Lease To Own Agreements: Are They Dangerous?

With the Banks' tightening of the money, there has been a resurgence of Lease to Own Agreements lately. Although these deals are popular with both Buyers and Sellers, they are not to be taken lightly. Here's why these instruments are potentially dangerous:Danger for the Seller: If the Buyers stop making payments under a Lease to Own Agreement, the Seller can not evict them. Instead, the Seller has to institute foreclosure action, which can take many months. In essence, the Owner could potentially have tenants who don't pay rent for a very long time (foreclosure action may take over a year), without the recourse of evicting them.Danger for the Buyer: If the Seller is foreclosed on, the Tenant has very little recourse. Once the Foreclosure is implemented against the Seller, the Tenant is evicted by the Bank. The only recourse the Tenant has is to sue the Seller for the money in civil court. Good luck in recouping it! With Sellers getting 5%-10% of the sales price up front and better than market rent on these types of agreements, the amount lost by the Tenant Buyer is sizable.Land Sales Agreements (Contracts of Sale) present the same dangers. The SCAR (South Carolina Association of Realtors) does not endorse Lease To Own Agreements. What is your experience with Lease To Own Agreements? Please share!Mirela Monte, Your Myrtle Beach Real Estate Connection Proud Optimist
E-mail me when people leave their comments –

You need to be a member of REO Pro Network to add comments!

Join REO Pro Network


  • The public is only good as their word. I had two attys (husband and wife buyers) enter into such an agreement. Our client performed and the buyer did not. They however did not realize our client is a prosecuting atty. The second we just listed a property with a non performing tennant who will be sued this week. If we do not put teeth into enfrocable contracts what are we in business for. I myself enterd into such an agreement as an Army officer I performed quickly and I had my career on the line if I did not adhere to what I signed.
  • I have not seen a "real lease to purchase" agreement so far. What i have come across most of the times is
    1. Have a lease agreement- giving first right of refusal to the tenants at the end of the lease term.(I always encourage my buyers to choose this route, as there is nothing to lose and it's a great way to check out the house before buying it)
    2. Negotiate sales price at the time of the lease, put down EM (normally only $1000.0), write up a seperate sales contract and the lease agreement with a specific term after which the house needs to be closed on or the tenants lose their EM.
    3. Sign a lease agreement with a high rent, part of it going towards the downpayment of the buyers when and if they purchase the property, the other part going to owners as rent. If at the end of the term tenant closes, the amount added up is credited towards their DP and if they decide not to close, they lose the extra money they paid each month. I have had some clients choose this option who had credit issues or had foreclosures on their credit and chose this route to improve their credit.
  • On the Selling Side....we have begun asking Tenants/Buyers to sign waivers of tenancy and quit claim deeds in the event of default. The Sellers have to provide the same timeframes as a bank, but normally upon a 90 day delinquency...the Seller can record the quit claim deed or evict without recourse.

    On the Buyer side...they can request to make payments directly to the bank. If the payment is less than the rent...Buyer can break into two payments...saves them in the end. It works fairly well and opens up other options for sales....just be very careful and recommend review of attorneys on contracts.
  • Thank you Mirela, I have been in business for the last 30 years and probally have not done an option in about 20 years. I have not seen any come to a successful closing. The truth on this is that I was seriously thinking of doing this on my own home and forgot the ramifications:-( What a great reminder. Thank you.
  • I have personally been selling home for ove 20 years by using a Lease Sale Contract to purchase. I agree that they are very dangerous for both parties and are most often not allowed by the banks holding the first mortgage
  • Nice to see you Mrs. Monte.
This reply was deleted.