Lease-Option, Wall Street Scam

9 Replies

@Lindsey Simpson  Some locals are already starting to tighten regulations on these. My lawyer asked me to stop doing them unless we refunded the option money if they moved. Local courts have said if one has paid more than 20% purchase price you will not be able to evict because they have a substantial equitable position and one most foreclose on them. This again is a few greedy people ruin it for everyone. Dont everyone yell at me I dont make the rules, I just follow them. 

There will always be the ability to lease a property that one does not own.  There will always be options to purchase property at a set price on or prior to a future date.  Unless combining the two in a transaction is outlawed, you just need to play by the rules.  

Read as much as your brain can absorb from @Brian Gibbons  @Bill Gulley  and keep things tidy.  

Aside from  the introduction of more tedious reform, the nonsensical greed practiced by the individual in the article is of no consequence to me.  I view the lease/option as a viable path to home ownership for someone who is currently incapable of obtaining financing for a property, but with proper 'counseling', will be able to within 3 years.  It is a potential solution for someone's problem on both ends of the transaction.  

I really don't think it's too much to ask for people to act ethically...be smart, not greedy.

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I'm definitely no Guru but the article stated that the potential buyers couldn't come up with the down payment. The ethical Option Fee of 3-3.5% of asking price is considered the down payment & with proper documentation it will be viewed as such. Also Seller Concessions of $3,500-$4,000 is also In the potential buyers favor if they reach a 2-3 yr goal of a cleaned up credit score. If the Investor wanted to go above & beyond as our Bigger Pockets Professors have taught us than a 1003 app is in order.  With this App a licensed RMLO or MLO will let the potential buyer know if this house can be attained In the 2-3 yr window the Investor has set up with the Seller.

I agree here with @Jeremy T.   There are two contracts. One is the lease agreement and the other is the option agreement. If you ever have to go to court to evict the Tenant/Buyer you evict them on the basis of the lease.  Please correct me if I am wrong.  

This is an incredibly stupid article. The title mentioned "Wall Street" but there was no reference to wall street in the article. Most Rent to own deal are done by small operators. As pointed out by the article this reference. 

This article was simply a rehash of the article linked to, and added NO additional information. The article linked to itself was not well researched and admitted that most Rent to own was done by small operators but made no effort to report on any small operators.

Another example of liberal media finding a problem where they have no idea if there actually is one.

Ned, I take it you didn't like the article. I'll take your opinion and won't spend my time going there, thanks.

Yes, "news" reporters look for topics they know nothing about, some call their local experts at universities and get opinions to fill in the print.

As to that option price; 10% is the usual tipping point for residential option prices, the IRS has disguised sale limitations, some states have adopted foreclosure requirements for equity being established under any arrangement of an installment sale.

All real estate is local, you'll end up in local courts and that is where your first issue may arise with local customs prevailing. There is no limitation as to a minimum option price, I have done many with other consideration given without money exchanged, but credited through other arrangements. The consideration for a true option must be measurable in terms of value of money paid.

Option prices are difficult to arrive at for most small investors, the value of an option is based on the estimated market price increase over the option term with lease increases discounted to present values and gets more involved under commercial property, it's not as if a reasonable option price can not be obtained.

Chris mention 3 or 3.5%, not really, but you could, the option price is not simply an arbitrary figure pulled out of the air, while it is negotiable, an option term of 5 years is obviously more valuable than one for 6 months, the market value and condition of the property is another factor as well.

There is also no minimum as to claims of equity that may be acquired by a tenant-buyer, a judge may well take into consideration a "buyer's" ability to pay an option price, regardless of the percentage of a sale price, if that amount appears to be excessive under the circumstances, for example, a buyer had $5,300.00 and the investor took $5,000.00 and basically cleaned them out, that can be an issue considered.

While a optionee does not qualify for a lump sum option price, their ability to reasonably meet the terms is critical to avoid predatory dealing. Chris mentioned the Fannie Mae 1003 loan application form, that is a start, but credit issues need deeper analysis if there are issues.

You can not require performance of any kind under an option, you can give a buyer the opportunity to attend homebuyer courses, such as the HUD program, or attend credit counseling but it can not be required under an option.

A much better tactic is to first lease a property, you can require a tenant to attend a credit class before granting an option, once completed then the option can be granted.

      Use a RMLO,  while some investors may know how to qualify someone, the seller has a vested interest in tract and you are not qualified really to advise a buyer. :)

Only thing I would add here is one investor made the mistake of using terms like down payment for the option payment and monthly payment for the monthly rent which made the tenant buyer think they were buying the property and not lease optioning it even though the paperwork said otherwise, and the court agreed and required the seller to foreclose instead of evict and recover. And it was one very long foreclosure with several more court dates.

I agree- their where a few mistakes- never use down payment- its an option

never combine lease2own payments with rent have two separate contracts.

the client re-options yearly. non refundable but if they correct their credit problems within a certain time frame- upon the option of the seller- those options moneys can be used as a deduction in the price of the home.

have them go to a credit repair specialist- either public or private to give them a 3rd party overview of what they need to do to correct their credit and get financing

Originally posted by @Ned Carey :

This is an incredibly stupid article. The title mentioned "Wall Street" but there was no reference to wall street in the article. Most Rent to own deal are done by small operators. As pointed out by the article this reference. 

This article was simply a rehash of the article linked to, and added NO additional information. The article linked to itself was not well researched and admitted that most Rent to own was done by small operators but made no effort to report on any small operators.

Another example of liberal media finding a problem where they have no idea if there actually is one.

I don't know if it's "liberal" as much as it is just pure laziness and ignorance. Regardless of political affiliation or ideals, there seems to be no end to the number of stupid lazy people out there.  I'll say that the "journalist" who wrote the article and formulated the title didn't seem to have done much research. 

I don't know of I am liberal or conservative really. I care about some things, I don't about others. I think most of us (who pay taxes) care about general injustice, and don't mind to see the government step in and set up shop to prevent these things from occurring. 

Technically "liberal" should apply to your view on the level of involvement the government has in the operations of the country. If you feel like they should mostly butt out, then you are mostly conservative. If you feel like they should mostly get involved to help "protect" people and things -- the environment, the children, the elderly, veterans, small business, etc. then you are mostly liberal.