A couple of years ago, my husband was transferred to another city, so we leased out our home with a purchase
option. (The tenants had a poor credit rating.) Now, however, we want to get out from under the home and sell
it. What should we do?
The answer lies in the details of your signed lease-option arrangement.
For those not familiar with such deals, a lease-option renter will typically pay an extra deposit
plus additional monthly rent for a set period, usually from one to three years, to amass the equivalent of a down
The tenants' goal at the end of lease-option is usually to straighten out their credit enough to
qualify for a mortgage to complete the purchase of the home at the set price that you and the renter initially
agreed upon. Such deals are more popular in a challenging real estate market such as this because they expand the
universe of potential buyers.
Typically, the additional monies paid by the lessees are not refundable if tenants fail to make
But realize there could be serious
complications to breaking a lease-option before
the tenant's option term expires. If the renters/buyers
had the foresight to file a Memorandum of Agreement
with the county clerk, indicating the tenants
have an interest in the property, it may place
a cloud -- though not a lien -- on your home's
title. Further down the line, a prospective buyer
may see this notation and demand the matter be
resolved before moving forward with a sale.
Some lease-option tenants will fight eviction and claim in court they have an "equitable interest"
in the property. The more "equity" the tenant has amassed, the more likely it is a judge will rule the arrangement
an equitable mortgage, forcing you to go the foreclosure route. In some cases, the IRS has identified lease-option
payments as installment-sale payments and made the original owner pay tax and penalties on them.
You didn't say whether the renters/buyers
have lived up to their end of the agreement. If
the tenant has stopped paying rent but the total
option money you received thus far exceeds 5 percent
of the agreed-upon purchase price, you may indeed
be required to go through the foreclosure process.
What's more, there are scammers out there operating under the tutelage of so-called real estate gurus
whose sole intent is to evict lease-option tenants at the end of the lease period with no benefits whatsoever derived
from the extra upfront money and rent premiums they paid. You don't want to get lumped into this category in court.
There may be additional local nuances governing the tenant-landlord relationship to which you've not
been made privy. Hence, you'll probably need a real estate lawyer or other qualified professional to help you.
First, however, you may want to
have a talk with your tenants about their intent
to go forward with the purchase -- without tipping
them off to your own plan to sell the place out
from under them, of course.
Often, the cash-poor or damaged-credit position that tenants were in when they entered the lease-option
has not improved a couple years later. In the end, in fact, fewer than a third of lessees in such deals are able to
exercise their options. So it may be a moot point.