Are their homes to rent to buy?

Asked by Perniece, 11236 Fri Sep 25, 2009

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Ralph Windschuh’s answer
Ralph Windsc…, Agent, Hauppauge, NY
Sat Sep 26, 2009
Perneice: Fred (the other agent answering this question) has given you a lot of food for thought and he is correct. You can get scammed. However, if you're currently in a position where your credit may not be stellar or you don't have enough for a down payment, renting to buy or having the owner hold the mortgage may be a good alternative to going through the regular mortgage process. In many cases, it benefits the seller with certain tax issues and will also save you on closing costs. Agents can actually search for these situations on MLSLI. If you're looking to purchase in Queens, Brooklyn, Nassau or Suffolk Counties, please feel free to contact me.

Ralph Windschuh
Century 21 Princeton Properties
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Fred Griffin, , Tallahassee, FL
Fri Sep 25, 2009
"Rent to Buy" is a good way to get Scammed.

A Real Estate Attorney should draft the paperwork, and set up an Escrow Account if necessary.
Is it an OPTION to Buy, or is it a CONTRACT to Buy?
What amount of the Rent, if any, is applying toward a Down Payment?

Many Renter/Buyers assume that all of the rent is applying toward a down payment,
when in fact, none of it may apply.
It all depends on what is written in the Option Agreement, or Contract to Purchase.

If some of the money will apply to a Down Payment,
is it being held in escrow by a third party,
to keep the Seller from just running off with it?
Has the Buyer done a Title Search or Abstract to determine if there are existing Mortgages, Liens, or Judgments against the Property?

What is to prevent the Seller from taking out a Loan later, and damaging the Title?

What happens if the Seller loses a lawsuit and a judgment lien is placed on the house?
How does the Buyer know that the Existing Mortgage or Mortgages are being paid?

If the house is Foreclosed on because the Seller fails to pay the Mortgage, the Renter may have no rights,
and may be put out of the house (with a few excepted states, including California)
Is the Seller going to Finance this when the day to Buy it arrives,
or will the Buyer be getting New Third Party Financing (Bank or Credit Union Loan)?
What about the Existing Mortgage - is there a Due on Sale Clause that might be triggered
by the Rent to Buy agreement?

If the Present Mortgage Holder considers the Option to be a Transfer of Ownership,
it may trigger the Due on Sale Clause in the mortgage (the entire Loan Balance is accelerated and due immediately).

Likewise, if the Property Appraiser deems it to be a change of Ownership,
there may be Property Transfer Taxes or Intangible Taxes.
About the Rental Period:

Is there a Written Lease?

What if the Buyer is late with a Payment or otherwise violates the Lease?
Does that terminate the Agreement, and does the Buyer lose any money they have paid in?

What if equipment fails during the Rental Period (hot water heater burnout, AC quits, major plumbing problems)?
Who pays to fix it? What if they don't?

Who will insure the house?
Is there Tenant Insurance to cover the Renter / Buyer's personal property?

What if the house is severely damaged by a storm or fire - is there a provision for that?

See a Real Estate Attorney before entering into such an agreement.

There are serious consequences involved.

Best wishes,
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