Lease to Own - is it an Option to Foreclosure?

Thu, Apr 1, 2010


Recently I got a question, via email, asking if “lease to own” was emerging as an option to a foreclosure. I asked our experts to weigh-in. Here’s what they had to say:

Yes it is an emerging alternate strategy. Read the fine print very carefully. The most important thing for the prospective lessee/buyer is that the lease payments be close to what the future mortgage payment wd be, including PITI, and that the language around what happened to their deposit is clear and unambiguous. Is it non-refundable? If not, under what circumstances do they get it back, and how much of it do they get back?

What’s the lease term? 3 yrs? 5 years? What will be the future sales price? Interest rate? What

-–Sheri Powers, JD, MA, Homeownership Center Director, The Unity Council

A lease with an option to purchase real property is not a novel concept. But you need to review the terms of the option carefully and make sure you are dealing with a reputable seller. We have received a complaint at the District Attorney’s Office in which the consumer entered into a
lease with an option to purchase the property at a future date but after making several monthly payments the consumer discovered that the property was in foreclosure as the owner to whom he or she was making the payments was not paying the mortgage on the property.

- Duane Shewaga, Paralegal, Real Estate Fraud Unit, Office of the District Attorney, County of Santa Clara

Yes it is an emerging trend and there are different variations. One program is the Fannie Mae deed-for-lease program where the lender becomes the owner and leases the property back to family who was facing foreclosure. This would normally follow a deed-in-lieu of foreclosure agreement. The lender keeps their property occupied and receives rental income and the family does not need to secure new housing and can usually make more affordable payments.
- Michael Nord, CCCSSF

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