Largest RTO Firm in Wisconsin Shut Down


#1

As many of you are well aware, I am no fan of RTO or LTO as I believe there are serious legal issues at both state and federal levels involving the concept of both of these being a form of a disguised credit transaction and that further individuals or organizations so engaged also fail to comply with other state and federal laws they are subject to.

That said, you should know the following:

Wisconsin DOJ was successful the other day in stopping Vision Property Management, one of the nation’s largest operators of rent-to-own residential schemes from operating in Wisconsin. The court order also allows Wisconsin residents that are VPM tenants to terminate their leases with VPM without penalty, and seek financial damages against VPM that resulted from the company’s “prohibited acts and practices. “

The lawsuit is far from over so VPM is going to face far more than just their own customers. The State of Wisconsin is out for blood, over what they consider “a deceptive business model”.

People already engage in these models in other states should be aware that other A.G.s in other states have been made aware of Wisconsin’s actions. They should also be aware that a new report from Kroll Bond Rating Agency throws a wet blanket onto these practices. KBRA cites a primary concern of rent-to-own is the number of legal questions that surround deals of this type, specifically whether rent-to-own deals could be viewed as predatory lending.

“A primary concern was that the legality of purchase options associated with rent-to-own properties are largely untested and there is a possibility that these purchase options could subsequently be found to violate consumer protection and/or predatory lending laws,” KBRA said in its report.

This presents multiple, serious problems for any investors who buy into a securitization backed by rent-to-own or lease to own properties, KBRA said. In one example provided by KBRA, if it was determined that the purchase option attached to a property violated consumer protection laws, tenants would then stop making rental payments, which could cause significant shortages in the funds available to the note holder to make payments to the servicer.

And if that happens, the funds that ultimately flow to the bondholder could dry up as well.

KBRA does caution that rent-to-own and lease to own securitizations are in their extreme infancy, and said that it expects to see “significant diligence and disclosure” surrounding the deals’ inherent risks. There is also considerable concern that these transactions could be reclassified as loans which would mean the transactions themselves would be violations of both civil and criminal law.

So, does anyone still think that lease to own, or rent to own, or rent credit schemes are a good idea?


#2

Thanks for sharing @RishelConsultingGroup


#3

Mr. Rishel - the information is valuable, thank you for that. However, in the interest of transparency and to avoid a perception that you have a conflict of interest - you should have disclosed in your post that you are in the business of selling five figure consulting packages to park owners to help them obtain mortgage lending licenses.


#4

Furthermore Mr. Rishel - there is some irony in the fact that your post purports to support your claim that RTO is automatically a deceptive or illegal business model - and yet your post is misleading itself. This is because the DOJ has simply obtained a temporary injunction for an ongoing lawsuit - they have not outlawed the practice of RTO. In addition, the DOJ’s lawsuit does not argue that the practice of rent to own is itself illegal. The lawsuit is clearly motivated by the fact that the specific company named as defendant - Vision Property Management - is alleged to have engaged in truly despicable, slimy business practices that ALL of us would condemn. Essentially the DOJ alleges that VPM set up its customers for failure! How? By having them sign RTO contracts on “uninhabitable” homes, with the requirement that the resident bring the home to code within 3-6 months while making RTO payments. The claim is that VPM preyed on ignorant, poor customers - knowingly putting customers in situations that were designed to value so that VPM could evict the residents and sell a new contract to another person.

““This injunction will provide relief to consumers impacted by this company’s deceptive business model,” Schimel said. “Companies that deceive Wisconsin consumers are not welcome in our state, and we will continue to pursue the lawsuit against VPM.” “According to Schimel, VPM convinced tenants to lease “run-down” properties with the prospect of one day being able to purchase them.” “VPM requires the tenants to rehabilitate the property in three to four short months, pay all the overdue taxes, which are sometimes years overdue, and resolve any outstanding building code violations with the city,” the Wisconsin AG’s office said. “If the tenants fail to do any of these things, VPM evicts the tenant and repeats the cycle by renting the uninhabitable property to yet another Wisconsin consumer.””

If this is what VPM does - then I for one am HAPPY they are getting shut down because firms like them do the entire industry a disservice. This does not mean, however, that rent to own is in itself a bad idea.

It is my understanding that there is zero case law to support the idea that rent to own is illegal in and of itself.


#5

One more thing, Mr. Rishel - your post is not only unsupported, deceptive and self serving - it is really quite damn rude and ill-mannered.

Let us first acknowledge that you are on Frank Rolfe’s internet forum right now. Then you ended you post with a somewhat snarky and patronizing sentence that implies you just made a case that rent to own is illegal (when what you actually did was cite an ongoing lawsuit in which the prosecuting attorney says a particular company’s business practices are illegal - not rent to own as a concept). Finally - you employed a logical fallacy - guilt by association - to lump in “rent credit” with “rent to own.” So - to reiterate:

1 - You have not established that rent to own is illegal - instead posting a misleading claim to scare ignorant potential investors.
2 - You have a conflict of interest you failed to disclose. You stand to gain financially if fewer park owners use rent to own - because that increases the supply of potential customers for you, Ken Rishel.
3 - You have employed a logical fallacy to associate rent to own with rent credit. Again, if fewer park owners employ rent credit you have more potential customers paying you thousands of dollars each. While the two concepts may be similar (or may not be) - you have provided zero support for that claim. If you would like to argue that they are both disguised credit transactions - you may or may not be correct - but that has nothing to do with your post here or your ostensive claim.

Finally you are simply rude! You came in “Frank’s house” and basically ended your post with an implicit stab at him - because you know he uses rent credit and he openly tells anybody who wants to know that he does so.

Frank Rolfe has done much for the industry. By educating potential park owners and bringing new owners into the industry, Frank has quite possibly brought you many new customers by bringing “fresh blood” into this industry, some of which may want mortgage lending licenses.

The difference between you and Frank is that he will openly acknowledge (and does in his seminars) that there is no case law testing the rent credit concept. You however, proclaim that your theories (unsupported by evidence (case law)) are actually certainties - when in fact any good attorney will acknowledge that the law amounts to what judges say it does. We need a judge’s interpretation of the law - not Ken Rishel’s. Full disclosure: Ken Rishel is not an attorney.

But really - the worst thing of this post is simply how rude it is. It’s just bad manners.


#6

I actually thought almost everyone who reads and posts here already knew that. It certainly isn’t any secret.

One correction: While it is true that Rishel Consulting Group does help community owners set up and run legal related finance companies, very few of them have spent, or need to spend " five figures" with us. I might also point out that we also help community owners who do not lend comply with other state and federal laws for way far less than the kind of money you wrote about.


#7

Ivan -

You are correct that this forum belongs to MHU. You should also know that I respect both Frank and Dave and that Frank and I know each other fairly well. You should further know that I constantly recommend their boot camps as a starting point for newbies.

I’m absolutely certain if Frank has an issue with me or my behavior in posting this he will either call or email me. I’m reasonably certain he knows I was not trying to be rude, but simply informative.

I posted the original post simply to relay information and for no other reason.

Has the time come where people cannot question and disagree without personal attacks even in an insular industry like ours? Apparently it has, because we see evidence of that elsewhere as well.

A few other points:

Rishel Consulting Group is not a law firm, and I am not an attorney and we have never made such a claim. We have several regulatory law firms on retainer and spend a good deal of money with them each year so that we can properly guide our clients and customers and so we are accurate with our advice.

Regarding case law - and state regulations - all of this is very complicated and varies from state to state. There are states that do not allow rent credit transactions by regulations which could be challenged in a court of law if the entity was willing to spend the money. It is also important to recognize that RTO and LTO are not the same thing as Rent Credit, and that properly constructed Lease with the Option to Purchase is something else entirely.

I posted to share information. If Frank or Dave thinks what I did was deceptive, rude, or bad manners, I certainly will discuss it with them. If I was wrong, I will say I was wrong.


#8

You have raised a couple of important points which illustrate my discomfort with RTO/LTO and other methods of unlicensed conveyance of manufactured homes to consumers on some form of time payment methods.

My concern is that both the CFPB and other federal agencies along with state agencies, absolutely hate unlicensed activity. To some extent, they might have some valid concerns.

Often, unlicensed operators do engage in less than honorable practices in part because they are not regularly examined by outside agencies. I believe that regulators believe that unless lending activity is licensed there will be operators engaged in activity the regulator considers unfair to the borrower. As a result, regulators, __in my opinion, f_eel that lending must be a licensable activity.

There are several forces at work that make this difficult for them which is why so many people have, for years, flown under the radar, and why there are few specific laws addressing this issue. First of all, most RTO/LTO operators are small operators which keeps them from attracting much attention to themselves and others so engaged. Second, between site built and manufactured homes, there are so many operators so engaged. Even the CFPB was stunned at the number of operators so engaged when they did their study. Before Trump came along and gave them other things to worry about, their planned, but unimplemented, strategy was to create rules requiring licensure and an MLO to so engage and then wait for complaints to fine and penalize those operators out of business. (It is important to note, while the plan still exists, nothing has been done to create the rules at this time.)

The issue to regulators is they need to control all lending and the only way to do it is through licensure. Generally, they lack the financial resources to actively find and catch those outside of licensure so they depend on consumer complaints, competitor complaints, etc to start an action. Because, as you wrote, there is not a lot of case law, if they take it to courts, they are going to focus on UDAAP as they did in Wisconsin because it is easier to sell to the court and/or jury.

My only real concern is that far too many people, not Frank as you mentioned, are selling the idea of RTO/LTO as some kind of unchallengeably legal solution without warning people of the potential and future dangers. Our industry has seen two really major players buy into that in the last ten years, and rapidly exit a couple of years ago after getting authoritative legal advice from major regulatory law firms. From my perspective, people should do what they are comfortable with even if that does not agree with my point of view, just as long as they know what the the consequences might be.


#9

First of all, bravo for staying on topic.

I agree with Ken that regulatory agencies want to license all lending so that they have something to revoke if/when there are complaints. Otherwise they will not “protect” the consumers. In the same way, they are going to be too busy to take any action until your customers complain.*

Predatory lending is definitely on the radar screen of both legislators (federal and otherwise) and regulators (ditto). But right now I think it is going to focus on the used-auto and pawn-shop type abuses. The fees & interest in these cases are sums that would make you and me ashamed, when stated as a percentage of the loan amount. On the other hand, dealing with people is expensive, so there is some hassle even if you’re lending $100. If you charge $5 for that hassle, suddenly that’s 5% bump in the interest rate. And, by the way that’s due in 2 weeks so multiply by 26. (26 2-week periods in a year).

My father went to Ken Rishel’s captive finance workshop and I think he learned a lot. We set up a captive finance company, my wife got her MLO license (it is really not that difficult – but you have to do your continuing education 8 hours or 40 or whatever it is per year) and we are trying to stay legal and offer “real” mortgages. If we get haled into court it will be a case of “if it smells like a dog and acts liked a dog, then it’s a dog.” “Sorry Judge, what did we do wrong?” **

UDAAP is on the brain when we decide how to treat our customers. Many of them will fail to meet our standards and/or requirements (like, paying on time and not being a menace). We want them kicked out. We have to be able to stand in front of a judge and say, “we’re the good guys in this situation” and point to defendant and say, “here’s why they’re the bad person.”

To me, RTO, L/O, and rent-credit abuses are all similar to mortgage abuses and the government rightly should lump all that together. But I really believe you only get in trouble if you abuse people. Otherwise you’ll get, at worst, a scolding.

On the other hand, if you want to split hairs and worry about the difference between disguised mortgages and whatever else you’re doing then fine, but it’s probably an academic exercise. Let me know when you’re in court.

Doing things the “right” way is always more expensive but it’s the right thing to do. How far you stretch in that direction is up to you.

  • It might be your competitors that complain. Is what you’re doing fair to them?

** Ken talks often of the regulators because they’re the first line of defense and not a lot of this has been tested in court. The regulators are going to focus on the cases that they can win – to prove a point. Once they get it “on record” that what you’re doing is tsk-tsk-tsk not allowed, it’s supposed to scare everyone else into compliance.

Who knows who the regulators are going to chase after? It’s let-us-say impossible to be perfect. You can always be “picked on” if someone’s out to get you. So stay off their radar screen by conducting business in a way that doesn’t piss people off.

That’s my philosophy, anyway.

I should add, to be fair, that I understand what Ivan is reacting to. @RishelConsultingGroup is a business of telling people how to navigate the regulatory schema in the financing/lending area. Telling people to “watch out” is no bad thing, but that’s his business. So I take the urgency with some grain of salt. On the other hand, I can afford to sit back because I think we’re the “good” hats because we’re at least trying to be on the right side of things.

Brandon@Sandell


#10

Well said Mr. Ilych.