If you are going to consider owner financing or a lease to purchase option you must contact a Real Estate Attorney to represent you and make sure that you are protected.
There are no protections from the acts of the seller that jeopardize ownership. For example, judgments filed against the seller, bankruptcy of the seller, or the death of the seller may result in all of the buyerâ€™s rights being cut off with no legal recourse against the seller.
The buyer loses all payments made to the seller if: (1) the seller cancels the lease due to the buyerâ€™s failure to pay a monthly payment or maintain insurance on the property or (2) the buyer fails to exercise the option to purchase when the time comes.
Often when a buyer enters into a lease-purchase agreement with a seller, there is already an existing mortgage on the property. If so, the mortgage, through the due-on-sale clause, may actually prohibit
the owner from entering into a lease-purchase agreement. If the owner knowingly or unknowingly ignores this clause and enters into a lease-purchase agreement, the ownerâ€™s lender may very well have the right to demand the entire amount of the loan. Unless the buyer or seller has the ability to immediately pay off the underlying loan, all of the buyerâ€™s interests will end through the operation of the due-on-sale clause.
An unscrupulous seller may borrow money against the house, creating an additional mortgage. The new buyer or lender in that case may cut off all of the original buyerâ€™s rights.
There are many risks involved with seller financing and the best way to protect yourself is to hire an attorney.