BiggerPockets

Hi there, I recently heard from an investor that the courts are beginning to crack down significantly on Lease Option and Rent to Own programs when a "rent credit" is involved. It had something to do with the tenant now having "vested interest" or something, but this investor said that he heard tenants are actually being declared owners of the home due to this. Has anyone heard of this? I'm looking to possibly Lease Option one of my homes, and want to make sure I know what I'm doing.

That's always been a risk. The bigger the option money and rent credit, the higher the risk. I believe there are investors out there who create lease options with no expectation the T/B will ever exercise it, and they're ready to evict and keep the option money at the slightest opportunity. That creates a black mark against us all, and results in this sort of crack down.

Thanks guys. I hope to find a pretty ethical "win win" way to do a lease option, and if I ever struggle with an eviction there, hopefully it will show fairness. Any suggestions would be great!

I would imagine a "forfeiture" clause would solve this no? That is how you do it with a land contract - they (the buyer) does actually have a vested interested so you have to go through a foreclosure VS an eviction unless you have a forfeiture clause that they sign saying if they don't pay the payments they will forfeit their equitable rights

Not saying this is so - more of asking the question.

I think this is a question about whether a T/B has equitable interest or not. There are many issues a judge should look at before they declare it an installment loan. Of course the Opt. consideration, has the T/B made many costly improvements, how long have they been there etc. Use 2 contracts and never exceed three years, one should be enough. Herbster

Also, make sure the option says it is immediately cancelled if the lease is in default. The option can refer to the lease, but the lease should never refer to the option.

Even then, if you end up in front of a tenant friendly judge you might have problems, but that is a risk you take.

I know you are referring to residential and I just wanted to let you know that in Florida with commercial it is possible to lease option as long as you use separate contacts. As a matter of fact we are dong one this afternoon.

cwlsr

Hey everyone, thanks for the advice. I am finally ready to do a Rent-to-own and added another post titled "Rent to Own-Strategy in Process -Suggestions?" to detail what I plan on doing and hopefully get some suggestions from others. Take a look and give any advice you can!