Lease option sales were popular financing instruments in the late 1970s and early 1980s. They were primarily used as a way to circumvent alienation clauses in mortgages. Proponents claimed the sale was not really a sale because it was a lease; however, courts argued otherwise.
Today, options to purchase, lease options and lease purchase agreements are three different financing documents. The variances are state specific and not all states have identical laws. Before entering into an agreement with a seller, buyers should obtain the advice of a real estate lawyer. The information below is an overview and is not meant to be construed as legal advice.
Basics of an Option
•Buyer pays the seller option money for the right to later purchase the property. This option money may be substantial or as little as $1.
•Buyer and seller may agree to a purchase price now or the buyer may agree to pay market value at the time the option is exercised. It is negotiable. However, most buyers want to lock in the future purchase price upon inception of the option.
•The term of the option agreement is negotiable, but the common length is generally from one year to three years.
•Option money is rarely refundable.
•Nobody else can buy the property during the option period.
•The buyer can sell the option to somebody else.
•If the buyer does not exercise the option and purchase the property at the end of the option, the option expires.
•The buyer is not obligated to buy the property.
Basics of a Lease Option
•Buyer pays the seller option money for the right to later purchase the property. The lease option money may be substantial.
•Buyer and seller may agree to a purchase price now or the buyer may agree to pay market value at the time the option is exercised. It is negotiable. However, most buyers want to lock in the future purchase price upon inception of the lease option.
•During the term of the lease option, the buyer agrees to lease the property from the seller for a predetermined rental amount.
•The term of the lease option agreement is negotiable, but the common length is generally from one year to three years.
•The option money generally does not apply toward the down payment.
•A portion of the monthly rental payment typically applies toward the purchase price.
•Option money is rarely refundable.
•Nobody else can buy the property during the lease option period.
•The buyer generally cannot assign the lease option without seller approval.
•If the buyer does not exercise the lease option and purchase the property at the end of the lease option, the option expires.
•The buyer is not obligated to buy the property.
Basics of a Lease Purchase
•Buyer pays the seller option money for the right to later purchase the property. This option money may be substantial.
•Buyer and seller agree on a purchase price, often at or a bit higher than market value.
•During the term of the option, the buyer agrees to lease the property from the seller for a predetermined rental amount.
•The term of the lease purchase agreement is negotiable, but the common length is generally from one year to three years, at which time the buyer applies for bank financing and pays the seller in full.
•The option money generally does not apply toward the down payment.
•A portion of the monthly lease payment typically applies toward the purchase price.
•Option money is nonrefundable.
•Nobody else can buy the property unless the buyer defaults.
•The buyer typically cannot assign the lease purchase agreement without seller approval.
•Buyers are often responsible for maintaining the property and paying all expenses associated with its upkeep, including taxes and insurance.
•The buyer is obligated to buy the property.
Doing a Lease Option / Lease Purchase
Hire a real estate lawyer to draw the documents and explain your rights, including those of possession and default consequences. The property might be encumbered by underlying loans that contain alienation clauses, giving the lender the right to accelerate the loans upon sale.
Sometimes sellers give the option money to their real estate agent as full payment of commission. Agents are not always involved in the exercise of lease options or fulfillment of lease purchase agreements and, even if you have retained real estate agent representation, you still need a real estate lawyer. Agents are not lawyers and cannot give legal advice.
In the event of a lease purchase, obtain all the disclosures and do your due diligence just like you would on a regular sale. This means:
•Get a home inspection.
•Examine the title policy.
•Obtain an appraisal.
•Read seller disclosures.
•Consider obtaining pest inspections, a roof certification, home warranty plan and hiring other qualified inspectors.
Lease Purchase Benefits for Sellers and Buyers
Lease purchase agreements are commonly offered by sellers of hard-to-sell properties. Think about it, if the property was easy to sell, the seller would sell it to a conventional buyer who would pay the seller cash.
•Sellers generally get market value at today's prices and relief from paying a mortgage on a vacant property.
•Although the lease payments may exceed market rent, the buyer is building a down payment and banking that the property will appreciate beyond the agreed upon purchase price.
•Buyers generally make a small down payment, with little or no qualifying, making a lease purchase an attractive way to ease into the benefits of home ownership.
•Buyers also receive a forced savings plan since part of the lease payment is credited toward the purchase price at the end of the lease option agreement.
•If the buyer defaults, sellers do not refund any portion of the lease payments nor the option money and may retain the right to sue for specific performance.
For more information, contact a real estate lawyer
Courtesy of Elizabeth Weintraub, About.com Guide
Friday, September 24, 2010
Friday, September 3, 2010
5 Home Repairs NOT to ignore
You might be tempted to put off fixing your home until the economy rebounds. Rebuild the patio? Sure, right after your 401(k) rallies. But some problems, if left unchecked, can lead to thousands of dollars in repairs (rebuilding a foundation wall, for instance) and might even compromise your family's health, such as mold contamination.
The trouble signs are easy to spot, provided you know what to look for. What's more, contractors aren't as busy now, so they're likely to be more flexible on price. Here are the five biggest red flags of home maintenance, with our advice on how to deal with them. Our recent reviews of gutter guards and roofing and siding materials can also help.
1. Runaway rainwater
"If there are 10 things that can go wrong with a house, 15 of them have to do with water," says Bill Loden, a Madison, Ala., home inspector. Gutters, downspouts, and leader pipes collect rainwater and channel it away from the house. In very wet regions, leaders should extend at least 5 feet from the house. Check the entire gutter system seasonally for proper pitch and for clogs, corrosion, broken fasteners, and separation between connections and where gutters meet the fascia board. When inspecting gutters, extend straight ladders 3 feet beyond the roof at a 75-degree angle to the ground.
The soil around the foundation should slope away from the house at least 1 inch per foot for 6 feet or more. If you have planting beds along the foundation, make sure the grading of the bed, its edging, or the edge of the lawn isn't keeping water from draining away from the house.
2. Roof and siding
Roofs are the most vulnerable to water infiltration, given their exposure to the elements and the laws of gravity. On a sunny day, use binoculars to spot cracked, curled, or missing shingles, which are signs that the roof is near its end of life. Also check flashing around chimneys, skylights, and roof valleys, and the rubber boots around vents for cracks.
Siding is also susceptible to leaks, especially where it meets windows and doors. A $5 tube of caulk might save you thousands of dollars in structural repairs. If you live in a cold climate, check the siding under the roof eaves for water stains, which could be a sign of ice damming. Adding attic insulation and sealing gaps around pipes, recessed lighting, and ducts into the attic might help prevent future damming and lower your heating and cooling bills.
3. Pest infestations
Termites and carpenter ants gravitate to moist soil and rotting wood, another reason to make sure your gutters are in good shape and soil around your foundation is graded properly. Also keep mulch, firewood, and dense shrubbery away from your foundation.
Once termites infiltrate a home, they can bore through the structure in a few short years. Formosan termites, which are prevalent throughout the South, have been known to rip through studs and floorboards in a matter of months. To detect termites, probe the sill plate (also called a mudsill) that sits on top of the foundation with a screwdriver to check for rotted wood. To check for carpenter ants, look for piles of sawdust along baseboards. Regular termites also shed wings along windowsills, walls, and other entry points.
Rodents gravitate toward disorder and debris, such as leaf piles around the foundation. Plug holes in the siding and the foundation walls with expandable foam. Don't forget to look up for signs of birds, bees, or squirrels in soffits and attic vents.
4. Mold and mildew
Even houses in arid climates aren't immune. Hot outdoor temperatures can drive even small amounts of water trapped in the structure to condense on colder interior surfaces, leading to mold. Musty odors, dank air, and family members with chronic runny noses are warning signs. Check under carpets and around windows for visible mold or mildew. Also remove cover plates for cable-TV, phone, and Internet connections, and use a flashlight to peer behind walls and wallpaper for mold.
Avoid mold tests sold at home centers and online. Each of the kits we tested in the past had significant flaws that were serious enough to not recommend them. If indoor mold covers less than 10 square feet, treat it yourself by scrubbing mold off hard surfaces with a mixture of detergent and water. Then dry completely. Be sure to don an N-95 disposable respirator, goggles, and heavy-duty gloves. Professional remediation is required for larger outbreaks, if the ventilation system is contaminated, or if an allergy sufferer lives in the home. What's more, absorbent or porous materials, such as ceiling tiles and carpet, may have to be thrown away if they become moldy.
5. Foundation cracks
Some cracks are harmless, but others can mean trouble. James Katen, a home inspector from Gaston, Ore., suggests walking around the house with a No. 2 pencil in hand. Hairline cracks are probably the result of concrete curing or minor settling, he says, and can be filled with an epoxy-injection system. "But if the pencil can go into the crack up to the yellow paint on the pencil, that's a pretty wide crack and might be a sign of a major problem," Katen says. A ruler is another handy tool: Cracks wider than 3/16 inch, even vertical ones, can be a problem. Mark smaller cracks with tape and monitor their progress over the coming months. Also be on the lookout for horizontal cracks or bulging or buckling. Along with expanding cracks, those conditions require the attention of a structural engineer. The longer you wait to correct a problem, the more costly it will probably be.
More red flags
• Cracks at upper corners of windows and doors (uneven foundation settling)
• Mushrooms or fungus growing out of siding (moisture in the walls)
• Soft boards or loose rails on outdoor decks (decaying deck structure)
• Soggy ground and lush vegetation around septic tank or leach fields (overfilled or failing septic tank)
• Missing or torn insulation in attic (pest infiltration)
• Scratches or algae on siding (overgrown trees or plants)
By ConsumerReports.org
The trouble signs are easy to spot, provided you know what to look for. What's more, contractors aren't as busy now, so they're likely to be more flexible on price. Here are the five biggest red flags of home maintenance, with our advice on how to deal with them. Our recent reviews of gutter guards and roofing and siding materials can also help.
1. Runaway rainwater
"If there are 10 things that can go wrong with a house, 15 of them have to do with water," says Bill Loden, a Madison, Ala., home inspector. Gutters, downspouts, and leader pipes collect rainwater and channel it away from the house. In very wet regions, leaders should extend at least 5 feet from the house. Check the entire gutter system seasonally for proper pitch and for clogs, corrosion, broken fasteners, and separation between connections and where gutters meet the fascia board. When inspecting gutters, extend straight ladders 3 feet beyond the roof at a 75-degree angle to the ground.
The soil around the foundation should slope away from the house at least 1 inch per foot for 6 feet or more. If you have planting beds along the foundation, make sure the grading of the bed, its edging, or the edge of the lawn isn't keeping water from draining away from the house.
2. Roof and siding
Roofs are the most vulnerable to water infiltration, given their exposure to the elements and the laws of gravity. On a sunny day, use binoculars to spot cracked, curled, or missing shingles, which are signs that the roof is near its end of life. Also check flashing around chimneys, skylights, and roof valleys, and the rubber boots around vents for cracks.
Siding is also susceptible to leaks, especially where it meets windows and doors. A $5 tube of caulk might save you thousands of dollars in structural repairs. If you live in a cold climate, check the siding under the roof eaves for water stains, which could be a sign of ice damming. Adding attic insulation and sealing gaps around pipes, recessed lighting, and ducts into the attic might help prevent future damming and lower your heating and cooling bills.
3. Pest infestations
Termites and carpenter ants gravitate to moist soil and rotting wood, another reason to make sure your gutters are in good shape and soil around your foundation is graded properly. Also keep mulch, firewood, and dense shrubbery away from your foundation.
Once termites infiltrate a home, they can bore through the structure in a few short years. Formosan termites, which are prevalent throughout the South, have been known to rip through studs and floorboards in a matter of months. To detect termites, probe the sill plate (also called a mudsill) that sits on top of the foundation with a screwdriver to check for rotted wood. To check for carpenter ants, look for piles of sawdust along baseboards. Regular termites also shed wings along windowsills, walls, and other entry points.
Rodents gravitate toward disorder and debris, such as leaf piles around the foundation. Plug holes in the siding and the foundation walls with expandable foam. Don't forget to look up for signs of birds, bees, or squirrels in soffits and attic vents.
4. Mold and mildew
Even houses in arid climates aren't immune. Hot outdoor temperatures can drive even small amounts of water trapped in the structure to condense on colder interior surfaces, leading to mold. Musty odors, dank air, and family members with chronic runny noses are warning signs. Check under carpets and around windows for visible mold or mildew. Also remove cover plates for cable-TV, phone, and Internet connections, and use a flashlight to peer behind walls and wallpaper for mold.
Avoid mold tests sold at home centers and online. Each of the kits we tested in the past had significant flaws that were serious enough to not recommend them. If indoor mold covers less than 10 square feet, treat it yourself by scrubbing mold off hard surfaces with a mixture of detergent and water. Then dry completely. Be sure to don an N-95 disposable respirator, goggles, and heavy-duty gloves. Professional remediation is required for larger outbreaks, if the ventilation system is contaminated, or if an allergy sufferer lives in the home. What's more, absorbent or porous materials, such as ceiling tiles and carpet, may have to be thrown away if they become moldy.
5. Foundation cracks
Some cracks are harmless, but others can mean trouble. James Katen, a home inspector from Gaston, Ore., suggests walking around the house with a No. 2 pencil in hand. Hairline cracks are probably the result of concrete curing or minor settling, he says, and can be filled with an epoxy-injection system. "But if the pencil can go into the crack up to the yellow paint on the pencil, that's a pretty wide crack and might be a sign of a major problem," Katen says. A ruler is another handy tool: Cracks wider than 3/16 inch, even vertical ones, can be a problem. Mark smaller cracks with tape and monitor their progress over the coming months. Also be on the lookout for horizontal cracks or bulging or buckling. Along with expanding cracks, those conditions require the attention of a structural engineer. The longer you wait to correct a problem, the more costly it will probably be.
More red flags
• Cracks at upper corners of windows and doors (uneven foundation settling)
• Mushrooms or fungus growing out of siding (moisture in the walls)
• Soft boards or loose rails on outdoor decks (decaying deck structure)
• Soggy ground and lush vegetation around septic tank or leach fields (overfilled or failing septic tank)
• Missing or torn insulation in attic (pest infiltration)
• Scratches or algae on siding (overgrown trees or plants)
By ConsumerReports.org
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