Unfortunately, we are hearing about this disaster taking place more and more often.
You move into a rent to own home and everything is great. Then for whatever reason the homeowner is unable to make the mortgage payments, even though YOU are making your rental payment each month!
Months go by and you don’t find out until pre-foreclosure letters start showing up in the mail.
There are a few things you can do to ensure this doesn’t happen to you. You will never be able to guarantee the owner makes the payments, but this will help protect you if the payment isn’t made.
The prevention here is in your Option agreement. Savvy tenant/buyers can make it a clause that anytime during the option period they can contact the lender for the status of the loan.
This can be done without giving access to the sellers other personal information, with most banks.
Also, in some cases a tenant/buyer can be setup to pay the mortgage directly each month to ensure it gets paid, during the option period.
What if the seller stops paying?
A good option agreement will provide a clause allowing you(tenant/buyer) to pay the mortgage directly at any time during the option period if it becomes delinquent by a certain period of time.
This would offer the most protection to the tenant/buyer. So you avoid ending up in a house 8 months behind on payments.
At that point it would be VERY difficult to bring current!