View Full Version : Lease with Option to Purchase Home - considerations



BBatesokc
07-26-2013, 09:11 AM
Considering letting an individual do a lease option agreement on our former residence. I normally wouldn't even consider becoming a landlord to any degree (have been one in the past, just found it to be more trouble than its worth). However, this individual is in the military and their credit suffered from verifiable identity theft that is still being sorted out and I'd like them to be able to buy the home at some point if possible.

Question: Has anyone here ever entered into such an agreement and what are your thoughts on the topic?

Question: Does anyone know of a resource or a local attorney that sells such a contract that is in compliance with Oklahoma laws? Oklahoma laws do differ from some other states (based on my research) and one has to be careful in the contract wording so as to protect the landlord/seller from having to pursue foreclosure as opposed to eviction should things sore.

From my research it seems a lease with the option to buy is pretty good for a seller (depending on some variables) and could be expensive for a tenant should they be unrealistic in their ability to secure a loan in the future - with their upside being the ability to get the house they want now while they work on their credit and downpayment.

Midtowner
07-26-2013, 09:20 AM
I've seen lots of them.

BoulderSooner
07-26-2013, 10:12 AM
2 things .. 1 why can't they get a VA loan .. 2. if they don't pay rent you can go through their commander and still get your money ..

BBatesokc
07-26-2013, 10:20 AM
2 things .. 1 why can't they get a VA loan .. 2. if they don't pay rent you can go through their commander and still get your money ..

They were told they should qualify for a VA loan within about 4-9 months. The Lease Option agreement would be in place up to 36 months - but obviously the quicker they could secure a loan the better for them as their monthly costs would be less.

I've delt with base commander's for problems I had with some neighbors in the past. They were military and were renting a home by mine and had lots of really loud parties and yard parking. One call to the commander and it all stopped immediately. They even came over and apologized! This is one reason I feel better doing this with someone in the military.

redrunner
07-26-2013, 10:35 AM
Oklahoma Residential Lease Agreement with Option to Purchase (http://www.findlegalforms.com/product/oklahoma-residential-lease-agreement-with-option-to-purchase/)

BBatesokc
07-26-2013, 10:48 AM
Oklahoma Residential Lease Agreement with Option to Purchase (http://www.findlegalforms.com/product/oklahoma-residential-lease-agreement-with-option-to-purchase/)

Thanks, I found that site earlier. Problem is, they don't let you see the contract first. Unless I can see it, I'm not convinced it takes Oklahoma specific law into account. But, for $20 it may be worth a roll-of-the-dice.

I looked at a few others that do let you see the contract first and both allowed for a percentage of the rent to be applied to the downpayment - should they exercise the option to buy. Problem is, Oklahoma law says that means the renter now has equity in the property and if the agreement goes bad you have to foreclose on them as opposed to evicting them. Not a very good option IMO.

redrunner
07-26-2013, 10:56 AM
Thanks, I found that site earlier. Problem is, they don't let you see the contract first. Unless I can see it, I'm not convinced it takes Oklahoma specific law into account. But, for $20 it may be worth a roll-of-the-dice.

I looked at a few others that do let you see the contract first and both allowed for a percentage of the rent to be applied to the downpayment - should they exercise the option to buy. Problem is, Oklahoma law says that means the renter now has equity in the property and if the agreement goes bad you have to foreclose on them as opposed to evicting them. Not a very good option IMO.

I assumed it was state specific. But they do have a 100% money back guarantee. Do you plan on hiring a real estate attorney to review your contract?

BBatesokc
07-26-2013, 11:06 AM
I assumed it was state specific. But they do have a 100% money back guarantee. Do you plan on hiring a real estate attorney to review your contract?

The money back guarantee makes me feel better.

Currently trying to find a lawyer who would provide me with a tailored contract for a couple hundred bucks. This is a pretty common transaction, so I don't want to pay to re-invent the wheel. I called two lawyers (randomly) and they both wanted around $1,100 - which I think is way too high.

BBatesokc
07-26-2013, 11:14 AM
Oklahoma Residential Lease Agreement with Option to Purchase (http://www.findlegalforms.com/product/oklahoma-residential-lease-agreement-with-option-to-purchase/)

I went ahead and purchased and downloaded the contract.

Not really confident in the contract. It makes no allowances for the option of a rent 'premium' (portion of the rent to go towards the downpayment). Like I mentioned, the downside is you might have to foreclose on the tenant as opposed to evict, but it also legally allows for the landlord to keep the premium paid should the tenant not exercise a purchase.

Also, the contract by them specifically states that if the tenant is unable to secure financing that they get their option deposit back - that is insane. If the tenant wasn't risking anything then what's the upside for the landlord? I've never heard of the tenant getting their option money back if they can't get financed.

Those are the two things that jumped out at me - looking it over more.

Prefer to just pay $100-$300 to have local lawyer provide me with a PROPER form.

redrunner
07-26-2013, 11:22 AM
I went ahead and purchased and downloaded the contract.

Not really confident in the contract. It makes no allowances for the option of a rent 'premium' (portion of the rent to go towards the downpayment). Like I mentioned, the downside is you might have to foreclose on the tenant as opposed to evict, but it also legally allows for the landlord to keep the premium paid should the tenant not exercise a purchase.

Also, the contract by them specifically states that if the tenant is unable to secure financing that they get their option deposit back - that is insane. If the tenant wasn't risking anything then what's the upside for the landlord? I've never heard of the tenant getting their option money back if they can't get financed.

Those are the two things that jumped out at me - looking it over more.

Prefer to just pay $100-$300 to have local lawyer provide me with a PROPER form.

Is there supplemental or addendum space where you can specify the terms for the rent premium? The State of Oklahoma publishes residential sale and lease documents that you can download for free but there isn't a "lease with purchase option" on the site.

OKCTalker
07-26-2013, 11:28 AM
I hear people talk about "lease purchases" all the time, and no two are talking about the same thing. I don't think you'll find a "standard" agreement that does what the two parties agree to.

Attorneys all keep basic documents in their HDDs, and frankly overcharge for changing identifiers and printing a few copies. But in this case you're asking for more work, so expect to pay a little bit more. $500 is probably what my attorney would charge, so I'd try to negotiate to that level, but with a commitment to pay more if you ask for additional changes.

Dealing with active duty military is difficult because of creditor restrictions, obligations to notify, etc. Can't simply file an FED, send the sheriff and put their stuff on the lawn.

BBatesokc
07-26-2013, 11:35 AM
I hear people talk about "lease purchases" all the time, and no two are talking about the same thing. I don't think you'll find a "standard" agreement that does what the two parties agree to.

Attorneys all keep basic documents in their HDDs, and frankly overcharge for changing identifiers and printing a few copies. But in this case you're asking for more work, so expect to pay a little bit more. $500 is probably what my attorney would charge, so I'd try to negotiate to that level, but with a commitment to pay more if you ask for additional changes.

Dealing with active duty military is difficult because of creditor restrictions, obligations to notify, etc. Can't simply file an FED, send the sheriff and put their stuff on the lawn.

From my reading, what most people make the mistake in doing is a purchase contract as opposed to a lease with an option to purchase.

Midtowner
07-26-2013, 05:33 PM
What you're probably looking to do is some sort of a contract for deed or lease with an option to purchase. I've done 'em before and every one has been different. I'd stay away from buying forms online. Property law is some arcane stuff with a lot of anachronisms going back as far as the 1100s. I wouldn't chance it on a major asset like a house.

BBatesokc
08-16-2013, 07:53 AM
Just an update - Received some good advise here and even better in private messages from board members - THANKS! Finalized a deal that seemed very fair to the buyer and seller. The tenant/buyer has taken possession and we really couldn't be happier. So far it met our preferences - 1.) to not have to involve a realtor (saves lots of money and aggravation) and 2.) we got to pick who is buying the house. It was important to us to not have a 'bad' neighbor move in and be a burden on our existing neighbors that for years have helped to keep our cul-de-sac in the ghetto nice, quiet and safe.

Since several people messaged me expressing they had considered such a deal themselves but were fearful, I will give an update, when/if the house closes, on my overall thoughts of the process.