Judge just threw out 7 eviction filings because I used Rent Credit Contract

For the past few years I’ve been using the Rent Credit model for eventually transferring ownership to tenants. I have two agreements tenants sign: 1) Mobile Home and Lot Rent Agreement and 2) Mobile Home Rent Credit Agreement, both modeled off the contracts that Frank and Dave use. I’ve had the same judge the past 3 years and had no problems with evictions until last week when an angry tenant came to court and insisted that they were buying the home, not renting. The judge asked to see the agreements and then deferred the ruling long enough for him to send the contracts to his boss in Raleigh NC.

In the meantime I filed paperwork for 7 more evictions. My office manager came to court this morning and the judge said he couldn’t hear the cases because our contract made reference to owning a home in the future. He was referring to the Rent Credit Agreement (I borrowed the same language that Frank and Dave were using back in 2014). Apparently his boss in Raleigh determined that a Rent Credit Agreement is substantially equivalent rent-to-own, seller financing, etc. and so the case could not be heard in small claims court. The judge did tell my office manager that if I wanted to create a separate contract just for lot rent, then he would have jurisdiction and could hear the case.

Has anyone run into this problem? I have well over 100 contracts using the Rent Credit Agreement and this throws a huge monkey wrench into my eviction process. Short term I may have little choice but to create a simple lot rent agreement and have everyone sign (a nontrivial task), but longer term I’m not sure what to do.



Sounds like the judge is ruling that the Rent Credit agreement is a “disguised mortgage” and foreclosing on a mortgage must be done through a county (superior, general) court of general jurisdiction.

Separating the home contract from the lot lease rental is important – and putting a clause in your rent credit contract that says default on the lot lease is a default on the home contract.

That said, rent credit is very similar to a disguised mortgage so slicing the difference between the two may be difficult.

You can evict on the lot lease but a determined tenant might be able to work the system against you for the home contract to maintain possession of the home in that case, and you will be in uncharted waters.


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Just curious, how do you handle selling/transferring homes to tenants if not with a rent credit model?

In answer to your question “how do you handle selling/transferring homes to tenants if not with a rent credit model?”

My partner got a Mortgage Loan Originator license and we offer mortgages through a related company with proper paperwork/documentation/etc.

For the record, we have never had a tenant “work the system” to keep the home tied up when we repossess after eviction, although this is a remote possibility. In Texas (where we lend) title to a manufactured home can be reclaimed by the lienholder upon submission of a notarized form attesting to the breach in the finance contract. (When the home is personal property). In other words, if we say they are in default, we can get the home back and the tenant has no recourse except to sue us, which has not happened.

Of course we would not do that without a good reason (failure to pay) and if they are failing to pay the home contract they are typically failing to pay the rent due on the lot lease as well. Failure to pay your lot rent is grounds for eviction. So we go to the local Justice of the Peace (JP) who is NOT a district court judge and say, “give us a writ of eviction” and that is always granted because in Texas there is no defense to non-payment.

I have said many times, start with the end in mind. Eventually you may stand before the judge and have to explain what you did and why it was proper.


In your case, your local (small claims) court judge apparently has the authority to grant you an eviction, but he does not have the authority to grant you a foreclosure (which is a different legal proceeding). And he has decided that foreclosure is the “proper” legal remedy for you to recover possession of the home under the contract you made.

So you will have to go defend your contractual rights in the “regular” court to get this tenant out of your hair. In some jurisdictions, foreclosure has special protections for the resident and you may have to follow these to the letter. Or not, depending on the judge.

The tenant may have legal assistance to drag it out every step of the way, but eventually it will come down to standing before the judge and (1) following whatever rules you have to follow and (2) not being the “bad guy.” The tenant is the “bad guy” because he isn’t paying. The judge will side with you if that’s the only factor in the case.

What you want to avoid is the claim “I’m not paying because blah blah blah” and have the judge be sympathetic to that and not to you. (Tenant says “I was taken advantage of!” Judge says, “How?” – the sympathetic answer is "I was building up all this credit (or in our case, equity) and now it’s being seized without “due process.”

Example – tenant gets $20,000 mortgage and over time there is $1,000 left to pay and the tenant thinks they are “owed” $1000 so they refuse to pay the last $1,000. (Imagine they say they had a $1k A/C repair and blame us). We do the procedure above and we get the home. But the tenant has been “screwed” out of $19,000 worth of home they did pay for.

In a “true” foreclosure, we would have to auction off the home (say it sells for $5,000 because it’s used and wholesale).

And then we get to keep our $1,000 (owed) and legal fees (say $1,000) but the evicted tenant is owed the remaining $3,000 that the home was worth over and above what was still owed. This is the “equity” that the court could be sympathetic for the tenant.

No judge is going to be sympathetic to a tenant who doesn’t pay their “rent” but expects to receive the benefit (housing).

On the flip side, if the case was something like “Oh you (tenant) have $19,000 worth of rent credits but we’re evicting you because you didn’t mow your lawn often enough and those credits are now worthless even though we “promised” you could use them to buy the home you’re living in,” the judge is going to look at that very differently.

So you have to go in front of the “real” judge (not the small claims judge) and explain all this.



Thanks for the reply Brandon. They way you handle the process is clean and straightforward, just not an easy option for me as a smaller park owner unfortunately.

I met with the judge this morning and his answer was (as you’ve already guessed) he views the Rent Credit Agreement as giving the tenant some sort of implied equity (my words, not his). He asked his advisor in Raleigh who is over all the magistrates in NC to look at the Rent Credit Contract before issuing a judgement. The advisor told him that he had no authority to hear the case because part of the rent was (or could) be used to effectively purchase the home in the future. He said I can have the case heard in district court, but not in his court. But district court is a 4-8 week process start to finish and more expensive because I can’t represent my company, an attorney has to do it. So as a practical matter, I want to avoid district court if at all possible.

The judge did say that I could create a separate “lot rent only” agreement and he would have jurisdiction over that. Short term at least I will need to do that. Evictions in NC are lengthy enough already for my tastes, so going to district court is not appealing at all.

I am hoping others will weigh in on this issue. The practical implication for anyone with MHPs in NC is that they can’t use the Rent Credit Agreement and be heard in small claims court. That’s a BIG DEAL.

I’d like to hear from others if they’ve had trouble with the Rent Credit Agreement. I’d also be interested to know if anyone has suggestions for how to push back a little with the courts to try to get a change of opinion.

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I use a lot lease from our Park LLC and a Home lease with “Option to Purchase” from a second LLC that owns our Homes. The option to purchase (at a very low price) can only be exercised by the tenant after successfully completing the lease (5+ years).

Just in case anyone in wondering, this is a legitimate way to do it BUT only if the option price has some relationship to the actual value at the time of exercise. For example, if the home is worth $10k today and the option price is $5k in five years that’s probably ok.

But if the option price is $500 in five years that’s going to be viewed with suspicion as a disguised mortgage (which it is).

On the other hand, one solution to this problem is to LEND the $5k (or whatever the option price is) after the 5 years but lend it UNSECURED. Since the loan is unsecured, Dodd-Frank and mortgage law does not apply. Since they’ve been good tenants for 5 years they’re probably going to continue to pay you. If they don’t, well, you know where they live and property you can seize if you go get a beach of contract judgement in District Court.



Regarding lease purchase options, I believe state laws vary on this issue, so it’s hard to paint such a broad brush.

What you’re probably referring to is Publication 535, Business Expenses . You are correct in that the IRS would treat such a scenario as a Conditional Sales Contract, but the issue would be one of financial vs. legal (unless it was part of a bankruptcy proceeding).

The Seller under said situation would not be entitled to depreciation or interest expense deductions, because the IRS would deem this to be a sale and not a lease. The financial implications wouldn’t be insignificant.

We use a lease purchase agreement. The lot lease amount is included in that, but states that it does not count towards purchase of the home. When someone defaults and we take them to court (N.C.) the judge tell them they have 10 days to get out. When the tenant says, “we’re buying our home” the judge says, “Then do you have every penny you owe?” Tenant: “No”. Judge: “You broke the contract, you have 10 days to get out”. So far, we haven’t had any problems. In the newer leases purchases, we did include that if the tenant defaults, the lease turns back into a rental.


@Yellowstone , @Brandon , @4jaytraylor , @Suburban , I’m in NC and had a judge draw out my eviction for an extra 2 months since there was an option agreement that the lady didn’t even sign. It was a big mess that I won’t go into, but the judge threw out the option agreement since she didn’t sign it. They then made me file for eviction again. I don’t understand that. I guess they want more revenue. So I filed for eviction again.

I have a question: Can you guys email me your NC Lot Lease Agreements? I acquired a small MHP that has a couple renters that are very elderly that pay $350/month for rent. I have told them that they have to maintain the home (no title). I will rent them the dirt and access to utilities. The issue is, I need a lot rent agreement and I’m not sure if the county will acknowledge that I’m only renting them the lot. amkor.holdings@gmail.com

Sorry @ericgabriel, I’m not in NC. An out-of-state lease is not going to be helpful to you.

I’m confused why the option agreement mattered. You say the judge “threw it out” which seems the correct thing to do if it wasn’t signed.

If you mean the reverse of that, then it makes some sense that the judge would uphold that contract in favor of the tenant’s equity (thus you can’t evict but instead have to foreclose, which may have a different and stricter legal standard of proof.)

On the other hand, perhaps you mean that the resident stopped paying you for the home you were selling/renting them and the judge said they have no obligation to do so because there’s no signed document that says they have to. If that’s the case then shame on you for not having a lease.

IF you have a signed lease and they’ve failed to pay it and NC law is the same as TX law and the judge indeed “threw out” (your words) the “home agreement” (my words) at issue, then I can only surmise that the signed lease and the related lease-only documentation was not brought into the eviction proceedings.

If you have no lease and only an “option agreement” then again shame on you. You need to get with a lawyer and see what rights you have. Eviction may not be one of them.

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