Discussion Forum

Makrita
real estate investor

offering tenant/buyers Lease Option vs. Owner Financing

Friday, January 05 2007 05:40 PM

Can you go over briefly PROs and CONs of giving our tenant/buyers one of these two options? And your opinion on either.

REPLY

Marty Couch
Investor

Re:offering tenant/buyers Lease Option vs. Owner Financing

Saturday, January 06 2007 03:13 PM

Hi Makrita,

First, Jim is correct. Understand everything you can about options and lease options. They can make you alot of money.

As far as the difference between owner financing and a lease / purchase rechnique:

In a seller financed situarion, the buyer gets the deed to the house. He/she is the owner right away. You no longer own the property. You are the mortgage company. If they stoop paying here is the process...

1) You go to court and file a Complaint to foreclose. This is your statement to the court that the buyer has not paid the mortgage payments and you want to take the collateral (the home) back.

2) The buyers are (hoopefully) served with a court date. This can take up to 30 days and even longer of they have to serve through publication because they couldn't get to the buyer face to face.

3) A court date is set when you will hopefully get a judgement entitleing you to foreclose the property (it is now 60 days or so since you started and before you started the folks were at lease 30 if not 60 days behind on the payments to you).

4) At the judgement hearing, in the best case scenario you are the only one to appear and ou get a default judgement. If the other side shows and starts defending either why they haven't paid or claiming they have, this could easily lead to a continuance.

5) You get the judgement against the folks who are living for free. They have 4 months from the date of that judgement or 7 months from the date of service (Whichever is LATER) to pay you current. So, now, we add anotther 4 months at least to the 4 months without payments, so you have not gotten a dime for 8 months. Oh, by the way, you have been paying for court costs, attorney billing and process servers out f your pocket the whole time.

6) They don't pay you current before the redemption period runs out (which will probably be the case) and you set a sale date (about 30 days down the line).

7) you go to the sale. You are the high bidder (you of course bid your mortage balance and all the costs you've inccurred). You are now ready, after 9 mmonths to take the property back. But waiit...

8) You have another 30 days for the court to confirm the sale.

9) The sale is confirmed. The seriffe issues a Judicial Deed in your name. You are 10 months into this thing and the Sheriffe schedules an eviction in 4 weeks.

10) 10 months, 2 tax bills and thousands of dollars ouut of your pocket and you finally have possession of the property. Chances are it was not left in "broom swept condition". More money to rehab and time to find a new buyer.

None of the above takes into account the chapter 7 and /or 13 the bbuyers can file to stall the process, the legitimate defence they may hace if you drafted the mortgage incorrectly, etc.

In a lease option siituation:

1) You use a seperate lease and option agreement.

2) The buyers are ONLY TENANTS uuntil they can secure thier own financing down the road to buy the property (excersize the option)

3) Only after they pay you for the house do they deed on to the property.

4) If they don't pay you, you eveict them as tenants instead of foreclosing. A much faster process.

I HIGHLY recoment Jim and Randy's Options and Lease Options course as either a home study course or in person. It has great information.

Also, however you proceed make sure an attorney looks over ALL the paperwork first. If you don't have an attorney who will loook over the paperwork, definatly consider Pre-Paid legal. It will be the best few dollars a month you will spend.

Hope this helps.

Marty Couch
http://www.PPLChicago.com

REPLY

daveg
Investor/Rehabber

Re:Re:offering tenant/buyers Lease Option vs. Owner Financing

Tuesday, February 13 2007 06:45 AM

Hi, great contrast....love it.!!  Well stated.

REPLY