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View all Local Real Estate forums. I don't know a lot about Dodd-Frank yet, except that it definitely applies to seller-financed scenarios.
He gives them 3 years to exercise the option to buy, during which time they can work on improving their credit, saving money, and whatever is needed to help them secure traditional financing. If they don't exercise in three years, he offers them the ability to sign another 3 year lease, and rolls over their accumulated savings toward the house into the new lease. Same thing applies if they decide they want to move to another of his single-family rent with option to buy homes in nj. I'd like to do something similar here in New Jersey, and I was wondering if anyone had any experience doing the same thing as that gentleman.
I have read some mixed feedback here on BP, where some users are saying that accepting "extra money toward the purchase of the house" is construed as seller-financing under Dodd-Frank. I have also seen several people casually talking about lease options in the same exact scenario I'm describing, as if Rent-to-Own is not dead.
I simply want to offer people the ability to keep their savings, pay a little extra towards the rent that goes into an escrow account of sorts, which forces them into a "forced savings program", while allowing them to lock-in a sales price with me, on a house they want now but can't afford yet.
What have been your experiences with lease-options and rent-to-own? Can my scenario be accomplished, or is it a violation of Dodd-Frank? What ways can lease options and rent-to-own currently be accomplished? Dodd Frank as far as i know it is only when you sell more then 3 houses in 1 year out of 1 entity so i doubt if you have 3 three of it in one entity. Sounds like someone took my advice from a post of the past and made a podcast, but whatever.
A link to that podcast would be helpful! There are still issues as to that 3 or 2 or 1 exemption, you have more than Dodd-Frank, we have dozens of laws now with predatory financial dealings.
Also, exemptions are for Harry Homeowner selling his primary residence, not folks in the business of financing real estate. If you're dealing through an LLCyou're in the business. Any credit toward a sale price where the seller can retain funds and has any recourse of taking a property back or having a security agreement is a financing arrangement.
If an option is used with any payment credited to the sale price or option price, it is then a financed option, same as a financing agreement. Any option over 12 months also has new accounting and tax rules, your option will most likely be recognized as a sale with taxes due what? There are specific steps to take to ensure your option is not seen as a sale, see your CPA who deals with real estate options!
Another point to remember, an option cannot require any performance under the contract by the optionee or buyer! If the option requires some payment to be made toward a sale price it's not an option but a financed sale agreement.
Using an escrow account does not wash the money clean if you have any interest in the control or releasing that escrow account or the funds are to be paid to you at some future date crediting a sale price. It's pretty simple, if a law says don't do that, then don't do that, do something else that can lead to the same or desired result. As I mentioned a financing agreement has two key aspects, payments and a security interest or collateral for the lender. Let's get rid of the security agreement side first.
Don't lose your grip here. If an option cannot have any performance required by the buyer what contract can have performance required? A lease agreement, tenants may agree to do or not to do many things! Performance or promises to act is a two way street in unilateral contracts. A financing agreement is a bilateral rent with option to buy homes in nj where only one party agrees to do something, like make the payment.
Apple is a tenant under a lease agreement. I rent with option to buy homes in nj to call this "account" a security account, not a down payment or credit toward the purchase. If terms of a lease agreement are not kept by the tenant then the owner has a "security" recourse or route to take, it's called an eviction.
If payments are not credited to the purchase price but simply intended to rent with option to buy homes in nj used to purchase and you keep your hands off of it, you don't have any financing agreement. Go back to the security deposit angle, to the legal limit you may be restricted to. A bank account is personal property not real property.
You put a lien on the account as security for the lease agreement being kept, it is not attached to any other option or purchase agreement, just the lease. The bank gets notice of this lien and Mr. Apple can make deposits or withdrawals but only to the limit of the lien. It's not your money Next, is there any financing going on, any finance agreement? Nope, because there is no security interest in the property being sold. Also, there are no payments going to the seller, the tenant is simply saving his money, Mr.
And you then rent with option to buy homes in nj Also, it is part of the consideration of the lease as the tenant agrees to save money for the future purchase. That account is not my money, it belongs to the tenant and our security is limited based on the performance of compliance with the lease.
Bill, you are well aware that under Dodd-Frank a lender must hold a security interest in the subject property being sold.
We do not have that, we also haven't sold the property we only have the intent to sell. The only security we have is personal property, and by the way, the only recourse we have is an eviction just as with any other landlord. Bill is thinking to himself Is there any scheme here intended to circumvent the law? Is there any financial harm to a consumer? Can't say so as the tenant is saving his money in his account. So, what's the big picture here, what's going on?
Looks like a lease agreement with a forced savings plan with an account pledged under the lease to ensure the tenant's performance. They have an option but the tenant is under no requirement to buy and there is no security arrangement for performance.
Seems the tenant agrees to try to buy and save his money, no law broken there. There are no purchase credits here.
Well, guess I'll let this fly! Now, another great thing about doing business this way is that the tenant's lender can see where the tenant simply saved his money for the down payment. There were no credits given which means the lender doesn't have to look at fair market rents in the appraisal, it's just a straight appraisal.
Okay, what does Mr. He knows what he's doing, he's saving his money to buy the place and he rents it. He knows his lease is dependent on his saving money so he is motivated by getting to stay there and taking care of the place, he has a steak in the deal and the landlord has a security interest in his saving account. He knows he has to be good under his lease to get his money released, if he screws rent with option to buy homes in nj it can be gone. Where is the down side for you?
Well, if the tenant put a small lump sum in that account and begins to save, you're better secured under your lease. You get rent payments, that shouldn't hurt too much. Bill Rent with option to buy homes in nj this sounds really clever, and I appreciate the extremely thorough reply.
The problem I foresee then is. At that point, I would assume the traditional lender would tell Mr. Apple that those funds are not eligible to be used for qualifying for a loan Do you agree? Does it pass the duck test? If it looks like a duck, swims like a duck, quacks rent with option to buy homes in nj a duck, then it's probably a duck.
I think the big qualifier here is that it "ensure's the tenant's performance under the agreement". That is exactly the point of a security deposit, so I'd be interested to see how you'd navigate a series of questions, again from a regulator's point of view:. From my perspective, you can caught up in a loop trying to explain a distinction in a traditional security deposit, and this new "fiscal health account" that you have a lien on. The lien seems hard to explain without categorically making it fail the duck rent with option to buy homes in nj and appear to be another security deposit.
Rent with option to buy homes in nj states like New Jersey, that would absolutely get a landlord into hot water because the maximum security deposit that can be collected is 1. Am I understanding correctly that you can still sell an option to buy the property, as long as the option rent with option to buy homes in nj is 1 year or less?
Does this fall within the simplest territory of what is currently allowed? Also, since you asked and since others may be wondering. As I mentioned, security deposits can be limited by state law, so what you call it and how you justify it may be different.
I went through the duck test in two places, is the law being circumvented? An eviction is not a security agreement in financing terms. This is much like tax avoidance and not rent with option to buy homes in nj evasion, tax avoidance is avoiding taxable issues, clearly legal, tax evasion is more to hiding money subject to taxes which is illegal.
If we avoid the financing agreement as the regulators must define it, then the intent or other agreements cannot be placed under that microscope. In other words, it is fine to avoid financing the deal in order to avoid the financing scrutiny of Dodd-Frank.
I don't see any duck quacking here. The other place was when Mr. Bill asked what the big picture was. The intent to purchase is not illegal.
There are no credits toward an agreed price, this doesn't even look like a duck. I'd say there needs to be rent with option to buy homes in nj than just the timing of the option term to avoid the intent of purchase rules under the Tax Code.