looked for a way to repurchase, but he still didn't qualify for a traditional loan.

Not everyone wants to buy their house back, and EasyKnock customers who participate in a program called Moveability don't have the option. Still, multiple homeowners told NPR they wanted to repurchase their house but it wasn't financially feasible.

It's rare for homeowners to buy their houses back, according to property records analyzed by NPR. Homeowners have three to five years to do so, depending on their contracts.

Fewer than a dozen of the 45 homeowners in the 10 most populous counties in Texas who sold to EasyKnock five years ago had bought their house back as of the end of this April.

Michigan's attorney general raised the issue in the cease and desist letter sent in May. "EasyKnock is holding itself out as helping consumers through financial problems while being able to ultimately keep their homes under agreements making it extremely unlikely any consumer will ever have home ownership restored," reads the letter.

EasyKnock says it's not a failure if people don't repurchase the house, because they benefit from the appreciation if it sells to someone else.

In 2022, an attorney representing EasyKnock in Davis' lawsuit told the judge that 20% of the company's clients in Texas have "successfully repurchased their homes." "That’s a great success story, right?" he said.

Tutt disagrees. She says homeowners "hope that things will change, that they'll be able to improve those circumstances. When you look at the numbers, you just don't see how it's actually achievable."

"Remain in the home you love"

EasyKnock says its sale-leaseback deal is a way to "remain in the home you love."

But eviction court records analyzed by NPR show that in Texas' 10 most populous counties, it doesn't take long for some people to default on the rent. In the Texas counties that NPR analyzed, most people who received an eviction notice had fallen behind on rent within two years. For about 1 in 4 people, it took less than a year from the date they signed the deal with EasyKnock to the day an eviction petition was filed in court.

"In the rare instances that people face hardships and they're not able to pay rent, we try to work with them, and then occasionally we have to evict people," said Kessler. EasyKnock says that even in those cases, people can get any appreciation from a sale to a third party.

Nationally, the company's rate of completed evictions is 4%, according to a spokesperson.

Just over a year after Davis sold to EasyKnock, a judge ruled to evict him and his family, in October 2019.

"I don't think it even registered until you're homeless," he said. "I was sleeping in the car in front of the storage unit one night, and it was supercold. Just a terrible situation."

Davis and his family spent six months living in a hotel. Because they were effectively homeless, his 7-year-old son had to go live with the boy's mom.

Evictions are a stark example of how people trade homeowner rights for often weaker tenant protections.

To take someone's house in a typical mortgage loan, a lender has to go through a foreclosure, which has robust protections for homeowners. Like evictions, regulations of foreclosures differ state by state. There are opportunities for homeowners to modify their loans, get a forbearance plan to suspend or reduce payments for six months or file an extension to stay in their homes.

"None of these protections are going to be there if this home has been sold and it's no longer a mortgage loan," said Tutt.

Fewer protections

The difference in protections between sale-leasebacks and traditional loans extends beyond the consequences of defaulting on monthly payments.

In a typical mortgage, there are regulations that safeguard homeowners. The Truth in Lending Act requires disclosures and sets rate caps. The Dodd-Frank Act, passed in the wake of the foreclosure crisis and the Great Recession, requires lenders to verify that people could repay their loans. Foreclosure rescue laws set limits on how much someone besides the seller can take out of equity during a foreclosure.

EasyKnock argues it doesn't have to follow those rules because its sale-leaseback deals are not loans. "Avoid lender restrictions," the company says on its website. "We are not a lender. That means you won't face credit score or debt-to-income (DTI) requirements."

"The regulatory structure that exists is for the traditional mortgage loan that we've always had," said Cox, the former head of consumer protection at the Minnesota Attorney General's Office. He views sale-leasebacks as "an attempt to essentially evade that structure."

Some states have regulations that apply explicitly to residential sale-leasebacks. Washington, for example, imposes strict restrictions that make these deals virtually impossible. EasyKnock says it doesn't operate in the state.

In the lawsuits brought by Shreffler, Davis and other homeowners in Texas, they argue that EasyKnock's transactions are technically loans and that therefore regulations like the Truth in Lending Act should apply. EasyKnock argues in these lawsuits that the deals are not loans.

Michigan's attorney general called these sale-leasebacks "disguised loans" in the cease and desist letter.

Other states have also taken issue with these transactions. The Massachusetts attorney general signed a settlement with EasyKnock last December, accusing the company of violating the state's consumer protection and landlord-tenant laws and ordering the company to cease doing these deals in the state. The attorney general alleges, among other things, that EasyKnock "altered the terms of its agreement with consumers days or hours before closing, either reducing the price, adding holdbacks and fees, or otherwise modifying the agreement."

EasyKnock denied the attorneys general's allegations and said that it had already voluntarily stopped offering sale-leasebacks with the repurchase option to consumers in Massachusetts.

Boxes of his daughter's childhood belongings are piled up in Lester Shreffler's rental home. He can't bring himself to throw away anything, even though he needs to move out by July 31.

He can't afford to buy a new place, let alone the marina he dreamed about.

"You work your whole life, you pay off the mortgage, you follow the rules. And you still can't stay in your home," said Kessler, EasyKnock's CEO, in a promotional video. "Our definition of a success is someone that used our product to change their life for the better." But Shreffler says the deal with EasyKnock put him in a worse position.

"I was lost. I haven't felt that way since I was a teenager," he said. "I'm pretty calculated in what I do. I make plans, and I try to follow through with those plans. But this just blew it up completely. When I started getting closer to retirement, that's when I really started thinking, 'What am I going to do? I lost all that.'"

Caitlin Thompson is a Roy W. Howard fellow on NPR’s investigations team.