Lease Option Risks and How to Avoid Them
The biggest risk for a lease option is the possibility of the seller having a problem financially. Although in the beginning we only lease option from financially strong sellers, there are things that could go wrong in a seller’s life. A lease option is control without ownership. Because the owner stil holds the deed to the property, if they incur a financial problem, there is a chance the title/deed could have a lien placed on it. A lien can usually be placed on a piece of real estate if a person owes someone money, when certain procedures are followed. This may cause a problem such that it may not be possible for the seller to sell the home easily. Fortunately, there are several things you can do to assist in preventing the repercussions of these things on you as the buyer.
1)
Make sure the seller is solid when doing a lease option with them. If they want to check your credit, ask to check theirs too. You can also have a private investigator check them out if you are not sure.
2)
Make sure you record a memorandum of option. This is a document that gives the world notice that you have an interest in the property. Then the seller can’t refinance the home or sell it to someone else.
3)
Focus on and pursue primarily sellers with equity. If the seller has a lot of equity in their home, then even if something bad did happen to them, they would have some cushion to fall on.
Excerpt taken from
Investing in Real Estate with Lease Options and "Subject-to" Deals.
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I think your warnings about the seller are the most important thing before even consider getting the deed. In case of any dispute with other loan provider which considers equity in the house as their first target, you must protect yourself, eventually your buyer in advance. Good points..
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