lease-option a power of sale house

[Matt Geerts]

Does this work?

Find a vacant house and contact owners.

They've been kicked out by the bank under power of sale.

I feel that the house is worth 150k as-is, 10k in updates (not big repairs) could make it fit into the 190k market comparables.

Owners owe 110 on mortgage and 15k in recovery costs, 3 years left in term.

I write up a lease-option contract with the owners where I pay them a 15k down payment (to knock off the recovery costs) and "rent" the house from them for the costs of the mortgage plus taxes, taking responsibility for the utilities (effectively $0 cash flow for them). I will pay the remainder of their mortgage at the end of the 3-year term.

I then rent out the property at a profit, and when it comes time to buy the house I pony up whatever's missing from a 20% down payment, then immediately call up a bank to get a refinance, which takes my money out of it.

I've totally made up these numbers so please don't waste your time analyzing the math. I'm just wondering if this concept is workable or if there are blocks in the banking system from this type of deal. 

Can the previous owner lease-option without triggering due on sale? 

Can they simply pay back the back-payments and carry on with their 3-year term without resistance from the bank?

[Steve Vaughan]

Sounds like a lot of risk just for the option to buy.  I wouldn't do something like this without owning.  Sandwich leases carry TB non-payment and management risk as well.

When you 'call up the bank', it will be for a purchase, not refi.  Have to own it first to refi.  Maybe I misunderstood?

Keep those creative juices flowing though @Matt Geerts.  Lease options work great for pretty houses with low equity where the owners are current but  have an immediate pain point.  Cheers!