Be Careful With Rent-to-Own Deals
Updated: Dec 10, 2019
I hope you all had a good week. For this newsletter, I'd like to discuss the potential pitfalls of rent-to-own deals. Not to say that this is always a bad option, but I have seen a couple disturbing cases come through my firm recently where rent-to-own deals took a turn for the worse, so I wanted to take the time to run through a few of the pitfalls.
If you are considering entering into a lease with a purchase option, please keep the following in mind:
1. Oftentimes, rent-to-own agreements require a large up-front payment so you can secure the option to purchase the property later. Remember under many of these agreements, if you end up deciding against purchasing the property, the payment will be waived.
2. Make sure to have a lawyer review your rent-to-own agreement. The agreement may contain terms that impair your legal rights and having a lawyer review the contract may save you a lot of money later.
3. Be careful before entering into rent-to-own agreements when a single, elderly individual is the sole owner of the property. If the owner of the property passes away, the heirs may not want to honor the agreement, and you could end up in a very costly court battle to enforce your rights under the agreement.
4. Make sure you know where your payments are going. You do not want to end up in a situation where the owner of the property is pocketing the rent payments and not paying the mortgage on the property. Now you have paid thousands and thousands of dollars and you end up getting forced out of the property because the bank forecloses on the defaulted mortgage.
5. Make sure to have a home inspection and appraisal on the property before entering into a rent-to-own agreement. Sometimes a property can appear to be in great shape but can have hidden problems, such as structural issues. Arranging for an inspection and appraisal may prevent you from getting yourself into a very costly situation or may provide you with confirmation that the property has good value and is in good condition.
6. Be careful with the stipulated purchase price. After you enter into the rent-to-own agreement, the value of the property could decline, even significantly in the case of an economic downturn. Most likely, the owner would refuse to change the agreed-to purchase price.
7. Make sure the agreement specifies the party responsible for maintaining the property during the term of the rent-to-purchase agreement and make sure you have a good understanding of these terms.
These are a few of the issues to be careful with if you are considering entering into a rent-to-purchase option. I would definitely consult with an attorney before entering into such an agreement. It could save you a lot of money and a lot of headaches later to make sure your interests are protected at the front end. I hope this information will be helpful.
We are archiving all of our newsletters, so if any of you would like to review any of the previous newsletters, you can read them by clicking HERE.
Thank you for reading and I hope you have a great evening.
Ryan Torrens, Consumer Litigation Attorney
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