Tenant Wants to Rent to Own (tenants, foreclose, 9%, agent)
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This idea is just fraught with peril. I am also curious as to why these people can't just take out a mortgage and buy it from you.
I can't recall the details but a while back I heard about some scheme where people would end up with houses for an incredibly cheap amount, but the first thing you had to do was find someone who was willing to sell you the property on a rent to own basis, and I thought, "Who on earth would agree to do that?"
Real estate transactions can be incredibly complex, and oddly enough, some of the easiest and most straightforward transactions do involve regular mortgages, because those are standardized and have lots of federal and state regulatory protections for both buyers and sellers. When people start doing their own real estate transactions -- well, those are the cases we read about in law textbooks.
At the very least you need not just any old real estate attorney but an attorney who has a very sophisticated understanding of real estate law in your area. So many things can go wrong -- not just immediately, but 5 or 10 or 15 years down the line.
I would highly suggest you just sell them the house and be done with it. You could sell it to them for a good (but fair) price, given that you wouldn't have to pay real estate commissions, possibly inspections -- sell them the house As Is, since they actually probably know the condition of the house better than you do. (And if they can't get a mortgage due to bad credit or something, well, that's a red flag that you probably don't want to be involved in a long term financial arrangement with them, either.)
There is a high likelyhood you are going to repossess the house. Make sure your attorney explains how that works for you. I know someone who did this twice on the same house and finally sold it later. He made out very well.
I could see them taking over the taxes, not paying, and then the house gets foreclosed for a tax lien. Just sell the house to them, or someone else. There are first time buyer, and other, programs through FannieMae, and USDA, and other sources for little (3%) to nothing down that they might qualify for. If the capital gains are huge, you could sell it and roll it over with a 1031 to a more local property to avoid taxes for the time being. If they can't qualify for a mortgage due to low income or bad credit, why would you want to be involved in a contract with them that they will probably bail out of? Think about one of them losing their job and being unable to make their payments....would you want to have to go through whatever mess an eviction might be when they're in the middle of purchasing it?? I can't even imagine.
The recommendation to just sell it outright is a good one.
Unfortunately, the rent-to-own folks often don't have the down payment and/or the credit scores to qualify for a mortgage.
Which means the OP is likely to have problems.
Brother did this. The "buyers" got behind on the payments, complained there was a water issue, ... by the time he finally was able to evict them, they had removed everything from the house, even the water heater and the wood stove, and had cut down all the trees on the property.
In addition to costing a boatload to get the place fixed up and landscaped, he had to pay back taxes as well.
While it works out well for some folks, I would be inclined to leave the banking to the banks.
Regardless, it would be a rare situation for me to agree to carry the paper--- I would only do it for one of my kids, but otherwise they can use a bank & get traditional financing. There is too much risk & liability involved for my comfort level.
Normally you would get a fairly large sum down, and then a portion of the rent pmt goes towards the purchase price. Whatever you do, do NOT let them be responsible for paying taxes, ins, or any liens on property.
You need to tell them to obtain a loan. There are hard money lenders that will finance them if they have bad credit.
And whatever you decide, hire a real estate atty to go over documents.
This is an instance where long spelled out legal contracts make for short litigation when problems arise..get an attorney
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