Lease Purchase vs. Owner Financing

[Cody Lekberg]

I'm looking to purchase a home and was planning on having the owner finance 1/2 of the purchase price. I figured that I would put 50% and then have the owner carry the remaining amount and then we would have a balloon payment after 3 years. We worked up the numbers and all seemed good. But then I found out that the 50% I was putting down wasn't enough to pay off their existing loan and leave them enough to put down on their next house. So they decided to do a lease purchase. In this scenario I would put less money down but pay more per month (to help them cover their mortgage payments and allow them to purchase their next house). That's all good to me, but it worries me to put a big chunk of money down, if their mortgage isn't paid off. Worst case scenario, they default on their mortgage (of the house I am lease purchasing) and the bank forecloses. Then I'm out of a house and a large down payment. 

I've asked several RE friends about this and no one has a great answer for me. I'll obviously run all of this through a RE attorney, but would like to have a good understanding of the ins and outs of this transaction. I want to make sure my money is safe and I'll be able to refinance out of this lease when I'm able to get a mortgage. (I'm a new Realtor so I can't get a mortgage right now).