Lease Purchase Deal

[Russell Carter]

Good evening, BP Faithful. I may have a deal (my first). I spoke with a seller who has a house for sale (asking price $80,000) who is also willing to do a lease purchase (12 months at $900) per month. Out of the $900, he plans to take $180 per month and hold it in an escrow account for use toward the down payment. It should be noted that $900 is in line with rents in the area.

My plan is to tie up the property and find a tenant buyer to whom I will assign my interest. Since this will be my first deal (if the seller accepts), what are some of the potential pitfalls with my strategy as represented? And, what are some of the things I need to do on an ongoing basis to make the process successful?

[Bill Gulley]

First off, having the seller escrow payments credited toward the sale price is financing!

Dodd-Frank probably won't apply to the homeowner if they lived in that property, but it will to one running a real estate operation, you!

As John mentioned, you'll need a RMLO.

Secondly, none of the books, videos, podcasts or other materials will be going into detail of the new federal laws the SAFE Act and Dodd-Frank if they are even mentioned at all!

Your end buyer needs to simply pay an option price up front and neither you or the owner finance any part of the option price or apply rents to the sale price agreed.

Violations of federal financing laws can be $100,000.00 fine and 10 years in a federal prison, not saying that's what you would get, saying you can get it. What ever you might get it will be more serious than any state law violation.

I suggest folks not be penny wise and pounds (tons) foolish, an initial consultation with an attorney is usually free, looking at what you have in mind might be a couple hundred bucks, not having your stuff reviewed can cost you thousands and more. That goes to ANY lease-option arrangement by anyone. If I were to put out a L/O agreement, if I charged a dollar or $20,000.00, the condition to use it would be for you to have it approved by a local RE attorney.

The SAFE Act, made a part of Dodd-Frank, mentions lease-options and they are a "high-cost loan" arrangement in the eyes of a RMLO, there are requirements to follow. Reading old books will just get you in trouble. What isn't covered in these Acts mentioned may well fall into predatory dealing, there are federal and state laws dealing with predatory practices and they cut a large swath.

:)