QUESTION: My husband and I would like to move to a senior care facility. We have no debts, no mortgage and sufficient savings to live on for the rest of our lives. The problem is that we have been unable to sell our home. Everyone who has been interested has had difficulty in getting a mortgage, even those with good credit. I've heard of seller financing, especially lease option. What is that about?
ANSWER: Seller financing is becoming a more common inducement to facilitate a real estate sale in today's market. Seller financing can take many different forms including installment sales and wraparound mortgages. Lease options are a popular way to induce a sale, keep the property occupied and provide time for the buyer to become ready for the purchase.
A lease with an option to purchase entitles the lessee to buy the leased property for a price and upon the terms that are provided in the initial agreement within a certain period of time, usually a year. The buyer is referred to as the optionee and the seller is the optionor. The optionee pays the optionor a nonrefundable option consideration which is usually applied toward the purchase price if the option is exercised. Lease options generally provide that a portion of the rent is applied toward the purchase if the option is exercised.
There are several advantages to both sides of this arrangement. The advantages to you as the seller include the obvious that the property is generating cash and not sitting empty. Additionally, the purchase price has been locked in at today's market value, presumably a value that is agreeable to you. Tenants who live in homes they believe they may purchase are far more likely to treat the home as if it were their own, minimizing damage and retaining property values. You expenses associated with the property are tax deductible while the property is rented. Also, the tax considerations of the sale are postponed until the sale actually take place. This can be particularly beneficial if the house is not a primary residence.
The advantages to the buyer are also obvious. The buyer can move into the property with a low cash requirement. Some of the rent that the buyer pays will be applied to the purchase price and the buyer has the time necessary to remedy whatever precludes the purchase of the property immediately.
Entering into an agreement such as a lease option is an important decision with many ramifications. Consider consulting a real estate attorney before deciding that this is the right sell financing option for you.
Attorney Sylvia Heldreth is a certified specialist in real estate Law. Her office is located at 1215 Miramar St., in Cape Coral.
This article is not intended as specific legal advice to anyone and is based upon facts that change from time to time. Individuals should seek legal counsel before acting upon any matter involving the law.