Does your son have any funds for down payment? While the seller may count his total rent, some banks may not allocate those contributions toward the minimum down payment for the loan program chosen. Example: Your son pays $700/month total rent for 12 months = $8400. The $8400 might not count toward the 10% or 20% down payment. The buyer, your son, can still deduct that $8400 from the purchase price, but the lender might still look for a down payment. This depends upon the lender and the loan program. It might not become a point, but it is worth knowing the answer to this. I have had rent options where the lender would only count $$ paid over and above the fair market rent toward the down payment.

Lenders who are asked to evaluate short sale offer want to know that the offer presented represents the highest and best price the current market can deliver. This answer is often provided by a property being marketed by a Realtor on an open market for a period of time. Compare: #1) Property never listed. Seller and buyer enter into a contract. Buyer is the current renter and occupant ?? Is this price proven by the market? #2) Property listed for sale by a Realtor, with broad internet coverage, MLS exposure, broker and public open houses. After 4 months, 1 offer is received for a buyer who has no relationship to the current owner/seller. It is an arm's length transaction. Some lenders might absorb an appraisal fee. Other lenders may not absorb this expense and evaluate the merit of a short sale offer based upon submitted offers and supporting information for those offers (comps, DOM, etc.)

Your son should evaluate the comps and determine the value of this property. The bank may or may not agree. Short sales require patience. Your son should not overpay for a property so that he can get rental payment credits toward the purchase. Example: Purchase a home for $136,000 with a $6000 credit .....or.......Purchase a similar and equivalent home for $120,000. Which is a better choice? The price a buyer pays should be supported by the market value. I have no idea what market values are for this property. These numbers are for illustrative purposes and not reflective of the values for this property or surrounding properties.

Your son can hire a buyer agent to provide him advice and relevant property and market data. An attorney will be able to review mortgage docs, review contracts, etc., but market data will be best sourced from a Realtor acting as a buyers agent.

Best of luck.

Deborah

This is not a good situation since a Notice of Delenquincy has already been filed by the sellers lender. Who can be sure that the seller will be paying the lender the mortgage payment during your sons lease so that your son does not come home one day and see an eviction notice on his door. The seller is more than likely in arrears on his payment of a pretty large amount. This amount will have to be made current so that the Bank will stop the foreclosure. I do not think it would be wise to do a lease purchase on a property that may be foreclosed upon. There are plenty of resale homes that are not in this situation that your son could arrange a lease purchase with so why try to do this on a house that is probably going back to the bank.

CJ -

If your son decides to purchase the house, the mortgage company will do an appraisal. If you are having doubts about the value, make sure any agreements, in writing, require the home to appraise for the purchase price. I would suggest having an attorney draft all of the paperwork required. Maureen made a great point about the rent payments being applied to the purchase price.

Also, the mortgage company is not in the business of selling houses. They would rather have an owner sell the house than have to foreclose. If the seller goes to his current lender with the contract to sell, present the case that he is financially unable to continue payments, they should be open to a short sale. It is in the mortgage company's best interest to get some money now than foreclose and wait it out to sell the property for a lot less later. I can't speak for the mortgage company but that has been my experience.

Talk with a real estate attorney, mortgage company and local Realtor. They can work together to resolve the issues for everyone involved. I wish you the best.

Nicole Sleeva
nsleeva@cbprefered.com

CJ if your son gets a mortgage he will need to have an appraisal done. The bank does not want to lend more to your son than it is worth either. The question is will it appraise for $143,000. Again I would suggest that an agent be involved that is knowledgeable in regards to short sales and can work with the bank on this. Of course the land lord would have to work with the agent or an agent as well on his end.

For a short sale the bank would send in an appraiser on their behalf to see what the property is actually worth. Once that is done it is usually easier to work with the bank. If your son still wants this property I would suggest that he have a conversation with the land lord and see if he is willing to work with an agent to get this issue resolved.

I hope this helps.