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lease with a option to buy

  • August 17 2009 - Torrance
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Answers (3)

I personally highly discourage people from doing a lease purchase. Here's why...

I happened to look at the list of foreclosures in Dallas County coming up on September 1st.  I saw a house on my street on it.  Turned out the house was rented, the tenant (a friend) has been paying rent $3K a month on time for 3 years.  She was supposed to buy the house by November.  A big portion was supposed to go towards her downpayment/price of the home.

Now she is out the money and has to find a new place.  This is not an isolated case either.  She has no recourse.

Thread carefully with these agreements.

Naima
  • August 18 2009
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A Real Estate Attorney should draft the paperwork, and set up an Escrow Account.
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Is it an OPTION to Buy, or is it a CONTRACT to Buy?

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What amount of the Rent, if any, is applying toward a Down Payment?

Many Renter/Buyers assume that all of the rent is applying toward a down payment,
when in fact, none of it may apply.  
It all depends on what is written in the Option Agreement, or Contract to Purchase.

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If some of the money will apply to a Down Payment,
is it being held in escrow by a third party,
to keep the Seller from just running off with it?

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Has the Buyer done a Title Search or Abstract to determine if there are existing Mortgages, Liens, or Judgments against the Property?

What is to prevent the Seller from taking out a Loan later, and damaging the Title?

What happens if the Seller loses a lawsuit and a judgment lien is placed on the house?

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How does the Buyer know that the Existing Mortgage or Mortgages are being paid?

If the house is Foreclosed on because the Seller fails to pay the Mortgage, the Renter may have no rights,
and may be put out of the house (with a few excepted states, including California)

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Is the Seller going to Finance this when the day to Buy it arrives,
or will the Buyer be getting New Third Party Financing (Bank or Credit Union Loan)?

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What about the Existing Mortgage - is there a Due on Sale Clause that might be triggered
by the Rent to Buy agreement?  

If the Present Mortgage Holder considers the Option to be a Transfer of Ownership,
it may trigger the Due on Sale Clause in the mortgage (the entire Loan Balance is accelerated and due immediately).

Likewise, if the Property Appraiser deems it to be a change of Ownership,
there may be Property Transfer Taxes or Intangible Taxes.

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About the Rental Period:

Is there a Written Lease?

What if the Buyer is late with a Payment
or otherwise violates the Lease?  
Does that terminate the Agreement, and does the Buyer lose any money they have paid in?

What if the equipment fails during the Rental Period (hot water heater burnout, AC quits, major plumbing problems)?
Who pays to fix it?  What if they don't?


Who will Insure the house?
 
Is there Tenant Insurance to cover the Renter / Buyer's personal property?

What if the house is severely damaged by a storm or fire - is there a provision for that?

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See a Real Estate Attorney before entering into such an agreement.

There are serious consequences involved.


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Best wishes,
Fred
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  • August 17 2009
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Hi Lucky - What is your question about lease with option to buy?
  • August 17 2009
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