(MCT)—QUESTION: I am considering buying a property from a friend. I don’t have the credit score necessary to get a loan due to a recent foreclosure. The seller offered to lease the property to me with an option to buy it at the end of the lease. What do you think? Is this something I should do?
ANSWER: It depends on how much risk you can stomach. This sort of transaction is known as a “lease option” contract. Basically, the seller will lease the property to the buyer for a monthly rent that’s higher than market rent, with the extra portion going toward a deposit if the tenant exercises the option to buy within a certain time frame. But here’s the rub: This extra “option money” you pay typically isn’t refundable for any reason.
The terms of the final contract, including the purchase price, are pre-negotiated when the initial lease option contract is made. This may be an ideal solution for both you and the seller. You get to secure the house at today’s prices while your credit heals, and the seller has the property rented for a little extra money in the interim.
Of course, the danger is that when the time comes to buy, you could change your mind or be denied financing, causing you to lose your money. For many people, that’s too scary. Because this sort of deal is more complicated than the normal lease or purchase, it’s extra important that a clear contract is prepared and you fully understand your rights and responsibilities.
Gary M. Singer is a Florida attorney and board-certified as an expert in real estate law by the Florida Bar. He is the chairperson of the Real Estate Section of the Broward County Bar Association and is an adjunct professor for the Nova Southeastern University Paralegal Studies program.
©2012 Sun Sentinel (Fort Lauderdale, Fla.)
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