Any help with Lease-Purchase 3rd party?!?

Question

Hi - I need some help please with a complicated situation! My husband and I own a rental property that we need to sell now. We told our renters and they tried to buy it, but they weren't able to. Now, a mortgage lender has mentioned a lease-purchase to us and them?!? Our goal is to get our equity and have the home OUT of our names. Our renters (who we are very sympathetic to as she is also my sister) goal is to stay in the home and then have a chance buy it later on. They believe they will have the credit to do so in about 6 mos. to one year. They can't put money down, and their main concern is "how much per month though?" How would this work? Would the company own the house, our renters, or us? The mortgage company also mentioned in the same conversation a re-finance by us, but how would we get ALL of our equity and have our name off of it if we re-financed? I don't understand this at all, but any help anyone could give would be greatly appreciated!! Thanks so much... :)

Answer 1

If you lease option it you will not get money now unless your sister has some to give you. It is called option money. You agree to the price of the home and at what time they will get their own financing. They pay monthly payments that are $150-$250 per mo. higher than normal rent. The extra is credited toward the purchase price. When the time comes they have paid the house down some by the option money and the monthly payments. So the lender sees that 1. They can make the payments on time. 2. Have some down payment in the house.
In this option the house is still in your name.

Option 2. is that you sell her the house on a land contract or subject to. This format you can refi the house for the max that you can get. Then you execute the contract with sister going on title and you off title. She is responsible for all of the payments on th loan taxes, ins. all.. The contract is recorded at the county recorders office. If she defaults the house is foreclosed, your credit is going to show the foreclosure on your loan and she will have no home. But you did get some cash out in the refi.
So either way you are at risk to some degree. But you can show your new lender that you have sold the house to her and she is "unofficially assuming the loan."
There are about 6 snafus that I'm not going into. But from me, someone with many years of real estate experience to you. To get into a real estate deal like this with family is as close to a recipe for disaster as I can think of. If she can't make the payments. She doesn't get the house. Your credit will suffer greatly and no one will be thanking anyone when in fact it all started as everyone helping everyone. Just watch yourself. this can get really sour really fast. Only you know your family and your abilities to recover if all fails.

Best of luck,

Answer 2

If you need to sell now, then sell your house to whomever can get a loan. What you've described is a recipe for disaster.

The mortgage lender that suggested to you should have their license removed. They are suggesting to you that you do a cash out refi, knowing that your intention is to immediately violate the due on sale clause and transfer title to your sister. You'd get your name off the title, so it would no longer be your house, but the loan would still be in your name.

If your sister really can get a loan in 6 to 12 months, tell her to rent another place once your house is sold, and when that time comes she can pick out whatever house she wants.

Besides, if you sell to your sister, it's impossible to achieve BOTH (1) you get a good, high sale price and (2) your sister gets a good low sale price. The two of you should be wanting that for each other....

Lastly, NEVER do a refinance a few months or a year prior to selling. You're talking about using up maybe 5% of the value of the home in closing costs that you'll lose.