Real estate business owner accused of discriminating against Latino community to pay $395K

A business owner accused of targeting Latino communities in Indianapolis with what fair housing advocates describe as a predatory real estate scheme that saddles vulnerable buyers with overpriced, uninhabitable homes has settled a federal lawsuit against him.

The complaint filed last year against Marshall Welton took aim at the “rent-to-own” deals he offered through his business, Casas Baratas Aqui. Such agreements, which aren't unique to Indiana, combine features of landlord-tenant arrangements and land contracts, often providing uninhabitable homes to renters/buyers with the promise of eventual homeownership.

The deals have come under legal scrutiny for how burdensome the contracts can be to residents who have to provide significant repairs to the homes while facing renter-related consequences, such as being evicted for not making payments on time.

Welton agreed to pay $395,000 and undetermined attorney fees to the Fair Housing Center of Central Indiana and several families, the center said in a news release Monday. 

Fair Housing Executive Director Amy Nelson said the settlement is the first resolution of a federal complaint filed over the violation of federal fair housing laws in rent-to-own deals. The nonprofit accused Welton of violating the Fair Housing Act, which prohibits discrimination in housing based on race, sex, etc.

“This is a ground-breaking resolution that will have a national impact on rent-to-own and land contracts by providing an example of requirements to ensure fairness in these transactions,” Nelson said. “We believe this is the first publicly released resolution of litigation involving fair housing allegations in rent-to-own, contract-for-deed, and/or land contracts post-foreclosure crisis.”

Welton did not admit to any wrongdoing in the case. Welton and his company told IndyStar that Casas Baratas Aqui offered homes to people who probably could not find financing elsewhere on similar terms.

"We hope that the actions of FHCCI will not limit or inhibit the opportunities for and the promotion of homeownership and affordable housing in the Hispanic community," Casas Baratas Aqui said in a statement. "We feel everyone should have an equal opportunity and not be regulated out of the system because of race or residency status."

Suit: Welton exploited Latino community

The Fair Housing Center began investigating Casas Baratas Aqui in 2016 as a response to complaints it received from the community, the press release said. Eleven Hispanic individuals, a group of mostly immigrants who primarily speak Spanish, joined the center to file a lawsuit against the company and Welton in April 2018.

The complaint said that as vacant homes proliferated in Indianapolis, and the Hispanic population grew, Welton identified a business opportunity. In 2015, he allegedly built his "scheme" by seizing on factors that the center says can make Latino communities vulnerable — the language barrier, lack of citizenship and lower-income households.

Welton was accused of using Casa Baratas Aqui (which means "Cheap Houses Here") to lure aspiring homeowners to "predatory rent-to-buy deals."

He was able to expand and grow Casa Baratas Aqui, the center said, by created new limited liability companies (LLCs) to obtain lines of credit from lenders, allowing him to purchase hundreds of home that had been foreclosed and abandoned.

The business transaction, according to the center, consisted of two stages: In the first stage, customers were required to execute a one-year lease agreement, written in only English, with an option to purchase. The customer was required to pay an installment of the down payment when the lease agreement was executed.

Then, during the lease period, the customer was required to pay the balance of the down payment or "option fee" — 10% of the purchase price — before the lease ends, along with monthly rental payments under the agreement.

But the center said the lease deviated from how Indiana law would define such an agreement. Welton's lease identified the customer as a tenant, the lawsuit said, but waived the owner's responsibility to maintain and make repairs on the property, the complaint said. Under Indiana law, the suit said, a person renting out a property to a tenant is required to deliver the home in "safe, clean and habitable condition."

Welton, if he wanted to, could cancel the lease, requiring the resident to leave the home within five days of the cancellation, the complaint said. He could then keep any of the payments made on the residence and the value of any improvements the tenant made on the property. 

The second stage was the execution of a land contract. If the renter paid the down payment during the first year, the tenant would be given the opportunity to purchase the property. But customers were often faced with an exorbitant price tag much higher than what the actual property was worth, the complaint said.

For example, one of the plaintiffs, Paula Almanza, entered a one-year lease with a monthly rental rate of $1,000. She was given the option to buy the home for $77,900 (Welton bought the house for about $32,000), with a down payment of $8,500, according to the complaint.

The land contract then stipulated that Almanza pay $69,400 with a 10 percent interest rate, in monthly installments of $746 for a 30-year term.

An 'untouchable' owner

The complaint details other plaintiffs' experiences with Marshall's rent-to-own deals. One of the plaintiffs, Romary Vazquez, signed an agreement with Casas Baratas Aqui to rent and purchase a west-side home.

The April 2017 agreement mirrored the one described by the Fair Housing Center, according to the lawsuit. It set a monthly rental rate of $800 to be paid out for one year with a down payment of $9,000 to be due before the end of the year. The purchase agreement, the lawsuit said, was $89,900 — a 157% markup from the roughly $35,000 price Welton paid for the residence in February 2017.

The lawsuit indicates that Vazquez chose the home from a list of available properties, and was unaware of the extent of the home's problems. The rent-to-buy option sounded like a great deal, the complaint said. 

After moving in, Vazquez discovered that the plumbing was completely clogged, the sink didn't function, the floor was rotted and the ceiling had started to collapse, the complaint said. She repeatedly complained to an employee, whose husband later warned Vazquez against airing her grievances.

"He told Vazquez that Casas Baratas’ owner was 'untouchable,'" the complaint said, "and worse, people who complained need to be careful since they are 'illegal.'"

Vazquez became afraid to complain, fearing retaliation, the Fair Housing Center said. She and her husband have renovated the house themselves, putting more than $10,000 in repairs and improvements into the home, in addition to their rent and $7,000 of their down payment. 

Company's response

In a statement to IndyStar, Casas Baratas Aqui said it is committed to guaranteeing that "every individual, group and community has equal housing opportunities and access in a bias-free and open housing market," particularly under-served communities.

It also cited a September decision from the Indiana Supreme Court that invalidated a similar rent-to-own arrangement in a separate case.

"The Indiana Supreme Court’s decision eliminated the option for a buyer/tenant to make the repairs," the statement said. "This decision essentially made our existing form of doing business unworkable, so we are in the process of changing how we rent and sell homes."

The consent decree, the statement said, will provide guidelines for how the company will conduct its practices going forward.

Contact IndyStar reporter Crystal Hill at 317-444-6094 or cnhill@gannett.com. Follow her on Twitter: @crysnhill.