Q: Is rent to own the best way to buy/acquire a home in pre-foreclosure if you don't have the credit to take out a loan?
A friend of mine has a neighbor who is in danger of being foreclosed on due to COVID impacting his business. They are willing to sell me the home, however, I don't have the credit available to purchase it using a conventional loan since I already own my own home. I’m hoping to move into his home and rent my home out. We were working together to see if I could buy the property over time through a rent to own agreement if I pay to catch him back up on his mortgage.
However, with him having financial troubles am I protected if his financial situation gets worse and he goes bankrupt?
Should I be added to the title to protect the initial investment of money I might have to make?
Is there another option or is this the most practical?
How much would it cost to get a contract created or is this something I can do myself or just get online?
Thanks in advance.
A: You really, really need a lawyer to review your plan. First, your agreement with the neighbor has no binding effect on the mortgage lender. They aren't going to stop foreclosing because you plan to start a lengthy process of acquisition. Indeed, if you try to record any form of sale, there is a near certainty that the neighbor's mortgage note has a due on sale clause which calls the note immediately. So, for this cockamamie plan to work, the bank needs to agree, and that isn't going to happen unless you make it part of the neighbor's recovery plan with the bank or a part of a chapter 13 bankruptcy. And, in no circumstances are you protected anywhere in that process.
There may be ways to buy the house and finance it using your home, but that needs to be explored in an interview in which you reveal your financial circumstances and then plan the acquisition. Obviously, you should not reveal such information in an open, on-line forum.
Anthony M. Avery agrees with this answer
A: A rent-to-own arrangement does NOT protect property from going into foreclosure. A lender who is not paid usually has the right to foreclose on property and a tenant under a rent-to-own contract would lose the right to purchase if the property goes through foreclosure. In certain situations a lender MAY have an obligation to continue renting to existing tenants for a period of time after foreclosure.
Maryland law offers certain protections to homeowners in foreclosure and anyone wishing to help "save" property in foreclosure would be strongly advised to read up on the Protection of Homeowners in Foreclosure Act.
Anyone seeking to acquire real estate from a owner in foreclosure is strongly encouraged to seek legal advice. While this posted answer isn't legal advice, I hope that you find the general information helpful.
Anthony M. Avery agrees with this answer
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