Rent of Lease to Own if You Can’t Sell Your House
Q: Given the state of real estate lately, are lease purchase options a good idea? We are selling our home and have been presented with this option instead of a conventional purchase. It would be drafted with the buyer being obligated to purchase and not an option to purchase.
A: From the legal perspective, sellers can consider any means to use and dispose of a home they own. Generally, however, you have two options: you can lease your home or you can sell it.
When you sell your home and you walk away from the settlement or closing table, you’re generally done with the deal and move on with your life. But in a lease, you become a landlord with certain responsibilities and headaches.
If you can’t sell your home and need to bring in income to pay for the expenses of the home, you might be left with no choice but to try to rent your home. But if you rent your home, you have to remember that the home is still yours.
You need to maintain insurance on the home. You need to make sure the home is properly taken care of and you need to make sure the tenants that you put in the home can pay the bills as they come due. You also need to make sure the tenants don’t start any remodeling or home improvements to the home unless you have knowledge of the remodeling job and home improvements they will make and they either pay for the work in advance or set the money aside with you for the work.
The last thing you need is to sign a document giving someone the right to be in your home and then the tenants don’t make the lease payments. In some parts of the country, delinquent tenants can remain in the home for many months before being evicted. If tenants have work performed on the home and fail to pay for the work, you might end up having to pay for the remodeling job or home improvements even if you didn’t want them.
If you understand those risks, then you also need to understand the reasons a buyer might want to rent a home from you rather than buy it.
Some buyers need more time to build up down payments, while other buyers have credit issues that prevent them from obtaining a mortgage now, and still others may have just started jobs and need time at their jobs before qualifying for a mortgage.
If you understand the reasons this potential buyer has for wanting to lease the home from you with the obligation to buy it in the future, you might have a better idea of the risks you are taking with this potential buyer. You might also want to pull the buyer’s credit history and score and do a background check.
Finally, if the buyer is committing to buying the home after the rental period, make sure they put down enough of a down payment to avoid having them live there a while, then stopping the rent payments and disappearing somewhere.
And, don’t forget to work with a real estate attorney to represent your interest in this transaction to protect you from possible legal problems during the course of the transaction.