RENT TO OWN PROGRAMS for the OCCUPANT

It is common to hear that there are scams occurring for this program and that someone unfortunately has

been severely burned losing ten’s of thousands of dollars. However there is both sides being very good

to very bad. It remains on the shoulders of RTO Buyer or Occupant to determine the good or scam.

The single most important contribution to a good outcome is everything in writing predetermining

the process, and the responsibilities, remedies, pricing, and so on. Often a contract is as good as the

people signing as far as enforcing goes however it is worse case when there are loop holes or even at the

extreme nothing in writing.

Recently I came across a mortgage broker aligning investors to home owners in trouble. In this

particular one the current home owner has a first mortgage and a second mortgage both in default to

power of sale. The home has been for sale for over 30 days and not sold which is a strong indication it

is overpriced. The proposal was to have an investor purchase the home (which is overpriced) having the

first and second mortgages paid off and the remaining equity of $38,000 paid to the investor. The now

to become an RTO buyer earns $85,000 annually which qualifies for $2,125/month PIT payment based

on the government’s regulation of using 30% of annual for rent or mortgage payment. This RTO was

going to require the RTO buyer to pay $3,118/month which is equal to 44% which is excessively over

the recognized limit therefore this agreement is doomed to fail with this RTO buyer losing the $38,000

and the investor stuck with a home that is overpriced to start with and in an as is inground pool and other

defects that need to be addressed. This is an example of a very bad RTO which will harm the investor

and the RTO buyer. Yes, a true scam under a fog of it is a great deal for everyone. Truly a lose-lose

situation and why the Rent to Own programs get a bad name but not deserved for the good ones.

What is a good RTO buyer program? One that benefits both parties and that will complete within the

time deadline set in writing within the Option to Purchase agreement at a predetermined purchase price

for example in two or three years.

The qualifying for the future purchase price should be done today so that the 30% of gross income for

future mortgage payment guideline is met as well as a maximum of 40% of gross income for all major

debt payments including vehicle loans, lines of credit payments, student loan payments and so on.

Responsible to these formulas is key to achieving a successful closing in the future.

Another area of concern is who is responsible for what? The investor should pay principal + interest +

property taxes + building insurance. However that leaves daily maintenance, major repairs, renovations,

decor changes and many other issues that come with home ownership. There should be definitive

Occupancy agreement signed between RTO buyer and the investor. A proper agreement determines the

RTO buyer termed as Occupant is responsible for all upkeep whether daily or major but the investor

must be notified if a building permit is required as said application must be made through the investor

who is the registered owner. A proper RTO program recognizes the Occupant as having the right to

enjoy and improve the home as it is in determination their home.

A good RTO program builds in a savings plan, provides for credit recovery, has all funds accumulated

at the deadline for closing so thbuat the RTO buyer has all the necessary funds in order to close. No

surprises. Additionally the RTO buyer should be qualified to afford the rent portion + saving portion

paid now to equal that the future PIT payment remains constant to this amount.

The proper RTO program allows the RTO provides the structure so that the location + closing date +

type of home + price and chattel negotiations are done by the RTO buyer as it will be their home and

then approved by the investor who will hold title to the home until it closes under the Option to Purchase

agreement.

Rent to own Programs are not regulated nor standardized that is why there is such a wide T nce of

approaches as well as everything frrom formally legal & binding to outright fraudulent. The best

programs should be fair to both the RTO Buyer and the RTO Investor. Caution is a good definition of

how to start but keep in mind that the good programs will have a track record, proper documents, and

references if requested.

More to come next week. Stay tuned for more updates, and more examples.

If you have experiences that you wish to share, or questions to poise please contact the writer direct

@ 416-843-8709 or email wayne@waynemuir.com

Lorne Muir's blog | login or register to post comments

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