Some of my blogs are written based on ideas I’ve had. And some are in direct reaction to a concern I have after an interaction with a client or customer. This is a blog from the latter option…and one I hope folks learn something for future reference.
There are several differences between the two. The biggest difference is that in rent to own the property ownership is retained by the seller until payments are complete. In owner financing…the property transfers quickly and the seller becomes the lienholder.
Some folks say…I want to retain ownership in case some thing goes wrong. But this does not outweigh the risks you are taking.
In rent to own, the seller owner not only retains ownership…but also remains responsible for the tax bill, any HOA fees, or any other property invoices. If during the process these bills are not paid it affects the seller owner and not the person purchasing the property. In owner financing, the purchaser owner is responsible for these fees and it is part of the owner financing requirements that these are paid current at all times.
Let me pause and give an example… I spoke to a customer that had a friend (husband and wife) that had gone into a rent to own deal to sell a property. After several years of payments the last payment was made. After the last payment and before a new deed was recorded, the husband passed away. Now, the husband’s children needed to sign the deed in his place. And even though the children knew the father’s intent, they would not sign the deed. Now the wife can’t sell the land, and if she can’t get the children to sign, she can’t uphold her end of the contract to transfer the owner to the person who has been making payments for years. Of course that makes for a very happy buyer who won’t own the property they have been paying on and the seller may owe a large portion of the funds received over that time back to buyer(which my quess would be that those funds were already spent). And the buyer may need to move. If the children will not sign there will likely be legal action taken and costly court costs and lots of time.
Before you say that situation would not happen to you… Keep this in mind…there are several other situations and scenarios that can cause a rent to own agreement to go bad.
Here is another scenario. A property cannot be done through owner financing if the seller has a lien on the property. However, rent to own can be done if the seller has a lien on the property. Why does this matter… You could be renting to own a property for years… And if the seller stops making the mortgage payment, and the property is foreclosed on, the person renting to own will be removed from the property and will then need to take legal action against the seller.
In owner financing the buyer OWNS the property and the seller has a lien, just like a bank. It is safer for both parties and for the seller, you just collect checks. And it is actually easier to foreclose on a property in owner financing than it is to evict a rent to owner.
There are lots of scenarios, please talk to your attorney about what legal advice they would give. I will end with this…in all my years as a Realtor I have never recommended rent to own, but I have been brought in to try and fix a rent to own gone bad on too many occasions. The opposite has not occurred.
For all you real estates needs on Chincoteague, in Trails End, or anywhere in Accomack County…call me at 757-894-1479 or 757-336-3200. Online at http://www.chincoteaguehomes.net .