The Arizona Attorney General’s Office is investigating a Tucson businessman and several of his housing companies that it says are engaged in deceptive rent-to-own practices.
David Kinas, owner of several rent-to-own operations, has been doing business in Tucson for more than three decades, during which time he was named a finalist for the Better Business Bureau’s Ethics in Business award in 2006.
In that time, however, Kinas has left a trail of unhappy clients who took their cases to court and two state attorneys general who found his business tactics questionable.
His attorney, Scott Gibson, says lawsuits are part of doing business and that his client would prove he did nothing wrong. He declined to comment further on legal issues surrounding Kinas.
In March, the Attorney General’s Office under Mark Brnovich named Kinas and four of his companies in a petition seeking financial and contractual records as part of the investigation into his business practices. Those companies are: Deed and Note Traders LLC, Olympic Holdings LLC, 881Home LLC and DeedTrader Realty LLC.
Assistant Attorney General Taren Ellis Langford wrote in the petition for enforcement of civil investigative demands that the state believes Kinas’ business practices were “deceptive and unfair,” and that he made “misrepresentations and false statements, all actions in violation of the (Consumer Fraud Act).”
When entering rent-to-own agreements, Kinas and his businesses named in the petition failed to “apply a portion of the consumers’ rent payments toward the purchase price of the property,” failed to “satisfy the liens on the property, thereby allowing the property to go to auction while continuing to take consumers’ payments under the rent-to-own agreements,” Ellis Langford wrote.
The state office began investigating after it received complaints from consumers, court records showed. The office said it could not comment on the specific details, such as the number of complaints received or the amount of damages, because the case is ongoing.
The Arizona Department of Real Estate reviewed four cases — two for Deed and Note Traders, one for DeedTrader Realty and one for 881Home — involving Kinas between 2003 and 2012, according to Sarah Dobbins, the department’s chief of staff.
Three cases were closed either for insufficient evidence or lack of jurisdiction, and one case led to a letter of concern, she said.
Kinas has not had a real estate license since 1993, according to real estate records, but he appears to own the properties that he is selling and renting, which would not require him to have a license.
Since the petition was filed by the Attorney General’s Office, Kinas and his business entities agreed to comply with the investigative demands. A hearing originally scheduled for April 7 was postponed with the stipulation that Kinas and his companies named in the suit comply with the office’s requests.
Once Kinas produces the necessary documents, “I believe there will be no basis to pursue anything further,” Gibson, his attorney, said.
Several attempts to reach Kinas directly and through his attorney were not successful.
UNHAPPY CLIENTS
Armando and Yolanda Castelo and their children moved to Tucson from Rio Rico in 2008 with the hopes that Armando, a construction worker, would find more work here.
The couple, who speak limited English, lived in an apartment with their children for the first few years in Tucson, then aspired to have a home of their own in 2010, when they met Kinas. By April 2010, they said through a translator that they paid an initial down payment of $5,000 and moved into a house under a rent-to-own agreement.
Two years after the Castelos moved into the house, which they were on their way to buying from Kinas, the home was foreclosed on.
Armando and Yolanda Castelo are just one of three parties that have filed suit against Kinas and his companies in the past year. The most recent one was filed Monday.
All three parties are being represented by Southern Arizona Legal Aid, a nonprofit law firm that provides free legal aid to lower-income people.
“We don’t sue people lightly,” said Daniel Barker, a staff attorney at the firm who is representing another party, Leif and Stephanie Olson, against Kinas and his affiliated businesses. “We seldom sue businessmen.”
The organization was involved in three separate cases in the last year against Kinas because it has seen a “pattern in the clients that have come through” asking for help, he said.
“It makes us think that there’s something going on here that should be corrected, should be stopped,” he said.
Court records showed the Castelos received a letter from a bank, saying the property was going to be foreclosed. They had to move out within a month to avoid getting evicted.
Underlying liens
By then, they had nearly completed the down payment needed to eventually purchase the house and invested about $5,000 in improving the property. But when they confronted Kinas with the matter, they said he refused to reimburse them — an allegation Kinas admitted to in an answer to the complaint.
The couple alleged Kinas also used two different companies — Deed and Note Traders and 881Home — interchangeably in signing contracts and documents, which he denied.
Instead of reimbursing, he offered to transfer the contract to another house that he owned. The down payment the Castelos have already paid would be applied toward it and the property would be purchased for $125,000, the same price as the first house.
“We felt like we had no choice,” Armando said.
But there were liens attached to the second property, including one from an HOA, the Castelos alleged in their complaint.
“He didn’t inform my clients about the underlying liens on both properties,” said Tiffany Tom, a Southern Arizona Legal Aid attorney representing the Castelos. “We’re talking about things that a person would want to know in making a decision to buy a home.”
In an answer to the Castelos’ complaint in court, Kinas, Deed and Note Traders and 881Home denied they “engaged in any conduct which could be construed as either fraud or misrepresentation.”
The Castelos want their money back and they want “for him not to do the same thing he did to us to other people,” Yolanda added.
The family is still living in the second home, but Armando and Yolanda said it just doesn’t feel right knowing that this house won’t be theirs for long. “It doesn’t feel like a home,” Yolanda said.
The current investigation isn’t the first time Kinas has been under the attorney general’s microscope.
In 2006, Deed and Note Traders was investigated by the office under then-Attorney General Terry Goddard in regards to the business practices of its foreclosure rescue operation, HomeSavers, which targeted homeowners at the brink of foreclosure and offered a sale-leaseback option.
The state accused Kinas and Deed and Note Traders of deceptive advertising and misrepresentation, saying the program “did not save consumers’ homes,” but rather led them to evictions and losing their homes.
Success in court
Deed and Note settled and was required to pay $234,000 in restitution to customers who were no longer living in their homes and $200,000 to the attorney general for the cost of the investigation.
Records from the Pima County Superior Court showed he was sued at least 10 times — which does not include the number of lawsuits filed by banks or loan companies in connection with bankruptcies filed by Kinas or his companies — since 1998. Earlier records were not immediately available.
Kinas and his businesses have mostly successfully defended themselves in court. Three cases filed by Southern Arizona Legal Aid are ongoing, six others were dismissed and one was ruled in favor of Kinas.
“That’s just part of doing business,” said Gibson, Kinas’ attorney. “It’s part of doing business that people in business get sued sometimes. It doesn’t mean anything.”
Kinas owns 125 properties, the attorney said, and the lawsuits have been going on for 20 years. “There’s always a lawsuit.”
But not all businesses get sued multiple times for no reason, said Evelia Martinez, project manager of Don’t Borrow Trouble, a HUD-certified counseling agency and a program of the Southwest Fair Housing Council.
“They get sued because of bad actions,” she said. “If you act badly, you’re going to get sued.”
Relying on legal victories to vindicate someone in a real estate case is problematic, she said. There isn’t always a comprehensive understanding of how the contract system adversely affects those who are vulnerable, whether that means they aren’t fluent English speakers or in dire financial trouble.
Generally, rent-to-own businesses target a clientele that would not otherwise qualify with banks to buy a home, particularly Spanish-speaking and lower-income populations, she said.
In pursuit of the dream to buy a home, people often become overly trusting. “What’s really sad is that we have these people that have lost their life savings to somebody that didn’t have their best interests in mind,” she said.
