Lease Purchase vs Land Contract

[mkathyf]

What is the name of your state (only U.S. law)? Ohio
We have a home which we are trying to sell. A realtor called us with a client who would like to do a land contract for 2 years while he is trying to get a "ding" on his credit removed.
We are selling the house for $127,000. He has $10,000.00 he can put down.

So, is it better for us to do a lease/purchase agreement or a Land Contract? Which makes for an easier transaction for the buyer when/if he begins the financing process?

 

[Zigner]

What is the name of your state (only U.S. law)? Ohio
We have a home which we are trying to sell. A realtor called us with a client who would like to do a land contract for 2 years while he is trying to get a "ding" on his credit removed.
We are selling the house for $127,000. He has $10,000.00 he can put down.

So, is it better for us to do a lease/purchase agreement or a Land Contract? Which makes for an easier transaction for the buyer when/if he begins the financing process?

Yours is not a legal question...

 

[justalayman]

a lease purchase is just that:

it is a lease but upon certain events or elections, the leasee can convert the contract to a purchase but upon a breach of the terms of the lease, it is treated as a simple rental and the leasee can be ejected by the courts through eviction as any other tenant could be.

Depending on the actual terms of the contract, you could still actively seek to sell the property even while this person is within their lease. Be cautious here though as if you do not account for this option in the lease, you could end up doing nothing more than selling the house leaving the current lease with option to purchase in place.



a land contract is an outright purchase of the land although the seller retains title until the contract is completed and also the seller carries the loan rather than the buyer seeking outside financing.



for the seller, a lease purchase is often better as it does not convey any level of ownership interest until the contract is fully performed. With a land contract, there is a contracted right of ownership conveyed upon initial performance of the contract. The first is simpler to deal with if there is a breach.

here are Ohio's laws on land contracts:

http://codes.ohio.gov/orc/5313


as to which is better for the leassee/buyer in terms of future financing?

neither really makes a lot of difference since from an outside lenders position. If he does not qualify for the loan, nothing in either contract is going to make that any better.

In either case, you REALLY want the contracts to be written by a lawyer that understands the intricacies and possible problems with each. You do not want to get tied into a bad contract just because you didn't want to spend a couple/several hundred dollars on a lawyer.

 

[justalayman]

Yours is not a legal question...

but there are a lot of underlying legal issues that must be considered, at least for the first question.

 

[Zigner]

but there are a lot of underlying legal issues that must be considered, at least for the first question.

Fair enough -

 

[FlyingRon]

The first thing to consider is if it's even legal for you to do this. Do you have a mortgage on the property? You do understand that most mortgages have a due-on-sale clause that can be triggered by either the lease-purchase or contract-for-deed?

Then as other's point out, it's a matter of what risk you want to expose yourself to as well as what you expect to recover/lose if the lease option is cancelled or they default on their land contract. Those aren't so much legal questions as financial ones.