As market falters, lease-purchase plans gain traction

Tim Cabrera eyes the unwanted artwork on the interior walls of the house his company has just bought - long streaks and swirls of red and blue spray paint.

The graffiti, probably the work of neighborhood kids, stretches from the kitchen to the upstairs bathroom of the foreclosed house. Even the carpeted staircase has been tagged.

"Unbelievable," says Cabrera, chief operating officer of Atlanta-based Pride of Ownership Partners. "They got into everything."

In foreclosed and forlorn properties like this one in the Atlanta metropolitan area, Cabrera and his firm see opportunity, and not just for themselves. They are fixing up this house and others and marketing them to people who want to buy but can't get mortgages.

Enter the lease-purchase option, which is surging in other hard-hit states such as California and Nevada, says Jim Grissett, an adjunct professor of real estate at Emory University's Goizueta Business School.

"At a time when we have both distressed sellers and distressed buyers, I think it makes a whole lot of sense," Grissett says.

Customers include Cecelia Robinson, 57, a writer who says she fled her home near Baltimore after a bad business move left her on the verge of foreclosure. Pride of Ownership Partners is leasing Robinson a three-bedroom, 21/2-bathroom home that the company purchased from a bank and renovated.

For three years, Robinson can continue paying rent, or opt to buy the house for the price an appraiser set at the time she moved in. If she chooses the latter, the company will give her a down-payment credit totaling half the rent she would pay over the three years, even if she decides to buy sooner.

"It's a fresh start," Robinson says before showing off an oversized master bathroom she calls the one she's "always dreamed of."

To be sure, the arrangement is potentially a profitable one for Cabrera and his partner, real estate investor Jeffrey Britz, who say they started in July with $1.4 million in capital and have snapped up 50 foreclosed homes across the Atlanta area. The market is still shaky, and for now, the duo can't simply turn around and sell the homes at a profit.

Part of the solution involves helping clients qualify for mortgages. Cabrera, who worked as a mortgage broker during the real estate boom, knows just how difficult this has become. That's why new clients are required to go through a credit-rehabilitation program to participate.

"It's going to help them, give them stability, let them raise a family," Cabrera, 38, says.

The rent payments allow his company to break even, he says - he won't turn a profit until he can start selling the houses. He has had no trouble renting the houses, though none of his tenants has turned into a buyer yet.

Pride of Ownership clients go through a rigorous screening, Cabrera says, and by getting clients into fixed-rate mortgages and making it clear up front how much they'll have to pay, he hopes to turn his renters into secure homeowners.

"There are smart people out there," he says. "The premise of Pride of Ownership is to educate people so they know what they're getting into."

Arlanda James, 37, a pastor who runs a community outreach program, had been renting a house with her husband and 5-year-old son in the Atlanta suburb of College Park. In December, they found themselves on the verge of being homeless after their landlord went into foreclosure.

She called Pride of Ownership Partners after spotting a roadside sign advertising the company.

"When I called, I couldn't believe what I heard on the phone. I said, 'This sounds too good to be true,' " James says while sitting in the dining room of the four-bedroom, three-bathroom house she is now renting from the company.

"I think Pride of Ownership was an answer to my prayers."