A legal fight over a rent-to-buy real estate business that included the landlord hitting back and filing a counterclaim for defamation against the plaintiffs ended Friday with the parties reaching a settlement that, among other provisions, requires the defendants pay nearly $400,000 plus attorney fees.
The consent decree in Fair Housing Center of Central Indiana, Inc., et al. v. Marshall Welton, et al., 1:18-cv-01098, imposes a financial penalty on the defendants and mandates they make specific changes to some of their business practices. None of the parties admitted fault or liability as part of the settlement.
The Fair Housing Center of Central Indiana described the settlement as “precedent setting.” Plaintiffs filed the litigation against Marshall Welton, who operates and manages a collection of limited liability companies doing business as Casas Baratas Aqui, a name which translates to Cheap Houses Here.
“This is a groundbreaking resolution that will have a national impact on rent-to-own and land contracts by providing an example of requirements to ensure fairness in these transactions,” FHCCI executive director Amy Nelson said in a press release. “We believe this is the first publicly released resolution of litigation involving fair housing allegations in rent to own, contract for deed, and/or land contracts post-foreclosure crisis.”
Under the terms of the settlement, the defendants agreed to several provisions including:
- Paying plaintiffs $395,000 and attorney fees;
- Within 60 days, modifying their housing transactions for Indiana dwellings to comply with the federal Fair Housing Act, Truth in Lending Act, Equal Credit Opportunity Act, and Indiana laws;
- Within 60 days, establishing a procedure and requirement to record any land contract within 14 days of the execution, and recording any purchase option agreement within 14 days of the optionee’s payment of more than 10% of the purchase price;
- Also within 60 days, instituting a procedure to provide the purchaser or optionee with proof of that recording, and providing a warranty in each land contract that clear title will be transferred to the purchaser upon satisfaction of the terms of the land contract with certain exceptions;
- Within 60 days, to the extent applicable, executing housing transaction documents with one in English and the other in the principal language in which the business was conducted, and;
- Paying for employees, managers and agents to attend two fair housing trainings.
Through their attorneys at Kroger Gardis & Regas, Casas Baratas Aqui and the other defendants maintained they are in the business of providing affordable housing in central Indiana along with promoting home ownership and opportunity for homeownership to underserved communities.
“The FHCCI understands many of our buyers probably could not find financing elsewhere on terms comparable to ours and there is a need for financing,” the defendants said in a statement. “We hope that the actions of the FHCCI will not limit or inhibit the opportunities for and the promotion of homeownership and affordable housing in the Hispanic community. We feel everyone should have an equal opportunity and not be regulated out of the system because of race or residency status.”
However, the FHCCI and about 12 individual plaintiffs allege Casas Baratas targeted Hispanic families and put them in uninhabitable homes under financial terms under which they were bound to fail.
According to the complaint filed April 2018 in the Southern Indiana District Court, vulnerable Latino customers were required to sign a one-year lease agreement and purchase option that was written only in English. Although the customers were identified as “tenants” on the agreement, they were required to pay the real estate taxes, assessments and insurance on the property as well as cover any repairs and maintenance.
Welton retained the right to cancel the agreement at any time, according to the complaint, which required the tenant to leave within five days while Welton kept the money already paid plus the value of any improvements made.
A land contract was to be executed if the tenant kept up with monthly payments, met the terms of the contract and made a down payment that was typically 10 percent of the purchase price, the complaint states. Upon payment in full, Welton agreed to convey the property to the purchaser. However, according to the lawsuit, “that promise is not performable” because Welton had offered his rent-to-own and land contract homes as collateral to secure additional mortgages.
As a part of the complaint, the plaintiffs allege the defendants violated the Fair Housing Act, Equal Credit Opportunity Act, Civil Rights Acts of 1866 and 1871, Truth in Lending Act, and several Indiana state statutes.
Welton and the other defendants filed their answers to the allegations and included counterclaims of defamation as well as tortious interference with a contract and with a business relationship. The defendants allege the FHCCI sent letters to customers implying Casas Baratas was discriminating and had launched a “predatory scheme” against Latino families.
Also, the defendants accused Nelson of giving a presentation at the 2018 Annual Conference of the Fair Housing Center of West Michigan in which she stated as facts, not as allegations, that the defendants were exploiting the vulnerability of the Latino community with predatory housing and lending practices.
In March 2019, the plaintiffs filed a motion for permission to file a proposed second amended complaint, listing additional defendants. Four months later, the defendants moved to dismiss their counterclaims against FHCCI and the individual plaintiffs.
“In recent years, we have seen an explosion in rent to own and land contracts across the Midwest and South, including Indianapolis,” Nelson said. “Although these contracts can benefit some people with limited housing options, they need to be structured in a way that ensures both consumers and housing providers have equal protections and that the contracts comply with federal and applicable state laws.”
Casas Baratas defendants, through their attorneys, said the consent decree enables all the parties to work together to pursue the common goal of ensuring affordable housing is available in central Indiana.“CBA is committed to guaranteeing that every individual, group and community has equal housing opportunities and access in a bias-free and open housing market,” the defendants said in a statement. “CBA looks forward to working with FHCCI to enhance housing opportunities for underserved populations in central Indiana.”
Casa Baratas defendants also said they have already been in the process of changing their business model because of a September 2019 ruling from the Indiana Supreme Court.
The unanimous decision in Rainbow Realty Group, Inc., et al. v. Katrina Carter and Quentin Lintner, 19S-CC-38, found the contracts offered by Rainbow Realty Group and Cress Trust were rental agreements rather than land-sale agreements. Prior to the ruling, Rainbow customers, much like Casas Baratas customers, were required to pay for all repairs and maintenance, as any homeowner, but if they fell behind in their monthly payments, they would be treated like renters, facing eviction, not foreclosure, and losing all the equity they had put into their houses.
Plaintiffs’ attorneys applauded the decision. They said the ruling gave courts a framework to analyze other rent-to-own agreements.
In addition to Casas Baratas Aqui, the defendants in the lawsuit brought by FHCCI also include Asset & Equity Strategies, LLC; Burger Property Assurance, LLC; Hoosier Collins Commercial Strategies, LLC; SLB Acquisitions, LLC; SLB Assets II, LLC; SLB Assets III, LLC; SLB Investments, LLC; Wong Ventures, LLC; Natalia Villanueva; and Marshall Welton.
FHCCI and the other plaintiffs were represented by Christopher (Chip) Clark of Goodin Abernathy LLP, Chase Haller of the Neighborhood Christian Legal Clinic, and Christopher Brancart of Brancart & Brancart. The defendants were represented by Kroger Gardis & Regas’ attorneys, Steven Runyan, Amanda Stafford, James Knauer and Jason Mizzell.