I met on the weekend with a single Mom who could have been devastated financially by the Rent-To-Own (RTO) system.

In July of last year, Rachel saw an ad in the paper announcing that she could buy a freehold townhouse in Orleans with no money down. She approached the Vendor who offered to sell his unit for $120,000 and that he would provide a rental rebate for the downpayment. Rachel would move in now (under an occupancy agreement), pay $750.00 a month occupancy fee, of which the Vendor would credit the whole amount towards the downpayment in 8 months time. She would have accumulated $6,000 (that's 8 months X $750/mo) by then, the mandatory 5% downpayment. She borrowed funds from her brother which enable her to move her belongings in September/95.

The purchase was to take place on the 1st of April this year. To her surprise, and the Vendor's surprise, the rental rebate promised by the Vendor cannot be used for the downpayment. The rules governing the RTO state that the above scenario is Vendor participation in the accumulation of downpayment, which is disallowed by the system. Even though Rachel qualifies for the mortgage, the fact that she has no downpayment will deny her a mortgage.

The second part of the scenario is even more devastating than the first part. Her agreement with the Vendor provided that in the event she did not purchase (for any reason) the whole deal was off. In other words, if she did not buy the unit on April 1, 1996, the Vendor was no longer required to sell her the unit. Rachel moved her family to Orleans, placed her kids in an Orleans school, encouraged her kids to find new friends, only to be told that she

might have to move, now that her downpayment source has been denied.

The Vendor feels somewhat responsible, but legally, the Purchase & Sale Agreement is what counts. Rachel could not come up with legitimate downpayment, which means she could not buy on time, therefore the deal is off. In the Vendor's defence, he had checked with his mortgage holder prior to putting his house up for sale. It was the Agent for the mortgage lender who suggested this method of selling. The system is sometimes fooled by inexperienced lending agent who represents to CMHC that the downpayment is from "non-borrowed" funds, even though in our situation, the Vendor is clearly not allowed to contribute to the downpayment. We were able to straighten out the mess, although with our method, Rachel will still be an occupant for another 6 months.

She had saved up $3500 over the last 8 months, to pay for her legal fees, land transfer tax, appraisal fees, and moving expenses, and she had originally given $400 as a deposit with her offer. She will now use that money as part of her downpayment. She will accumulate the missing $2100 (that's the $6000 mandatory downpayment less the $3500 she already has, and her deposit of $400) over the next six months at $350 per month, over and above her occupancy fee. The Vendor has agreed to pay for all her closing costs and moving expense loan (to her brother). This story had a happy ending, how many more though end up in failure? Next week, another example of potential abuse by the system.