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Appeals court reverses ruling for purchasers in rent-to-buy home case

September 27, 2018

Would-be homebuyers who won a fraud decision against a company that sells “rent-to-buy” fixer homes after they were evicted lost at the Indiana Court of Appeals on Thursday.

An appellate panel reversed a ruling against Indianapolis-based Rainbow Realty, ordering Marion Superior Court to rule in its favor instead in Rainbow Realty Group, Inc., and/or Cress Trust v. Katrina Carter and Quentin Lintner, 49A02-1707-CC-1473.

The case attracted multiple amicus briefs from the state and legal aid groups urging the court to affirm a ruling for the plaintiffs, Katrina Carter and Quentin Lintner. The case posed the question of whether plaintiffs were homebuyers or renters under the rent-to-buy contract for the uninhabitable Indianapolis home signed with Rainbow.

The trial court ruled that Rainbow had violated the Landlord-Tenant Act and awarded Carter and Lintner $4,000 for what it concluded were fraudulently deceptive statements plus, $3,000 in attorney fees. Rainbow appealed and the plaintiffs cross-appealed, seeking $35,000 in attorney fees.

Judge Cale Bradford wrote for a panel that ordered summary judgment be entered for Rainbow Realty.

“We conclude that the Agreement is not a lease subject to the Landlord-Tenant Act,” Bradford wrote. “We do so pursuant to a long line of Indiana precedent requiring all leases to have a definite term and a reversion to the lessor, provisions the Agreement lacks. Our conclusion leads to the further conclusion that there is no basis on which to find that Rainbow committed fraud as a matter of law. Finally, because the Lintners did not prevail in the trial court, they are not entitled to recover any of their attorney’s fees.”

Legal aid attorneys had urged the court to affirm the trial court, citing a business model they said often preys on lower-income and credit-challenged people’s dreams of homeownership. In cases such as this, buyers sometimes make improvements to the homes to make them livable, but fall behind on monthly payments, losing their investment in the properties if they’re evicted.

The appeals panel noted Carter and Lintner fell behind on monthly payments soon after signing agreements with Rainbow to purchase a home at 910 N. Oakland Ave. with little money down and an interest rate of 16.3 percent for a 30-year term. Rainbow also performed repairs that were added to the agreement.

The COA ruled the contract was not a lease, that Rainbow had not committed fraud and that because the trial court erred, the plaintiffs did not prevail and were not entitled to attorney fees. But the appeals panel did weigh in on claims that such agreements unfairly prey on the homeownership dreams of vulnerable populations, though it stopped short of appeals to address the issue on a public-policy basis.

“The Agreement admittedly has some characteristics that are commonly associated with sales contracts and some commonly associated with leases, Bradford wrote. “On the one hand, the Agreement requires buyers to pay for taxes, insurance, and necessary repairs; allows them to build equity (eventually); and provides that they may sell the property and keep the profit, which are all provisions commonly associated with sales contracts and ownership.

“On the other hand, the Agreement does not provide for the immediate accumulation of equity, places somewhat severe restrictions on the use and alteration of the property, and allows Rainbow to evict in the event of default rather than resort to foreclosure,” Bradford continue. “Devices such as the Agreement seem to be a sort of hybrid, and an argument could be made that neither the current law pertaining to sales contracts nor the current law pertaining to leases is adequate to address the issues such devices raise.

“The Lintners and the amici also argue that rent-to-own contracts such as the Agreement are against public policy, alleging that they are used to prey on ignorant and unsophisticated ‘buyers’ lured by the dream of home ownership who almost invariably end up with neither the home nor their investment in it,” he concluded. “This may happen in some cases. Such concerns, however, are beyond the scope of this opinion and are the province of the General Assembly.”

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