Reader question: When the rent-to-own deal goes belly up
We heard from several readers who had entered into a lease-purchase option, faithfully made their rent and future down-payment contributions, and even upgraded the property, only to have the home go into foreclosure before the actual sale had been completed.
"My husband and I have worked so hard to get our own home, and for this to happen is so devastating," one reader wrote. Another asked, "What options do I have?"
We asked several real-estate brokers and lawyers, who weren't optimistic that tenants could recover their money. (Rent-to-own contracts vary, but typically the tenant pays above-market rent, and the landlord puts the excess toward a future down payment.)
"You're a renter until you purchase," says Kristi Weikel, a lawyer with Weikel & Boyd, in Minnesota's Twin Cities. "This purchaser who thought all these payments were going toward the purchase price really has no remedy."
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Weikel generally advises tenants against rent-to-own agreements "because they don't have any assurance that the landlord isn't going to foreclose," she says.
That said, a tenant could sue the landlord for breach of contract. But there's almost always a massive downside to that option: The tenant would have to hire — and pay — a lawyer. Then, if he wins, he'd face trying to collect from someone who is likely in bankruptcy.
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"You can't get what you can't get," says Merle Schneider, owner of Schneider Real Estate, in Missouri.
His advice: If you really want to rent in a rent-to-own situation, put any earnest money — everything beyond market rent — into escrow so that if the deal falls through, you can get it back.
Questions? Comments? Do you have a question about renting or a suggestion for a future topic in this column? Submit either in the comments section below or on Facebook, or email msnrealestate@microsoft.com. Brief questions have the best chance of being selected.
