Crucial Parts of a Rent to Own Deal

Hi Folks,
   Thanksgiving week is upon us as quickly as I think I've ever experienced it before. Does anyone else feel the same way?

   "Rent to Own Homes" are an excellent vehicle for both buyers and sellers, however, some folks throw around those 4 words in a haphazard manner with no thought behind it. When that happens, it opens the door to bad things, and some bad folks trying to profit on the backs of innocent people.

   With our 10-year anniversary celebration ongoing, by now, you should be fully convinced that we take the phrase, "Rent to Own Homes", quite seriously, and we cannot stress enough just how important it is to sort out  all of the facts and responsibilities of all parties, just as in any other business contract.

   There are certain things that the Seller/Homeowner must do, as well as certain things that the Prospective Tenant/Buyer must do, but most importantly, these things must be coordinated between both of the parties. Ignoring these things are the sure sign of legal repercussions down the road, for both parties.

   In an aptly-named article, "Questions to consider if looking to rent-to-own", Joanna Jackson, a sales manager/associate broker with Jackson Realty, wrote up a concise breakdown of these specific items.

   Basically, as you might imagine, these run the gammut between Who fixes the toilet bowl, who pays for the handyman, if needed, and plenty of "What If?" scenarios.

   Jackson list the following items the seller will need to consider; Who will tend to the property, pay for routine maintenance, and pay for major repairs? Will you be managing the property, and if not, will you hire a real estate agent (and what are the costs of those two routes)? How much does it cost to set up and manage an escrow account for the portion of rent allotted to the down payment? What if the renters bail on you? Who keeps the money in the escrow account? If the buyers change their minds, what will be required to put the property back on the market for sale?

   Jackson also lists some of the items that need to be thought out by the buyers; How much, if any, of the rent is going to the down payment? What if you change your mind (How locked in are you if you change your mind?), What will it cost you to get out of the deal, if needed?, How long will it take to accumulate enough of a down payment to help you towards qualifying for a mortgage?, Who is responsible for paying the property taxes (and other local taxes) and insurance on the property?

   These are all very open-ended questions with no Right or Wrong answer, however, there are certain local "traditions" or procedures that vary from state to state and sometimes even county to county. I fully concur with Jackson, who states that when "considering a rent-to-own deal, seek legal advice from a real estate attorney". I go one step further and suggest an attorney that is local to the property, and thus, the local laws.

   Although these above-mentioned items can seem a thorn in your side, remember one thing; these are what make a Rent to Own Deal an actual "Rent to Own Deal", vs. a shady open-ended agreement with many gray areas, which can stop you from selling your home, or, can stop you from obtaining your dream home. Nail it down the first time so everyone walks away happy!

   Have you had any good or bad experiences with a Rent to Own deal? We'd love to hear which of these suggestions came into play during the process.

   From your team at HomeRun Homes, we wish you a safe and enjoyable Thanksgiving Holiday!

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Have a Great Weekend, and Happy Rent-to-Owning !
Regards,
Rob Eisenstein
HomeRun Homes - Rent to Own Homes, since 2002
"Located at the Corner of Technology and Real Estate"
Rent to Own Homes and Real Estate Blog for HomeRun Homes: http://blogging.lease2buy.com
HomeRun Homes Websites: http://www.lease2buy.com and http://www.homerunhomes.com


TAGS: #RenttoOwn #Homes #buyer #seller #contract #homeowner #tenant #property #maintenance #repairs #escrow #rent #sale #downpayment #qualify #mortgage #propertytax #realestate #attorney

How The Heck Did I Become A Landlord?

Hi Folks,
   Hope all is well, and your Holiday spirit is brimming over the top!
   OK, I certainly agree, the title of this post may be silly, but the topic is anything but silly.

   Amy Hoak did a great job addressing the "Accidental Landlords" in her story for the WSJ. Hoak defined one such landlord as "a landlord not by choice but because of circumstances beyond control", namely, the real-estate crash, in which this particular homeowner was suddenly faced with a choice: "sell for $100,000 less than what she paid, or hold on and hope that prices recover." She chose to hold on, rent the property, and thus, became an "Accidental Landlord". The chaos that ensued was a nightmare, that was harassing neighbors, and made complaints about everything from loud music to dust on her mailbox.

   "Becoming a landlord when a property proves difficult to sell is also a gamble that housing prices will rebound fairly soon, and that the ultimate sale price will more than cover expenses incurred in the meantime.", says Hoak, but with that gamble also comes legal responsibilities, expenses, and "unforeseen headaches"

   Lisa Eckert, a property manager for Coldwell Banker Bain, in Kirkland, Wash, commented in Hoak's article that she thinks we will see "a lot more owners becoming landlords" due to the economy, and says that people are "turning to renting out as the last-ditch effort". For example, Rick Sharga, executive vice president of Santa Ana, Calif.-based Carrington Mortgage Holdings LLC, says that rents are rising and there are millions of potential home buyers who are unable to qualify for mortgages.

   If you find yourself at the threshold of becoming an "Accidental Landlord", there are some tips that were shared that can help you survive, such as high costs (such as taxes, insurance, possible homeowner association dues, maintenance, etc.). For some landlords, Hoak writes that they might be better off hiring a Property Manager. Basically, a Project Manager, who will handle the maintenance, along with collecting the rent and other related services to managing the property, all for a fee that varies regionally and locally.

   Some of the additional tips that will help both new and seasoned landlords survive, include having a strong and enforceable contract, as well as full documentation of all correspondence, expenses, etc, should they ever need paperwork to bolster the reason for an eviction.

   My favorite quote from Hoak's piece came from Jerry Arnold, who has been renting out a condo he owns in Seattle since 2009, and he said the following about renters; "Nobody treats a property like an owner".

   Mr. Arnold, you are correct. However, there is one other group of people out there that also will treat a property like an owner; tenant-buyers, who are signed on to a Rent to Own contract. Basically, why just rent out a home that you can't sell? Why not rent it out with an option to buy, or Rent to Own?

   Does that make sense? What do you think about that statement?

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Have a Great Week, and Happy Rent-to-Owning !
Regards,
Rob Eisenstein
HomeRun Homes Blog: http://blogging.lease2buy.com
HomeRun Homes Websites: http://www.lease2buy.com and http://www.homerunhomes.com

TAGS: #landlord #realestatecrash #rentproperty #risingrent #housingprices #PropertyManager #eviction #RenttoOwn #contract #renter #tenant

Real Estate Contracts from a Legal Perspective

Hi Folks,

   Friday is upon us, and most of the leaves have already fallen here in the Northeast. The trees are bare, and this can only mean one thing - bare trees. OK, so the secret is out - I'm not a comedian.

   One thing that is not a laughing matter in Real Estate are the contracts that are used for the different flavors of deals. Today, we are going to take a look at these contracts from the perspective of Rent to Own, with input from Attorneys from 3 States; Florida, Ohio, and Texas. We will preface this with the caveat that this is not legal advice, we are not attorneys, and thus the title word, "perspective", and not guidance.

   In the State of Florida, which is always a hotbed for deals, we spoke with Charles P. Castellon, an Attorney and Counselor at Law in Florida. Castellon tells us that it is important to realize that, "The applicable protections depend on whether you’re entering the deal as seller or buyer.", and he says that from the seller's side, especially in Florida, that, "it’s helpful to draft 2 separate agreements — a residential lease and option agreement.", as, "the rationale is the buyer/option holder could more easily force the owner to file a foreclosure action rather than a simple eviction if both sides of the deal are integrated in one agreement." Castellon continues to say that, "In the latter situation, a court could deem the buyer to have equitable rights giving the buyer/tenant the same rights as a mortgage borrower, thus requiring a more costly and complex foreclosure rather than a relatively simple eviction." From what I personally understand, if a rent credit is being applied to the down payment each month, the tenant is building up equity.

   Castellon says that an owner can, "write into the agreements a waiver by the buyer of any claim that the buyer may be entitled to equitable rights requiring a foreclosure case and instead agree that a breach of the lease agreement would be litigated in an eviction case only.", and that, "Buyers should seek to have a portion of all rent payments credited toward the purchase price. Building equity for the buyer and a greater stake in the rental property is beneficial for both sides, as the buyer will think more like an owner than a tenant." Additionally, he says that, "Buyers should also insist that all cost responsibilities are clearly spelled out. For example, either side can be responsible for costs such as taxes, insurance and association fees and everything is negotiable. The buyer may want to seek some kind of protection of his/her interest in the property in the event the owner fails to pay property taxes and thus risks the loss of the property to the tax collector."

   In the State of Ohio, we spoke with Troy Doucet, a foreclosure defense and consumer litigation attorney, who says that, "Ohio law requires the inclusion of about 15 different terms into any land contract in order to make it valid. Someone unfamiliar with these requirements could generate a void contract, and cost themselves statutory damages in addition to having to refund money paid." Doucet says that, "Creating a lease that provides for the ability to purchase later creates other hurdles under Ohio law, especially with regards to recording any kind of security interest in the property", and says that his recommendation is to, "always consult an attorney in drafting these types of contracts because they can be considerably problematic for the seller and buyer if not drafted correctly."

   Finally, in the State of Texas, we spoke with Attorney Patrick E. Hudson, who says that, "Rent to own laws vary from state to state", and that "In Texas, sellers used to take advantage of rent to own buyers by taking the house back when the buyer missed the first payment, even if the buyer had paid on the home for years.", but that, "the Texas legislature stepped in and put burdensome regulations on rent to own sellers.". Hudson says that the regulations, "generally provide that the buyer has to be provided notices and opportunities to cure any default before the seller can take the property back.".

   Hudson says that the state regulations are so difficult to comply with that, "many law firms advise their sellers to avoid rent to own contracts". He does, however, mention an alternative, where, "A seller can lease the property and give the renter/buyer an option to purchase the home at the end of the lease for a good price.", which, "avoids all of the hurdles of a rent to own transaction.".

   We are looking for some additional input from real estate attorneys in other states, and we welcome your comments on this post.

Have a Great Weekend, and Happy Rent-to-Owning !
HomeRun Homes Blog http://blogging.lease2buy.com
HomeRun Homes Website http://www.lease2buy.com