Why Rent-to-Own Agreements Are a Bad Idea

The other day, a lady came into our office after receiving a Notice to Vacate from her landlord. She had been living in her home for five years and had always paid her rent on time. As we talked about her situation, she handed me a document titled "Rent-to-Own Agreement" and several crumpled receipts.

She explained that the owner agreed to sell her the house with a catch: she would pay him monthly for 10 years, and at the end of that time, he would sign the house over to her. Having never bought a home before, this seemed like a good deal. After all, she thought, it was only fair to own the house after paying for it, right?

But here’s the problem: these agreements can be unfair and put buyers at risk. Even though my client had made every other payment on time, their agreement allowed the landlord to evict her for missing just one payment. That’s not fair. Sadly, these kinds of agreements are more common than you might think. You probably know someone in a similar situation.

Not every rent-to-own deal is a scam, but many are set up in ways that harm the buyer. Years ago, the Texas Legislature updated the law to crack down on these agreements (known as "executory contracts"). To have a legal rent-to-own agreement, the law requires owners to comply with several requirements. Most owners don’t follow these rules, which can leave them vulnerable and liable. If the owner breaks the law, the buyer might be able to sue the owner and be awarded thousands of dollars depending on the violations.

For my client, I responded to the landlord’s Notice to Vacate. Faced with the possibility of legal action, the owner quickly changed his mind about evicting her. To avoid further trouble, he agreed to change their rent-to-own agreement into a legitimate transaction called an "owner finance sale."

Here’s how owner financing works: the owner sells the house to the buyer (through a "special warranty deed with vendor's lien"), and the buyer agrees to make monthly payments (through a "promissory note"). If the buyer fails to pay, the owner can get the property back through foreclosure. This is the same process banks use when financing homes with mortgages.

In short, rent-to-own agreements are terrible because they often take advantage of buyers and leave owners vulnerable to lawsuits. As always, this is not legal advice, but if you’re in a similar situation, call us at (940) 264-3041.