Profile picture for bettyfryman

if we use a lawyer, are we any safer getting a home offering owner carry rather than rent to own?

We are located in the Denver metro area and our current lease is expiring in January. We are so tired of moving but our bankruptcy was just discharged in 7/2013. We have lost thousands of dollars trying rent to owns that the owners defaulted on and several rentals we were in that the owners let go into foreclosure forcing us to move several times a year. We are looking for a ranch style home that will be our forever home but we need a hand up with creative financing a a reputable broker to help!
  • August 02 2013 - Parker
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Profile picture for SoCal Engr
He however, is a much safer bet for you because he owns all of his properties outright.  So, there would be 0% chance of him losing it to a bank.

Does any agreement include a clause prohibiting the current owner from taking any future loan(s) against the property? If the current owner gets in financial trouble with other investments, is there anything preventing creditors from coming after this property?

Personally, the "0% chance of him losing it to a bank" sounds like wishful thinking...even if it might be almost-true.

As for having already lost thousands on prior failed rent-to-owns...
 
"The definition of insanity is repeating the same thing over and over, and expecting different results."
  • August 02 2013
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Find a rental that the owner would like to sell in a few years and just rent it. 
  • October 31 2013
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The best way to prevent this from happening again is to find a seller who is willing to:

1. Deed you the property subject to the existing mortgage, and

2. You make the payments directly to the lender.

Before I blink someone else will say, "Yeah, but the lender may call the loan due because of the 'due on sale' clause".  Possibly, but not likely. As you've seen, the likelihood of the seller defaulting is MUCH more of a risk, so given the two choices I'd take my chances with the subject-to purchase.

Look for someone who is 2-3 payments behind and is probably going to walk anyway.  Have him deed you the property for a few bucks, then you make up (cure) the back payments.  You can be assured that once you cure the loan, the lender will accept your payments!

And, your first premise, "use a lawyer" is the best one because few brokers in Denver Metro will know how to do this and they can't draft the contract anyway - it requires a lawyer.
  • September 21 2013
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Rent to own and Seller Carryback are two completely different things.

With a rent to wn you are renting the property and typically paying an additional amount which will be applied to your purchase at some future time when you finally execute a purchase agreement.  The owner retains all property and ownership rights until the purchase actually occurs. Rent to own seldom works and usually ends up just costing the renter more than they would have paid if they had only rented.

A Seller Carryback is a sale of the property with the seller extending a mortgage or deed of trust to the purchaser at the time of purchase.  A deed is executed and the buyer obtains ownership rights with the seller having lien until the loan is paid off. Generally the terms of the loan are higher than commercial mortgages but otherwise very similar.  Seller Carrybacks are regulated by the Dowd-Frank Act just as mortgages.  If you default on the seller carryback the seller must foreclose just like a bank would.

Seller Carrybacks if structed properly will be much safer than a rent to own deal.

To answer your original question, YES, a lawyer should be ale to help you structure a seller carryback that has terms that protect you such as the amoritization schedule, interest rates, due dates, grace periods, redemption periods for late payments, etc.
  • August 02 2013
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Profile picture for SoCal Engr
Thanks for taking the comments in the spirit they were intended. I am not a RE pro, but just another consumer who's seen too many people make too many mistakes.

In my personal opinion, "creative financing" is not a good idea for personal finances. In the run-up to the bubble, and the prior run-up to the bubble, and the one prior to that, there were a lot of "creative financing" ideas. And, they seemed to work.

But, all they really do is defer the day of reckoning. In the run-ups, they worked because people could dump the properties, for more than they paid, if they ran into problems. But, that assumes there's a bull market to sell into. Remove that safety net, and bad things happen.

Best of luck.
  • August 02 2013
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Profile picture for bettyfryman
Thank you all for your honesty and your advice. As far as making the same mistakes over and over...It's probably true. It's hard to get ahead but thanks.
  • August 02 2013
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Thank you for sharing, user. Rent-to-owns are stupid for the renter/buyer, and aren't necessarily a good deal for a seller. 

While an attorney can only help you draw up a good contract; they can't make the seller perform.

My tip is: wait for your credit to rehab, rent something modest until then, so that when your credit has healed, you're ready to buy something of YOUR choosing, not picking from the bone pile.

All the best,

  • August 02 2013
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Profile picture for davidhawke
I can put you in contact with a very reputable investor who does rent to own, seller financing.  He however, is a much safer bet for you because he owns all of his properties outright.  So, there would be 0% chance of him losing it to a bank.  Contact me through Zillow, if you want his info.
  • August 02 2013
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Profile picture for wetdawgs
Probably not. 

Why focus on rent to own homes?   You've already proven what an incredible amount of money can be lost going that approach.   Why not spend a couple of years in a regular rental and then identify your dream home.

  • August 02 2013
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