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Lease-Option Deals

LEASE-OPTION DEALS

First, read about seller financing in general. A lease-option or lease-purchase deal is a form of seller financing.

The wrap-around deed of trust deal is a version of seller financing. The advantage of a wrap-around deal is that actual title is transferred to the buyer. With the lease-option deal, title stays in the seller until the buyer refinances or resells or otherwise pays off the seller.

Generally, buyers can get into a wrap-around deed of trust deal if they have a larger down payment. Generally, a seller prefers to sell on a lease-option or lease-purchase basis if the buyer only has a small down payment. A good example of this is the renter who says, oh, by the way, I would like to have the option to buy this house, and who pays only a few thousand dollars in option money. Sellers generally want to see more commitment from a buyer before they part with title.

But a lease-option deal can still be good for a buyer. It may be the only way the buyer can even get close to becoming an owner.

Advice to sellers who sell on lease-option: A renter who pays extra for an option is generally a better renter. You can build into your agreement a clause that says that the renter is responsible for all repairs and maintenance because the renter intends to become the owner down the road. A seller generally wants a shorter option period, say two years, so that the seller can adjust the price upwards if the market rises. A landlord can generally get higher rent from a lease-option buyer than from a regular tenant. The seller generally will want none of the rent to apply to the purchase price.

Advice to buyers who buy on lease-option: Try to get a five-year lease-option. Whatever is wrong with your credit that prevents you from being able to get financing may take more than two years to fix. Also, try to get the seller to sign a deed and deposit into into true escrow so that the deed will be already signed and notarized when the time comes to take title.  The lease-option buyer will generally ask that a part of the rent apply towards the purchase price. The lease-option buyer is wise to have rent paid through a collection agent – who might be the true escrow holder of the deed – so that he can prove to the lender who does the refinance that he has paid all lease payments on time.

A seller can generally get a higher sale price when he sells on a lease-option basis. This is because there is a larger pool of potential buyers – those who can get financing plus those who have significant down payments and good income but who have dented credit.

Technically, a lease-option deal triggers a due-on-sale clause. However, because generally the lease-option agreement is not recorded, there is no way the lender can learn of the sale unless one of the parties to the transaction tells the lender.

If your are a buyer or seller who finds a seller or buyer who will do a lease-option deal – without the assistance of a real estate broker – contact me, and I will write up the deal and get it set up for closing. I will also set up the collection account and park a deed in true escrow.

On the other hand, sometimes the best way to find a lease-option buyer or seller is through a real estate broker.  A broker wants to be paid his commission, and if the option money is great enough to cover the commission, the commission might be paid at the start of the lease-option agreement. If the option money is small, the broker might have to wait until the buyer cashes the seller out. If the option money is in between, then part of the commission might be payable when the lease-option begins and the rest when the buyer cashes the seller out.

Whether you are working through a real estate broker or not, I am ready and willing to set up lease-option transactions.

I give initial telephone consultations to real estate agents and buyers and sellers by telephone for no charge. I can represent the buyer or the seller. If there is a real estate broker involved, I advise the broker to put together a lease-option agreement on standard forms used by the multiple listing association. Because the standard forms do not cover all issues and because brokers are not licensed to write complex addenda, the broker then brings me into the picture, and I complete the escrow setup.

All mortgages should be assumable – provide the buyer has reasonable credit – however, lenders want to make fees by forcing buyers to get new financing. But buyers and sellers can be creative and “go around” due-on-sale clauses by selling on a lease-option basis.

James Robert Deal Attorney
WSBA # 8103
425-771-1110, 888-999-2022
James at JamesDeal dot com
James-Robert-Deal-Caricature

9 Comments

  1. I wished I had your loan officer. I’ve been trying for 3 years to get help. LBPS have seem to fell asleep with my loan. I had First Horizon Mortgage they cried bailout and then I was sold to Metlife then to IBM then now to LBPS.

  2. Please contact me. I have a short amount of time to show the fraud LBPS is doing with my account. I can get into much greater detail when contacted.

    Thank you in advance,
    Wendy
    GirlRysanek@yahoo.com

  3. LBPS is a fruad!

  4. OK the document shown/final modification agreement still speaks of a trial period, from my research and understanding in dealing with LBPS myself, at the end of your “trial period” you may not qualify for the permanent modification. Does this document mean there is a trial and then definitely a permanent modification? I somehow doubt it and wonder what ever happened with this case. I find LBPS to be very underhanded and am personally not having a good experience with them. They cant tell me who holds my mortgage, other than it is a fannie mae loan. I think the government needs to pull the reins in on its handouts to these frauds and make them accountable, require them to make their paperwork accurate and legitimate first, then truly help people. Just my thoughts….

    • After you have made three payments, you get your modification. They cannot ask for more income evidence or anything else. See page 77 of the HAMP Handbook, which says:

      The trial period is three months in duration (or longer if necessary to comply with applicable
      contractual obligations) and governed by terms set forth in the TPP Notice. Borrowers who make
      all trial period payments timely and who satisfy all other trial period requirements will be offered a
      permanent modification.

      See http://jamesrobertdealattorney.com/news/hamp-handbook-3-0/

  5. My mother has LBPS and she’s been turned down twice. There is enough income and little expense since they are elderly and don’t owe anything other than a mortgage and regular monthly bills such as utilities. LBPS hasn’t even given a reason for DENIAL.

    I will be getting HOME DEFENSE LAW GROUP to help. They are a law firm in Central Florida with a good reputation and A- rating. I know of many success stories. It seems to me that if you don’t get an attorney that specializes in stopping foreclosures, the lenders just don’t want to help.

    • If you mother has a lot of equity in the property, the lender is not obligated to cooperage with a modification. A forbearance agreement (with higher payments) or a Chapter 13 is the solution.

      Odd it is, but it is true that your mother has to be two months in arrears to qualify for a modification. If she is current and if the loan is a Fannie or Freddie loan, she might be able to get a HARP refinance.

      It is important that you go to a law firm for modification because the issues are very complex. Few attorneys work across state lines. To do so we need a sponsoring attorney in your state. Land law is different in each state.

  6. I owe 290,000 on my home. We are current on the mortgage, but are struggling to make the payments. LBPS just allowed the short sale of a house exactly like mine(besides I have a pool) down the street for 140,000. They told me I needed to go throught all the paperwork to try for a loan modification, when all my neighbors have, and either were turned down, or LBPS lost paper work, and asked them to re-submit. I don’t see how that LBPS could deny that our house is not even close to value, when they allow a short sale for that amount. Could this be a pressure point to get them to modify my mortgage without all the paperwork? Seems to me that it would be in their better interest to work with me knowing that they are going to get paid, then piss me off to the point that I quit paying, and draw out the short sale process

  7. Jimmy & Wanda James
    7701 Florence Street
    Lamont, Calif 93241
    661-845-9352-ph/fax
    jjimmy6656@gmail.com

    Date: December 02 , 2012

    Account Number ( 0022739627)

    To: Homeward Residential
    Att: Corp Headquarters , CEO, BANKRUPTCY DEPT, MANAGEMENT, ATTORNEYS, INVESTORS,

    To : Wells Fargo Bank , N.A. , as Trustee for Option One Mortgage Loan Trust 2007-3
    Asset-Backed Certificates , Series 2007-3
    C/o AHMSI
    P.O Box 631730
    Irving, Texas 75063-1730
    1-877-304-3100

    Dear Homeward Residential,

    It has come to my attention that there is a program that homeward
    residential has offered to their mortgage customers a program that
    assist their customer who could not get a mortgage modification due
    to not meeting Homewards guidelines in the past on a loan modification
    so the homeowner could stay in their homes.

    I read about this program on the internet and did some research on the
    program and homneward is indeed offering the program. My past loan
    modifications have all been turned down due to american home
    mortgage stating they or the investors only allow three modifications
    in the coarse of a lifetime. Well I cannot get ahmsi or homeward or
    option one to submit on any such policy.

    We have lived at our residence for thirty five years and have raised our
    children here and at the moment raising a Cherokee Nation Adopted
    Grand-Daughter age ten.

    We have income to make our mortgage each month and we are asking
    homeward residential to please waive the three modification policy and
    work with us on the new program homeward stated in the national
    publized article in Yahoo Finance and other publcations saying and I
    Qoate ” Our Main Concern is to help Homewards Customer who in the past
    could not and did not quailfy for a modification due to guidelines due to
    making home affordable programs guidelines or for other reasons” end
    qoate.

    We are in bankruptcy chapter 13 after a year of run a round by ahmsi and
    then found out we had a sale date. We are paying on our chapter 13 and
    we dont know how long we can hold on due to the payments are double
    now due to arrears that accured due to ahmsi promises on a loan
    modificatioin and approved according to ahmsi.

    We are pleading with homeward residential on helping us out to be able
    to keep our home and continue to raise our adopted grand-daughter so
    she can stay in her school where she has just made honor role and was
    awared the certificate of ” Perfect Attendence” for not missing a single
    day from kindagarden to fifth grade. She is in the school band where she
    plays saxaphone. She is a Blue Belt in Tae Kwon Do and is headed toward
    her black belt in two years. She has won First and Second Place at the
    JK Tae Kwon Do World Champion Ship Tournament in Valencia, Calif in
    July of 2011. And recently won first place at the World National
    Championships Tornament in Los Angeles in September 2012.

    If we have to leave here it will put everything this little girl who is a
    Cherokee Indian and came from a abusive past back ground and who
    has worked so hard to get where she is today back in negitive mode
    mentally. The reason we are behind is due to my illness and at 57 years
    old it is hard to do what I used to do back before my hit and run Auto
    Accident that left me with three spinal surgeries.

    I’m doing alot better now and still have a hard time walking , bending or
    just putting on my shoes. Our Grand-Daughter is aways there for us in
    time of need and my wife who was to retire after 24 years of service
    with the county we live in this year and has medical problems of her
    own can’t now.

    If homeward forcloses on our property on December 8, 2012 due to we
    cant make our chapter 13 payment that has doubled and is taking
    every last cent we have to pay and we will also get both our old cars
    taken away and then we will have no home our transpotation. We will
    go ? We have always paid our bills and always been there for our fellow
    american. We have never ask for anything in our lives from anyone and
    it is so embarassing to have to now !

    We are on a short timeline so please can you get back to us as soon as
    posible on this matter please?

    We wait your response,
    Sincerely,
    Jimmy , Wanda , Savannah James
    Note”
    Our Chapter 13 Bankruptcy may be dismissed in December 2012 and
    this is our last hope of staying in our home. Homeward Residential
    stands to lose alot if we have to move meaning this area we live in
    this property will be distroyed by gangs in probably just a short
    while.
    PLEASE WORK WITH US ?

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