1. How is it possible for me to lease with a option to repurchase my home after it has been foreclosed?

Homeowners in Michigan may sell after foreclosure with proceeds first paying off the amount of the foreclosure sale. It is important to remember that ownership is not transferred from the home owner until the end of the redemption period. It doesn’t matter if a third party purchased the home at the sheriff’s sale or if the home sold for less than the amount owed on it. The home belongs to the homeowner until the redemption period expires.

We may be willing to purchase the property from you, including your redemption rights and redeeming (paying off) your foreclosure. Once this process is complete, we will have clear title. We then can offer you a lease with option to repurchase the property back.

2. Who pays for maintenance, property taxes, and homeowner’s insurance?

Ordinarily, your landlord/seller will pay for the property tax fees and homeowner’s insurance. This is because since he or she is still the legal home owner and is ultimately responsible for the property. For a renter/tenant in a lease option contract, this is an advantage for you. Without these liabilities, you will have more time to equip yourself financially. Essentially, it is crucial to understand who is responsible for paying the various types of costs. Your rent to own contract should clearly state how much time you should fix a repair. It should also tell you what kinds of modifications you may make to the home. You and the landlord may negotiate the terms of the contact, however don’t hesitate to consult a real estate attorney if you are unsure if the terms lie in your best interests.

 

3. What is my monthly base rent and rent premium going towards?

 

Your monthly base rent is equivalent to the fair market rent, which is different from your rent premium. Your rent premium is simply the extra amount you pay per month in addition to your base rent, which may or may not be credited back to you if you decide to purchase the home at the end of the lease. This can be negotiated.

 

 

4. Is the purchase price determined in the rent to own contract?

In most rent to own contracts, the purchase price is an estimate of the home’s fair market value at lease-end, and is agreed upon in the contract. Similar to the rent price, the purchase price is determined before the lease begins and remains the same, regardless of whether the fair market value fluctuates or not. The purchase price does not lean in favor of either the seller or the tenant, since nobody knows for sure what the future fair market value will be.

At the end of the lease, if the actual fair market value exceeds the estimated fair market value, the buyer will benefit since they will be paying less for the house than they normally would. On the contrary, if the actual fair market value falls below the estimated fair market value, the seller will benefit since they will be receiving more for the home than they otherwise would.

 

5. Under what conditions could the contract become void?

 

The landlord in a rent to own contract has the right to void the tenant’s contract if he or she violates lease responsibilities. Tenants can violate their lease in many ways. For example: keeping animals in the home if the lease is not pet friendly, housing unwarranted people, participating in crime, and anything else specifically prohibited in the contract. Tenants may also be at risk of violating their lease if they make late rent payments or do not make necessary repairs, depending on the contract.

Despite the many risks associated with a rent to own contract becoming void, remember that this may only happen if the tenant fails to meet his or her obligations. Everything the landlord expects of the you should be clearly stated in the contract; thus, it is imperative to review your contract’s terms before signing anything.  If you consistently meet the expectations of your lease, your landlord will likely not have the means to void your contract.

 

6. Will the seller serve as a lender, or will you need a mortgage before the contract expires?

 

Normally, the seller will not serve as a mortgage lender. Seller lending is more common in contract for deed sales rather than lease options. Instead, the buyer will have to find their own financing for a mortgage. Time frames vary between sellers, but generally the mortgage must be obtained no later than one month after the buyer has made their decision.

It is recommended that you seek advice from a mortgage broker prior to even entering a lease option. He or she will be able to gauge whether or not you will be able to qualify for a loan within the lease period. Although their predictions may not be 100% accurate, they can still provide you with valuable guidance. Lease with options can be highly effective, if done correctly.

 

Basics of a Lease Option

  • The buyer and seller may agree to a purchase price now or the buyer may agree to pay market value at the time the option is exercised. It is negotiable. However, most buyers want to lock in the future purchase price upon inception of the lease option.
  • During the term of the lease option, the buyer agrees to lease the property from the seller for a predetermined rental amount.
  • The term of the lease option agreement is negotiable, but the common length is generally from one year to five years.
  • The option money generally does not apply toward the down payment.
  • A portion of the monthly rental payment typically applies toward the purchase price. However, this is negotiable.
  • Option money is rarely refundable.
  • Nobody else can buy the property during the lease option period.
  • The buyer generally cannot assign the lease option without the seller's approval.
  • If the buyer does not exercise the lease option and purchases the property at the end of the lease option, the option expires.
  • The buyer is not obligated to buy the property.

 

 

 

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