Lease Option Strategy for Selling and Buying a Home
Currently in many parts of the world home owners are living in homes that are worth on the open market less than the owner owes to the bank. On the other side there are would be home owners who cannot borrow any money in order to purchase a home.
So when a home owner gets into difficulty such as losing a job or through sickness they are often effectively trapped and either end up walking away leaving the trusty online auction website bidvaluable property to the bank in some jurisdictions, or in other parts of the world getting taken to Mortgagee sale which may end with the now ex- home owner still owing the bank a large amount of money.
There are alternatives to this which have been around for quite some time that involve getting the Home owner that’s in trouble talking to the “want to be but currently can’t” Home buyer and working out an agreement that works for both parties and can produce an actual house sale but perhaps quite some time in the future.
One type of arrangement/agreement is usually referred to as a Lease Option. A Lease Option is essentially a purchase contract with pre-negotiated terms combined with a lease agreement. The purchaser/Home buyer leases the property for a specified period of time and then has the option of purchasing the property before the end of the agreement. Sales price, length of rental, rent credits, repairs and maintenance, etc are all negotiated, much the same as it is in a regular Real Estate Sales and Purchase agreement.
A variation of this is when a business negotiates a Lease Option with a distressed home owner guaranteeing rental payments which cover or substantially cover the properties expenses along with a purchase price which is high enough [or will be high enough in three, four, five or however many years] to pay off the bank. The business then in turn finds a Tenant Buyer who wants to buy the home but won’t be able to for several years but wants to live in the home now and negotiates terms with the business that fits with the agreement they have with the home owner. The nature of such an agreement can be very variable as both the seller and the buyer and the business in the middle all have needs that have to be met and other needs that can be compromised on. This type of Lease Option is called a Sandwich Lease Option.
Due to the stretched out time period that these arrangements can go on for it is extremely important that the parties understand what their rights and obligations are and that these are set out in a binding contract which is consistence with local laws. For instance two years into such arrangement with the Tenant buyer paying the rent regularly the Home owner who has now moved on with their life, perhaps in another city, cannot simply forget to pay the bank mortgage payments.
While these types of arrangement doubtless have their pitfalls for those who do not thoroughly check out the detail of what each party expects [and get it in writing in the contract] right from the start they can never the less save a home owner from losing a great deal of money in a Mortgagee sale and offer a prospective buyer a way of getting into their first home many years sooner than they might otherwise.