Who’s ready for Summer?  The heat may sometimes be daunting, but Summer remains my favorite season of the year.  Perhaps it’s because I still revel in the memories of my adolescence when Summer signified fewer commitments and a less rigid schedule.  School was okay, but what kept me going from September to May was knowing that June, July, and August were going to come again at some point.  Of course, August no longer provides the same benefits as it did years ago…at least not in Mississippi where our schools begin each year in early August now.  Nevertheless, those memories of long, unstructured, and carefree days are resurrected each May as temperatures rise and our many friends in elementary and secondary education count down the days to “freedom.”  And, even though Summer may seem like a time to focus on other ventures like swimming, vacationing, or family reunions, there’s still time for a little learning.  Even if it’s not within the structure of a school environment.

This business teaches us something new everyday.  Some lessons we’re proud and eager to learn, and others we’ve learned the hard way and have the battle scars to prove it.  The same can be said for our clients and friends as well.  Every real estate market poses unique challenges and opportunities.  One unique attribute of our present market is the increased interest in leasing properties both large and small.  We receive dozens of calls or e-mails a day concerning questions about leasing properties, and what we’ve discovered in those interactions is how little the public knows about lease purchases and how pervasive rental scams are on websites such as Craigslist.  When I asked our team of a relevant, educational topic for me to share about this month in Star Chat, these two issues came up.  So, even though Summer is upon us and school is at its close, put your thinking caps on and hopefully the information that follows will save you or someone you know some heartache.

We’ll begin with lease purchases.  A lease purchase is when a purchaser contracts with a seller to BUY a home at some future date (usually 6, 12, or 18 months, etc. in the future). The purchaser’s need for a delayed closing could be for the purchaser to get affairs in order so they can close by the agreed time, address a credit issue, sell a property in another state, or any variety of reasons.  In our practice, the purchaser does meet with a mortgage broker to determine a plan of action for achieving financing by the agreed purchase time.  In the interim period prior to closing, the purchaser desires possession of the property and leases it from the owner until closing arrives, making monthly lease payments to the seller from the time of possession until closing.  Sometimes a small portion of these lease payments (5% to 10%) may accrue in escrow toward the purchase price of the home, but often no accumulation occurs if the lease amount is not large enough to justify it.  Additionally, the purchaser places a large sum of money on deposit toward the purchase that is non-refundable if the closing does not occur as agreed.  Depending on the overall sales price of the house, we usually see deposits between $5,000 and $20,000.  Again these terms are negotiated up front.  In most cases the purchaser/tenant has the property inspected prior to possession and accepts the condition of the property at the time of possession.

Some things that a lease purchase IS NOT:  It is NOT an opportunity to “try out a house to see if you like it.”  It is NOT an “option to close in the future.”  It is a contractual obligation to close by the agreed time.  It is NOT the same as “owner financing,” as the owner often has a mortgage of their own to payoff and can’t transfer title until that lien is paid off.

Now, about Craigslist scams.  Many of you are familiar with Craigslist – it is like a gigantic, world-wide, classified ad system where individuals can offer items for sell or rent, including goods and services.  People sell or offer to lease any number of things from pianos to palaces and everything in between.  A couple years ago, we would occasionally receive calls from people who were inquiring about a “home we had for lease.”  The problem was, we didn’t have the home they were calling about for lease; it was for sale instead, and what was most intriguing is that the rental price quoted was always grossly below what fair market rent would be.  For instance, a $350,000 home would be offered for $800 per month.  A scam artist somewhere would go online and copy photos of random homes listed by agents all over the country, post that information on Craigslist, remove the agency information, and insert their own.  When an interested party contacted them, they would give a story of being out of town and needing to lease the home quickly because of the challenging real estate market and economy.  They would follow with instructions to simply mail the deposit and they would promise to put the keys in the mail to them as well.  Of course, there were no keys to send to the potential tenant, and you can guess what happened to the deposits that were mailed.  The only reason folks wound up contacting us was because they just happened to use a search engine to search the address where they also found the property on our websites for sale and would call us by mistake.  We shudder to imagine the people who did not call us and discover the truth before sending off deposits to the scam artists.

As Craigslist scams have become much more prevalent, please be careful if you or someone you know is searching for a home to lease.  Here are some things to look for:  1) The rent amount per month seems like a significant bargain.  2) The contact person will not be able to meet you at the property.  3) The scammer will be in a hurry and will suggest all he/she needs is the first month’s deposit mailed to them and they’ll go ahead and mail you the keys.  4) They may create a cover story as to why there is a real estate agency sign on the property.   When in doubt, google the address of the rental and see if the details add up.

There is not enough space in these pages to provide all the details I’d like about these issues, but just remember these things.  In the case of lease purchases – it’s actually a contract to purchase the home.  For Craigslist lease properties, simply remember the adage, “if it sounds too good to be true, it probably is.”  To our sellers, know that we diligently watch these events and take appropriate action to have the false ad removed as soon as we discover it.  And, if you have any doubts, our team is just a phone call or click away.

 

Best,

Adam & Team