Lawsuits pile up against EasyKnock
“More than two dozen people” in Texas have sued EasyKnock over its sale-leaseback program, an NPR investigation found, adding to the company's legal woes.
Key points:
- An NPR investigation into EasyKnock’s transactions in Texas found that homeowners are often losing out on anticipated equity when the property is sold.
- Additionally, participants in the program are unlikely to purchase their home back from the proptech company.
- Homeowners also lose crucial protections when they sell their home to companies like EasyKnock and become renters.
Trouble is growing for EasyKnock in the state of Texas as the sale-leaseback proptech faces mounting lawsuits from frustrated customers who felt misled by the company, a recent NPR investigation found.
Legal challenges are nothing new to the company, however: EasyKnock reached a settlement with the State of Massachusetts late last year, agreeing to discontinue its sale-leaseback program in the state, and is also being targeted by Michigan's attorney general. Other states and individuals have also started investigations or filed suits.
Hopes of big payouts, renewed ownership fail to materialize
The company is under fire for its sale-leaseback program where it provides homeowners a cash payout and then leases the property back to the former owner. When pitching the program, EasyKnock indicates that homeowners can repurchase the property within a certain timeframe, or receive extra equity on any price appreciation on the house when it is eventually sold.
However, NPR spoke with several homeowners who participated in sale-leaseback deals with EasyKnock and said they lost out on anticipated equity gains because homes sold for less than the company purchased them for. In some cases, homeowners ultimately received less than half the equity they had in their home before selling to EasyKnock.
EasyKnock CEO Jarred Kessler told NPR that the company has "no control over appreciation" and that it's "unfortunate" that a homeowner didn't get anticipated equity returns on a sale but "that's not because of EasyKnock. That's because of the market."
Most homeowners are also not able to purchase their property back from EasyKnock, NPR found. The typical contract gives homeowners three to five years to buy back their home, but the cost to repurchase increases by a minimum of 2.5% per year. In 2022, an attorney for EasyKnock said 20% of the company's clients in Texas had repurchased their homes, which he called "a great success story."
Former homeowners face the possibility of eviction, fees
In addition to the potential equity risks, homeowners forfeit certain legal protections when they become renters. For a homeowner experiencing financial hardship, there are various programs — such as forbearance or loan modification — they can explore. Even if the home enters the foreclosure process, it's typically quite lengthy compared to the eviction process for renters who fall behind.
In one instance, according to NPR, a homeowner who had participated in EasyKnock's sale-leaseback program owed the company nearly $30,000 in back rent, late fees and legal costs after his eviction. Kessler told NPR that evictions are uncommon, and used as a last resort.
"In the rare instances that people face hardships and they're not able to pay rent, we try to work with them, and then occasionally we have to evict people," said Kessler. EasyKnock says that even in those cases, people can get any appreciation from a sale to a third party, and its rate of completed evictions is just 4%.
Like a loan, but without consumer protections
Texas homeowners suing EasyKnock say its sale-leaseback program is essentially a loan and should be subject to regulations that protect borrowers. EasyKnock argues that its product is not a loan.
Prentiss Cox, a law professor and consumer protection expert, told NPR that he sees sale-leasebacks as "an attempt to essentially evade" the regulatory structure in place for typical mortgage loans.