Rent to Own in Joliet: Lease Options, Lease-Purchase Deals and Illinois Law

"Rent to own" is a marketing label, not a legal category. In practice it covers several different kinds of agreements, and the one you sign determines what you owe, when you get title and what happens if you miss a payment. This guide explains the common structures, the Illinois law that governs some of them, and the cautions that federal and state consumer agencies publish. It is general information, not legal advice.

The three common structures

Lease with an option to purchase (lease-option)

You sign a lease plus an option that gives you the right, but not the obligation, to buy the home later at a set price. Many of these deals involve an upfront fee, and some credit part of each rent payment toward the purchase, as the FTC describes. What happens to the fee and any credits if you don't buy, or can't get a mortgage in time, depends entirely on the contract.

Lease-purchase

Similar to a lease-option, except that the agreement obligates you to buy at the end of the term. If you can't complete the purchase, you may be in breach of the contract.

Contract for deed (installment sale)

You agree to buy the home and pay the price in installments directly to the seller, who keeps legal title until you've paid in full. The Consumer Financial Protection Bureau (CFPB) describes contracts for deed as loans where the seller keeps the legal title of a home until the borrower makes all the payments. The Illinois Attorney General notes that installment sales contracts are often called "rent-to-own" contracts or contracts for deed.

Illinois law: the Installment Sales Contract Act

Illinois' Installment Sales Contract Act (765 ILCS 67) took effect January 1, 2018, and applies to contracts executed on or after that date.

When it applies

The Act's definitions (Section 5) set its scope:

• Type of contract. An "installment sales contract" is any agreement, including a contract for deed or bond for deed, in which the seller agrees to sell and the buyer agrees to buy residential real estate, the price is paid in installments for at least one year after the date of sale, and the seller keeps an interest in the property.
• Type of property. "Residential real estate" means property with a dwelling structure of one to four residential units.
• Type of seller. A "seller" is a person or entity that enters into an installment sales contract more than three times in a 12-month period. Someone who does fewer deals than that is not a "seller" under the Act.

A lease that only gives you an option to buy, without an agreement to buy, may not meet the Act's definition. Whether a particular rent-to-own agreement is covered is a legal question about its specific terms.

What it requires when it applies

• Written disclosures (Section 10). The contract must clearly disclose, among other items, the price, down payment, periodic payment, interest rate as an annual percentage rate, the term and number of payments, any balloon payments, who pays property taxes and insurance, known liens and mortgages, when the buyer gets title, who is responsible for repairs, and an amortization schedule. It must include a notice that the buyer may get an independent inspection and appraisal before signing.
• Attorney General disclosure and cooling-off period (Sections 70 and 75). The seller must give the buyer an educational document prepared by the Illinois Attorney General's office. Neither party is bound for 3 full business days after the unexecuted contract is accepted in its final form, and that period can't be waived.
• Recording (Section 20). Within 10 business days of the date of sale, the seller must record the contract or a memorandum of it with the county recorder of deeds. If the seller doesn't, the buyer can rescind and get back all money paid. A contract clause forbidding the buyer from recording is void.
• Right to cure (Section 40). If the buyer defaults on payment, the seller can't bring an action under the contract until 90 days after the default, and the buyer can cure by paying everything currently due within that period.
• No prepayment penalty (Section 60). The seller can't charge a penalty if the buyer pays off the balance early.
• Repairs (Sections 25 and 65). Unless the contract's repair statement says otherwise, the seller is responsible for repairs. A term that puts the buyer in default for failing to fix conditions that existed before the sale is unenforceable.
• No waiver (Section 50). Buyers and sellers can't waive the Act's protections by contract.

Violations are treated as unlawful practices under the Illinois Consumer Fraud and Deceptive Business Practices Act (Section 85).

Cautions from consumer agencies

CFPB on contracts for deed

The CFPB lists several risks:

• Sellers may try to remove a buyer quickly after a missed payment, an unpaid balloon payment or unpaid taxes or maintenance, and may try to keep the money and work the buyer put into the house.
• The seller may not have clear title, for example because of an unpaid lien or mortgage.
• Taxes or insurance paid through the seller may never reach the government or the insurer.
• The buyer typically pays property taxes, insurance, repairs and maintenance before owning the home.

The CFPB's advice is to talk with a HUD-approved housing counseling agency before entering a contract for deed.

FTC on rent-to-own deals

A Federal Trade Commission consumer alert warns that rent-to-own deals can be risky and sometimes fraudulent. Problems people have reported include a "seller" who didn't own the property, unpaid property taxes, homes in poor condition or with hazards such as lead or asbestos, promised repairs that never happened, and homes facing foreclosure. Even legitimate deals can involve upfront fees and higher monthly payments than ordinary rent, and in some deals one missed payment ends the arrangement. At the end, buyers may owe more than the home is worth or be unable to qualify for a mortgage.

Illinois Attorney General

The Attorney General's office cautions that making payments over time without holding legal title can leave a consumer in a vulnerable financial position. It also says it does not have authority in most rental housing matters, so disputes over an ordinary lease usually go elsewhere.

Questions to answer before you sign

Based on the risks the agencies above describe, get clear written answers to these:

1. Who holds title to the home today, and are there mortgages, liens or unpaid taxes on it?
2. Is this an option to buy, an obligation to buy, or an installment sale?
3. What is the purchase price, and how was it set?
4. How much of each payment, if any, is credited toward the purchase, and what happens to those credits if you don't buy?
5. Who pays property taxes, insurance and repairs, and how is that documented?
6. What happens if you miss a payment?
7. Will the contract or a memorandum be recorded with the county?
8. Has an independent inspector and appraiser looked at the home?

Rent-to-own listings on JolietRent

Landlords can mark a listing on JolietRent as rent-to-own. That label comes from the landlord, and it doesn't tell you which of the structures above the offer uses. Ask the landlord for the full written agreement before you pay any fee, and have it reviewed. You can browse rent-to-own listings in Joliet.