Rent to Own Laws

Each state has its own rent-to-own laws, and these laws vary. If you are planning on purchasing property using a rent to own or a lease option, you should have an attorney who is licensed in the state where you will sign the agreement review the lease and the lease option agreement prior to you signing it.

Some tips to a successful rent-to-own transaction include the following:

  • Make sure the lease and the lease option are airtight. A real estate lawyer can draft the contract. If the seller's attorney drafts the contract, make sure your own attorney reviews it. The contract should address all potential pitfalls.
  • Because of fluctuating markets, the contract should allow you to renegotiate the purchase price. If you purchase the property for $100,000 today and it has $20,000 in equity, will it have the same or more equity when you try to refinance the property when you exercise your option? If there is no equity or you are upside down, you may not be able to finance the property. At this point, you can enter into another option or lose all of the option payments made on the contract.
  • Perform due diligence on the seller. You should do a background check on the seller to make sure he or she legitimately owns the property and that there are no court cases involving other lease option deals where the seller tried to back out of the contract.
  • Perform due diligence on the property. Have the property appraised and surveyed. Check for other encumbrances, including mortgages and liens (taxes, child support or other government liens). If you purchase the property and the seller does not extinguish the liens, you will become responsible for them.

Make sure the contract spells out all of the terms; in most cases, your only recourse is based on contract law. The lease and the lease option contracts will be used to settle any disputes. If you've got questions or concerns about any part of the contract, have changes made before you sign.

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