La Jolla, CA · Member since 2017 · 96 posts · 11 votes
Can someone explain exactly how rent-to-own work? Is there a notorized promissory note? Does the seller/owner set up the documents through a lawyer and is it like seller financing but first one must rent for a certain amount of time? I assume the owner sets up the rate, payment agreement for the buyer? What happens if a buyer stops paying after a certain amount of time and defaults? I mean is the only trust between buyer and seller to release the property is a written paper document? The seller can anytime rip the paper up and say there was never a deal, and claim it wall all just rent, then the buyer making payments will be screwed?
Rent to own is a lease with an option to buy at a later date, usually 2-3 years. It is not ownership. There is no financing involved. You are renting the property until you either exercise the option or move out. Essentially, you're just locking in the purchase price with the option nonrefundable option money payment.
Seller financing is a completely different topic. In that case, the lawyer draws up a promissory note for buyer and seller to sign. The seller can foreclose on the property if the note is in default. The note is a legally binding financial instrument that is registered with the county clerk's office as a lien against the house.