Sub 2, Lease Option Legal in Calif?

After reading some threads about major restrictions on Lease Option-Rent-To-Own scenarios’s in this forum (which I will add to the end of this post). I have to ask, are their any restrictions like this that exist in California for doing Lease Option/Rent-to-own scenarios?

From another thread (about Texas):
“As of 1 October 2005, they are illegal in the great state of Texas as are any forms of seller assisted financing, unless the seller owns the property free and clear. A lease purchase is a bi-lateral contract for a purchase and the current Texas law requires that under any contract for a purchase, the deed must be delivered within 6 months of the execution of the contract.”

And another thread about Arizona:

"Here is a list of five things that may violate the law and cause the judge to classify the lease option transaction as a “disguised sale”. This is not my list, but this list was prepared by a Judge in Arizona who actually co-authored Arizona’s landlord/tenant laws:

  1. Collection of more than 1.5 times the monthly rent as Option Deposit.

  2. Collection of an Option Deposit or Rent Credit to be credited to a Purchase, or to discount the Purchase as in a Down Payment.

  3. Predetermining a Purchase Price, as in delaying or disguising a sale.

  4. The Lessee also holding an option on the same property they are leasing regardless if it is one document or two separate documents. (This is a direct slap at investors who like to option a property and then sublet it to his tenant).

  5. The Lessee being responsible for maintaining the property"

I have WinForms, which is the California Realtors on-line forms package that prints contracts for real estate brokers. There are standarized leases and options to purchase form in the system. So they are definitely legal and approved by the Department of Real Estate. So yes, lease options are legal in California.

The post you copied was a courts interpretation of the sales process. No laws were broken as far as I can see.

Yes they are legal in California. Just remember that in the event of a default, the term “equitable interest” may rear its ugly head and you’ll be faced with having to foreclose, rather than evict.

The worst part about the AZ interpretation is that other states seem to be jumping on the bandwagon in their interpretation of lease options being disguised sales contracts. The scariest part of that interpretation is #4. It virtually outlaws sandwich leases as they did in Texas.

AZ is actually implementing a law that will outlaw prepayment penalties to protect borrowers against lenders like Ameriquest.

Da Wiz

Enacting a law that makes prepayment penalties illegal will do more to harm the borrowers than help them. Why? There are many loans that lose money for the bank in the first few months. In fact, in nearly every case, a loan that is paid off in the first 6 months is a money loser. Loans like Option ARMs (negative amortization) take several months to a year before they are profitable.

What will happen is if AZ makes it difficult for lenders to be profitable, lenders just wont lend in AZ. This is already happening in Texas. Many lenders have left Texas because the laws make it hard to be profitable. For instance, they have placed an interest rate cap and a cap on the points. This was fine when the rates were at 40 year lows. What happens when they return to normal (about 8.5% for a 30 year fixed)? It means people with substandard credit wont be able to get loans because the lender can’t be compensated for the additional risk. Without financing, the real estate market will crash.

Ameriquest fills a very necessary need in the market place. They will take someone that other lenders wont touch and provide financing, although at sometimes exhorbinant rates, when no other financing is available.