lease option to current owner??

I have a couple of prospects who are in foreclosure. They want to stay in their house above all. Is it unwise to lease option to the current owner. In one case, I discussed this option and they were very open to it. The number are:

He owes $60K on it and it assesses for $122K but FMV is $130. A lot of equity but he can’t make payments due to unemployment. What if I bought the house for $90K and did a lease option to pay the rent out of his equity (all up front) for a one year lease that allows him to buy it back next year for $97K. If he can’t, then I find a new owner or renew the lease. That sounds like a win/win for both of us but wanted to see if I am missing something.

What you’re missing is the HUGE potential for the lawsuit(s) that can be brought against you.

Okay, it seems that you’ve solved the problem of him paying you (since he can’t pay his current payment) or have you?

How exactly are you going to collect that $30K from him after he sells? All up front? What happens if he decides to leave or violates the lease and you’re forced to evict? Are you willing to give him the money back? Do you want to stand in front of the judge and explain to him why you collected $30K upfront in the first place (That’s $2500/month on a $130K house, kind of steep)?

What happens at the end of the year and he still can’t buy? Think he’ll leave peacefully (he’s not now!)?

What happens if he actually does get back on his feet, and decides that he wants his house back? Think he’ll be willing to pay $97K for it? Possibly, but people seem to forget all of your “help” when they don’t need it anymore. What is more likely to happen is that they go before a judge and argue that you took advantage of their situation in order to profit from it. You didn’t fully explain what they were doing. They thought that it was only a loan. You charged urusary interest rates (and they’ve got a $30K upfront bill to prove it!). Etc. Etc.

All in all, it’s never a good idea to let the owner stay in the property. The potential for lawsuit is just too great.


Thanks for the reply.

Of the $30K, I would only collect up front the portion that is considered rent (and a possible lease option payment). Call it $12K for now. He would get the remainder in equity from the sale. Since we have the rent all up for front, we won’t have to worry about him not making payments. If he can’t renew next year, then yes we would have to get him out and possibly evict but that risk is there with any tenant.

We have been working to a degree with a lawyer (albeit minimal at this point) so I am hoping that he will put all the proper wording in the contract.

Does any of this change anything or do you still think I will have legal troubles?

First, I didn’t say that you will have legal troubles. What I said was that the potential for legal troubles far outweighs the potential profit.

Second, if you’re asking me if you “will” have legal troubles, then I’d have to say YES. It’s been a very rare case that I know of where the original owner was left in the property and there was NOT some some of legal dispute at the end.

If he can’t renew next year, then yes we would have to get him out and possibly evict but that risk is there with any tenant.
It is NOT the SAME risk as with any other tenant. Any other tenant would have NEVER had a clear interest in the property. It is far too easy for the original owner to get their property back from you in a court of law. What that does is leave you with a $90K loan on NOTHING.

Your attorney can put whatever wording in a 100 pages of contract if you want. What it will boil down to is if the owner wants to take you to court or not to try to get his property back. The words and the number of pages matter very little. If it goes to court, it’s up to the judge to decide who’s “more right” and that routinely goes to the “grieved” original homeowners.

Your original question was “Is it unwise to lease back to the current homeowners?”

My answer is, and always will be, Yes, it is unwise to do so because the risks far outweigh the gains in such a transaction.

The majority of professional RE investors will agree with me on this as well, because all investing is about risk/reward. Something very risky has to have a potential of being very rewarding. This isn’t it.

Hope it helps,


That helps a lot. Thanks, Roger.

Agree. Always get the owners out.

“Always get the owners out”. That is vulture talk and that is ridiculous. I ALWAYS do all I can to help them stay. It is their home, after all, and we’re in business to make money but not at the expense of others and it doesn’t have to be that way. The BEST way to protect all parties in foreclosure situations is a NARS land trust – period. It’s an asset management strategy with a heart and it protects ALL PARTIES from “legal troubles”.

Could you please explain the NARS Land Trust…I am unfamiliar. Thanks!

Run, and run fast from a deal that the current owner stays in the property! I have been in this same position and the return on investment is tough to ignore.
But from experience, the seller is looking for an easy way out right now and he/she usually doens’t care how it works, they are simply looking for some relief.
But the other response you received is correct, the seller with gradually but steadily gain an attitude toward you for what they see as taking advantage of them. Once he/she is back to work, they don’t need you anymore and will do everything in their power to NOT pay you per the signed, notorized agreement you have with them.
I have never heard of this scenerio working out to a positive end for the investor.
If the seller starts to think about it, he/she will realize that what you are offering could probably be completed with a family member or friend, cutting you out. Because even though many family and friends are not interested in “owning” the home, they may be willing to loan money against it and let the seller remain in the property.
Wish I had better news for you. But the seller needs to leave now, and if you are going to give him any money at all, I would do so only after he has vacated the property.
It’s great that you have the intergrity to want to help the seller, but please don’t do so in a manner that will end up hurting you.
Enjoy your day,