I have noticed a recent rise in the number of buyers who ask me about the possibility of a lease purchase. Usually people who are not quite ready to commit to a purchase due to bad credit or lack of funds.
The truth of the matter is that there is an unmanageable level of risk involved with entering into a lease purchase contract.
While the specifics of every lease purchase may differ, the concept remains the same; the buyer/lessee moves into the property while the seller/lessor continues to "own" the property. Rent is paid monthly and normally a designated portion of that rent is set aside toward the purchase. The contract includes a date on which the renter/lessee will complete the purchase, usually one year or the end of the lease term. This type of contract is really a hybrid of an Agreement to Purchase and a Lease Agreement. In Pennsylvania there is no approved form by the Association or Realtors for such a transaction. In my opinion, creating a Lease-Purchase agreement is really beyond the scope of what any licensed real estate agent is qualified to do and I always recommend that the client consult with an attorney.
Maybe so far this doesn't sound too bad..........but what if during your occupancy of the property the seller has stopped paying their mortgage, what if that seller is in serious default and the property is headed for foreclosure or sheriff sale? What if all of this is happening and you are completely unaware of the situation and continue to hand over a rent check month after month, a rent check that is not paying the mortgage or taxes on the home which you are living in and preparing to purchase.
In an effort to try and offer some degree of protection, the attorney who drafts the contract will include wording stating that the seller must immediately make you aware of pending legal action on the property, etc. However, is this really protection? Lets face it, if a home owner is not paying his mortgage he most likely has huge financial problems. You will probably not learn of any problems until the sheriff slaps a notice on the door! You can always hire an attorney and file suit against the home owner, but the likelihood of recouping any of your money is slim.
The truth of the matter is that there is an unmanageable level of risk involved with entering into a lease purchase contract.
While the specifics of every lease purchase may differ, the concept remains the same; the buyer/lessee moves into the property while the seller/lessor continues to "own" the property. Rent is paid monthly and normally a designated portion of that rent is set aside toward the purchase. The contract includes a date on which the renter/lessee will complete the purchase, usually one year or the end of the lease term. This type of contract is really a hybrid of an Agreement to Purchase and a Lease Agreement. In Pennsylvania there is no approved form by the Association or Realtors for such a transaction. In my opinion, creating a Lease-Purchase agreement is really beyond the scope of what any licensed real estate agent is qualified to do and I always recommend that the client consult with an attorney.
Maybe so far this doesn't sound too bad..........but what if during your occupancy of the property the seller has stopped paying their mortgage, what if that seller is in serious default and the property is headed for foreclosure or sheriff sale? What if all of this is happening and you are completely unaware of the situation and continue to hand over a rent check month after month, a rent check that is not paying the mortgage or taxes on the home which you are living in and preparing to purchase.
In an effort to try and offer some degree of protection, the attorney who drafts the contract will include wording stating that the seller must immediately make you aware of pending legal action on the property, etc. However, is this really protection? Lets face it, if a home owner is not paying his mortgage he most likely has huge financial problems. You will probably not learn of any problems until the sheriff slaps a notice on the door! You can always hire an attorney and file suit against the home owner, but the likelihood of recouping any of your money is slim.
When it comes to a lease purchase proceed with CAUTION, especially in the current economic climate where so many home owners are headed into foreclosure everyday due to job loss and loans that they just cannot afford.
You are better off working hard to save and spending your money on cleaning up your credit!
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