“For Sale By Owner” , “Rent To Own” , And “Short Sales”
These are special situations where the buyer and seller are BOTH in need of special protections.
For Sale By Owner
In the For Sale By Owner transaction, the seller will not have an agent motivated to show and move the home on the market. The Seller may then be at a disadvantage in marketing the home, may not have a sales contract, or worse, may have just gotten one from somebody else or on Google.
There is no telling whether the contract actually matches up to their expectations and, since they do not have a realtor, using a standard realtor’s form makes little sense since their interests and the realtors are somewhat different, even if the potential buyer does have a realtor (as evidenced by the fact that the seller decided NOT to hire one).
The buyer who has a realtor will have additional concerns about inspections and the like where the seller has no agent motivated to make sure these things are taken care of and deadlines are met. The buyer who does not have a realtor is in as dangerous a situation as the seller, using a contract that does not meet either of their expectations or concerns fully, and may be giving away an incredible opportunity for a creative financing structure if buyer does not have an attorney on the deal.
Rent To Own
The Rent-to-Own situation is generally a result of the inability to sell the home outright. The Seller is willing to rent to a potential buyer who currently only has the means or desire to rent, but who may be willing to buy in the future.
The length of the lease and lease terms will be somewhat different than a standard lease because the hope is for the renter to buy at the end of or during the lease. The purchase terms will be different than in one of those standard home sales contracts because the sale will not take place, if at all, for one or more years. In such situations, whichever side (normally the seller, but not always) hires an attorney to draft the rent-to-own contract will be at a tremendous advantage in getting more favorable terms into the contract.
I has come to my attention that it has become common practice amongst some real estate agents representing clients selling rent-to-own properties to merely attach a rental contract or house lease to the standard sales contract.
This dangerous practice fails to provide clarity to either party to the contracts because it assumes that at the end of the rental period the renter will be able to make the purchase (which is often not the case), and it assumes the landlord (who wishes to ultimately sell the home) has possession of the home until the time of sale, which is not the case. In the case of the rent-to-own deal, the whole is definitely more complicated than the sum of its parts.
A Short Sale is when the bank that has a lien on the property (usually through a mortgage) is willing to take less than is owed to it, in order to avoid foreclosing on a home. Foreclosure can be an expensive and sometimes lengthy process for a bank and, at the end of the day, even if they do foreclose then they still have a home they don’t want.
Banks are in the business of lending money for interest, not of renting, buying and selling real estate. Banks would often rather let the house sell for less than is owed to them to avoid having to take ownership of a home and all the liabilities that go along with it.
The short sale process can take weeks or months, depending on the bank and the particular deal. Usually a real estate agent or mortgage broker facilitates the deal by working with the bank, and an attorney is needed to keep a watchful eye on them, as well as to make sure the deal is not structured in such a way as to constitute a fraud on the bank, such as when the seller and buyer are related or when some pre-existing deal has been structured by the parties or by the mortgage broker or real estate agent to facilitate what may be legally considered a fraudulent transaction, for which all parties responsible will likely be held responsible.
Often this can happen with the best of intentions, just in a desire to help out the struggling home buyer, but the legal repercussions can be staggering. In addition, because of the length of time involved, and the potential for multiple parties, these deals can be even more frustrating than ordinary transactions and your attorney can act as a buffer both to help allay your fears and to advise you to walk away if that is in your best interest.
Anyone involved in “For Sale By Owner”, “Rent To Own”, or “Short Sale” transactions should seek the advice of competent legal counsel.