Lease to Purchase Agreements

17 Replies

I called from a sign that said we buy your house. I was visited by a RE agent who specializes in finding buyers under a lease to purchase. He charges the buyer an upfront fee, he takes the responsibility of all maintenance on the property, the eviction if the tenant defaults and if they do not purchase the home within the 2 year agreed contract term the buyer loses the down payment and we keep the lease credit that they paid during the rental period. Can anyone share concerns, experiences and what to look out for? It sounds to good to be true.

It sounds too good to be true because it is. Run far away. @Rose Ruiz

@Rose Ruiz Sounds like a standard sandwich lease option. The agent will charge the buyer more than he's paying you both on price and payments (that's his profit). If he's reputable he will keep the buyer's upfront fee in trust to pay for any eviction or damage to the property.

Things to watch for:
1. Is the agent reputable? Does he have references for other deals like this that he's done before? Does he have the resources available to do what he says he'll do if things don't go according to plan?

2. It's possible for the buyer to trash the place and/or stop paying, and then for the agent to renege on his promise to pay for it. You can take him to court but you probably wouldn't recover enough to cover your losses. Although, to be fair, the same thing could happen if you rented the place out yourself and at least with the agent involved you have someone who can be held liable besides just the tenant.

3. It is also possible for the buyer to stop paying and then claim they have an ownership interest in the property because of that upfront fee they paid. This can cause a very messy legal situation. The only way to protect yourself is to understand the law and make sure all the paperwork is in order.

So the long and short of it is that there are risks and there are ways to minimize those risks. I've personally done a few deals like this (I was in the position the agent is in here) and they worked out just fine for everyone involved. In one case the seller made roughly $25,000 more than if they had sold the house conventionally.

But you need to fully understand what you're getting yourself into and how to protect your own interests. Don't rely on the agent to keep your interests in mind.

@Rose Ruiz

You are in florida. 

check the agent's history at the Fl Real Estate Commission.

Myself, if I were a seller of my residence, and an agent offered to find a tenant buyer, I would say,

You get me a lease purchase arrangement with a buyer, 3% down, list price at 103% of appraisal

So if your appraisal is $100K, sales price is $103K

$3000 earnest money non refundable plus 1st and last months rent, so about $5000 up front if market rent is $1000.

Term: Market rent for 12 months, extendable for 1 12 month term

Have a RMLO registered mortgage loan originator look at a 1003 app

Use a collection company for rent like www.NoteCollection.com

Use a Credit Improvement co for the tenant buyer like UpGradeMyCredit.com

I would not do a sandwich, pay the realtor 1.5% or $1500 if the Tenant Buyer is ok'ed by RMLO.


As  a Realtor, I sell Lease Purchase properties (not options).  My Lease-Purchase is a lease purchase agreement with a sale contract attached to it, drafted by an attorney.  I am outside the deal representing the seller and can bring a tenant/buyer as a dual agent.  If I manage the property it is as a property manager for the seller.  It's like anything, you need to screen who you choose to work with and their experience.

@Steve A.

Its smart in North Carolina to do a lease purchase over a lease-option as the laws protect tenant  buyers if they bring you to court for failure to payment of rent

A lease purchase is like a delayed sale and purchase agreement with the rights to occupy

If tenant purchaser fails to get a mortgage as per the agreement they're out their earnest money

@Brian Gibbons great explanation. Questions: what if @Rose Ruiz decides to move forward with the realtor and signs a lease purchase, can he turn around and (with his attorney) encumber the property or control the property via a memorandum or some type of court filing? What if the end tenant defaults and subsequently the realtor defaults Rose? I got deposit + 2 months but, in what sequence is the foreclosure process? Who foreclose who on who first? Thanks

Originally posted by @Brian G. :

@Brian Gibbons great explanation. Questions:

what if @Rose Ruiz decides to move forward with the realtor and signs a lease purchase, can he turn around and (with his attorney) encumber the property or control the property via a memorandum or some type of court filing?

I assume you're talking about sandwich lease option 

I'm not big proponents of having somebody was superior knowledge like a Realtor take over my property in a sandwich

Hire the agent only to find a tenant buyer for 3%

Have a tenant buyer put down 5% in earnest money, get 3% to the realtor

Sign a lease and a sale and purchase agreement

Have a payment from your checking account directly to the bank, using a note collection company like notecollection.com

Get the tenant buyer to enroll in some kind of credit education credit improvement like upgrademycredit.com at the tenants expense

------

 What if the end tenant defaults and subsequently the realtor defaults Rose? I got deposit + 2 months but, in what sequence is the foreclosure process? Who foreclose who on who first? Thanks

 There's been no sale so there it is no foreclosure, unless it is deemed a disguised  installment sale

Again don't allow the realtor to do a sandwich and Rose should stay in control of the property

Originally posted by @Brian G. :

@Brian Gibbons clear and to the point answer. Thanks

 Sorry Brian G, last response type was not right font

Q what if @Rose Ruiz decides to move forward with the realtor and signs a lease purchase, can he turn around and (with his attorney) encumber the property or control the property via a memorandum or some type of court filing?

A I assume you're talking about sandwich lease option

I'm not big proponent of having somebody who  was superior knowledge like a Realtor take over my property in a sandwich

Hire the agent only to find a tenant buyer for 3%, tenant buyer should have a letter from RMLO saying their ATR ability to repay has been scrutinized

Have a tenant buyer put down 5% in earnest money, get 3% to the realtor, non refundable 

Sign a lease and a sale and purchase agreement

Have a payment from lease Purchase buyers checking account directly to the bank, using a note collection company like notecollection.com

Get the tenant buyer to enroll in some kind of credit education/credit improvement like upgrademycredit.com at the tenants expense

Originally posted by @Doug Pretorius :

@Rose Ruiz Sounds like a standard sandwich lease option. The agent will charge the buyer more than he's paying you both on price and payments (that's his profit). If he's reputable he will keep the buyer's upfront fee in trust to pay for any eviction or damage to the property.

Things to watch for:
1. Is the agent reputable? Does he have references for other deals like this that he's done before? Does he have the resources available to do what he says he'll do if things don't go according to plan?

2. It's possible for the buyer to trash the place and/or stop paying, and then for the agent to renege on his promise to pay for it. You can take him to court but you probably wouldn't recover enough to cover your losses. Although, to be fair, the same thing could happen if you rented the place out yourself and at least with the agent involved you have someone who can be held liable besides just the tenant.

3. It is also possible for the buyer to stop paying and then claim they have an ownership interest in the property because of that upfront fee they paid. This can cause a very messy legal situation. The only way to protect yourself is to understand the law and make sure all the paperwork is in order.

So the long and short of it is that there are risks and there are ways to minimize those risks. I've personally done a few deals like this (I was in the position the agent is in here) and they worked out just fine for everyone involved. In one case the seller made roughly $25,000 more than if they had sold the house conventionally.

But you need to fully understand what you're getting yourself into and how to protect your own interests. Don't rely on the agent to keep your interests in mind.

#3. Same is true in Florida. One good RE attorney that teaches a lot of classes states that the party must be foreclosed on rather than evicted if they quit paying because they have an ownership interest once they pay an option fee. He strongly advises against any options but states if you do so make sure it is written outside of the lease.

John Thedford, Real Estate Agent in FL (#BK3098153)
239-200-5600

@John Thedford so then. Two separate contracts is the way to go (if you have to). One lease contract. One purchase contract. Option only on purchase contract not on lease contract? In a eviction scenario your lease contract is a must? I know no legal advice... just having a diaolgue

SORRY...I am not a lawyer...and don't want to ruin my reputation playing one on BP:)

The info I posted was from a well known RE attorney in SW Florida. He teaches around the state and has a great website for investors. Look him up, call him...whatever works for you. His website is www.evict.com.  Also, his site has a LOT of great articles, information, and forms available free of charge. If you call a different attorney you may get a totally different answer:) As with any case before a judge, rulings can vary depending upon the day, how many cases he heard before yours, and if he got laid the night before:)

John Thedford, Real Estate Agent in FL (#BK3098153)
239-200-5600

@John Thedford understood. Just recently running into these type of deals but never had to discuss with my attorney. Never had to until now. But wanted to have more content during the conversation with him. More content never hurts. 

Agreed, there are many ways to skin a cat... 

Originally posted by @Brian G. :

@John Thedford so then. Two separate contracts is the way to go (if you have to). One lease contract. One purchase contract. Option only on purchase contract not on lease contract? In a eviction scenario your lease contract is a must? I know no legal advice... just having a diaolgue

 Don't mix up a lease option w lease purchase 

Talk to an experienced eviction specialist attorney

Originally posted by @Brian Gibbons :
Originally posted by @Brian G.:

@John Thedford so then. Two separate contracts is the way to go (if you have to). One lease contract. One purchase contract. Option only on purchase contract not on lease contract? In a eviction scenario your lease contract is a must? I know no legal advice... just having a diaolgue

 Don't mix up a lease option w lease purchase 

Talk to an experienced eviction specialist attorney

Yes...two different animals.

John Thedford, Real Estate Agent in FL (#BK3098153)
239-200-5600

With a Lease Option the tenant/buyer has a choice (option) to purchase or not.  Unilateral contract

With a Lease Purchase the tenant/ buyer is obligated to buy and is in breach of the contract if they don't close the deal.  Bilateral contract

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