Harder to evict rent to own tenants ?

8 Replies

I was taking with a lawyer about getting documents made for rent to own property. He pointed out something that was a concern for me. My original impression of rent to own was that it’s the same as regular rental, but with a buy date and additional funds being given as option fee. What he mentioned was that if I attempt to evict on a rent to own contract, it’s a different process and would take much longer. He mentioned if it’s regular rental, about 2 months for eviction in nj, give more take some factors; while rent to own could be up to 6 months or more. Did anyone aware of this risk, if so how do you mitigate the risk?

The best approach is to have two separate contracts. One is a lease agreement to rent the property the second is the agreement to purchase. In most cases this will simplify the eviction process.

@Darshan Patel I think in some states you have to do a drawn out foreclosure if the tenant buyer goes into default but I could be wrong . Rent to own was a good strategy till 2014 when Dodd frank changed the game and considered it a predatory lending practice . There’s many legal reasons these days to avoid doing this . You can’t even offer rent credits or require the tenant buyer to do maintenance on their property anymore

Even if you have 2 seperate documents for rental and for option, if you try to evict and the tenant/buyer brings that option document to court. It is likely the the Magistrate will rule that the temant has equity due to the option money he paid and will require you to foreclose. So make sure your option money is enough to pay for a foreclosure in case you are forced down that path.

Now if the tenant leaves willingly or you do a cash for keys instead of an eviction then you can avoid a possible foreclosure.

As @Dennis M. said, Dodd Frank has made it more difficult. Lease options or rent to own are known as executory contracts which mean the transaction is to be completed at a later date. As opposed to buying a house, as soon as you sign (or shortly thereafter) you own the property and the transaction is complete. Dodd Frank made and executory contract more than 180 days subject to a lot more regulation and disclosures. It is still possible but the amount of red tape you the lender/seller have to go through usually makes it cost prohibitive unless you are a big time player. On top of Dodd Frank, each state can make even stricter regulations that may apply in NJ that don't in other parts of the US. 

@Peter M.

Texas law is what defines Rent to Own contracts of more than 180 days Ececutory contracts not Dodd Frank. DF deals more with the need to have an RLMO, the need to qualify the buyer and dealing with balloon payments

Most states allow Rent to Own and Contract for Deed without the additional restrictions found in Texas

The two separate docs are a rental contract and a sales contract.  The sales contract refers to the rental contract as a term of purchase.  The rental contract makes no mention of a sale.

I have used these for years and have been in court with no problem.