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Rent-to-Own Homes: A Prospective Homeowner's Dream or Nightmare?

At first glance, renting-to-own a home seems like a dream come true for many Americans who wish to own their own home but who lack the necessary credit or money to qualify for a mortgage. Generally, these contracts call for the resident to make monthly payments to the seller. Once the last payment is made, the seller provides the buyer with legal title to the home. A rent-to-own home contract may seem like a good idea, but purchasers often lose thousands of dollars in these deals and wind up without the home. The sad reality is that few of these agreements end in actual purchases because of the many dangers that come with entering this kind of a contract.

Rent-to-own contracts blur the line between what it means to be a homeowner and a renter. Often times, the contracts will give residents less rights than a traditional home purchase, meaning you only have the rights of a renter until all payments are made and all requirements of the contract are met. Some contracts say “Rent-to-Own” at the top of the contract but do not have a clause in the contract that grants you ownership rights. You could also wind up with a seller who has no intention of letting you own the home and will refuse to sign over title, even if the contract says you can get title and you make all your payments. While all of these issues may be resolved through a lawsuit, it’s best not to take any chances that could lead to lengthy and expensive litigation.

The true nightmare comes with a rent-to-own agreement containing a “default” provision. These provisions allow a seller to evict a resident for breaking any terms of the contract at anytime. If this happens, the resident could forfeit every payment made up until that point and walk away with nothing.

We strongly advise people to not rent-to-own a home. However, if you do decide to sign off on one of these contracts, make sure that:

The contract says what it is you’re actually purchasing - Are you purchasing the home? Are you purchasing the land and home? Are you purchasing the home and renting the land? Are you purchasing the land and renting the home? What portion of the land are you purchasing? Make sure that what you are wanting to purchase is IN WRITING!

You check the court records to see if the seller actually owns the property – The best way to check the land is to have a title company run a search, but you do have the option of checking the records with your local circuit clerk. If a mobile home is involved, ask to see the seller’s title to the property.

You can get out of the contract – If the seller can get out of the contract before all payments are made, you should be able to, as well. Make sure that if you want to leave the home, you’re not required to pay the remainder of the payments.

There is a requirement that the seller transfers the title to ALL property listed in the contract after you’ve made all your payments - Remember – title to a mobile home cannot be passed on with a deed.

You record the contract – File a copy of the contract with your local circuit clerk. MAKE SURE that the face of the contract states who prepared the contract and the address of the person who prepared it.

ALL the terms of the contract are in writing - Do not rely on statements from the seller. They are usually not enforceable.

You have copies of the contract and every single document you signed in this transaction – If you don’t have the writing, you don’t have the proof you need if problems arise.

As always, before you sign the contract, contact an attorney to review it.
If you are thinking about entering in a rent-to-own contract or would like additional information on rent-to-own contracts, please give us a call at 1-800-9 LAW AID.

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