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Lane
Lane, JD, CFP, MBA, CRPS
Category: Finance
Satisfied Customers: 12648
Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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Thre tennant put up20.000 to purchase rent to own and paid

Customer Question

thre tennant put up20.000 to purchase rent to own and paid 500 per month for the agreed 2 years and was to get a bank loan to buy house 278,000 owed on house buyer aware. They have not come up with loan now they haver to start paying rent of 1500 they say we have to give them their 20,000 back.
Submitted: 1 year ago.
Category: Finance
Expert:  Lane replied 1 year ago.

Hi,

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This completely depends on the wording your contract.

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Although many states have their own regs on this and no two rent-to-own contracts are alike, someone in a rent-to-own agreement typically rents the property for a set amount of time (usually one to three years), after which he or she can purchase the house from the seller.

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It’s not as simple, of course, as paying rent for three years and then buying the house: Certain terms and conditions must be met, in accordance with the contract.

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In a rent-to-own agreement, the potential buyer pays the seller a one-time, usually non-refundable fee called option money, or option consideration.... This is a PRICE PAID FOR HAVING THE OPTION TO BUY before anyone else can buy the home ... and many times at an agreed upon price.

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This gives the potential buyer the right but not the obligation to purchase when the lease expires.

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AND in many contracts this price paid for the option reduces the price of the home or is applied PARTIALLY to the purchase price.

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But in my 30 years in practice, I've never seen a contract worded where the option price is essentially pre-paid rent if they decide NOT to buy (which is essentially what your tenant is claiming here).

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Also, a contract that worded as " rent to own," or lease to own," the tenant IS obligated to buy, and if does not typically forgoes the up from payment.

Expert:  Lane replied 1 year ago.

Also, in many contracts, a percentage of each monthly rent payment is applied to the purchase price. For example, assume the contract states that the buyer will pay $1,200 each month for rent, and that 25% of that will be credited to the purchase.

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If the lease term is three years, the buyer will earn a $10,800 rent credit to apply toward the purchase ($1,200 x 0.25 = $300; $300 x 36 months = $10,800). Often, the rent charged by the seller will be slightly higher than the “going rate” for the area to accommodate the rent credit the buyer receives.

Expert:  Lane replied 1 year ago.

Finally, if the potential buyer decides not to purchase the property (or is unable to secure financing) at the end of the lease term, the option expires. The buyer forfeits any money paid until that point, including the option money and any rent credit earned. If the buyer cannot purchase the property but has a legal obligation to (as stated in the contract), legal proceedings may be initiated.

Expert:  Lane replied 1 year ago.

FLORIDA LAW:

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Florida law requires that any rent to own contract be in writing and signed by both parties. ...

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The printed portion of the contract must be in at least six point type and must include a notice which informs the tenant that they should not sign the contract until all of the blanks are filled in, and that they must be provided an exact copy of the signed agreement.

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The agreement must state all information clearly, using commonly understood words and phrases. It must be divided into sections with the topics clearly labeled. All amounts and percentages must be stated in numbers rather than words.

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Expert:  Lane replied 1 year ago.

And here arethe rtequired elements that must be included in a FLORIODA rent to own contract.

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  • your name and personal or business address
  • name and address of the tenant
  • a brief description of the property sufficient to identify it (this must include whether property is new or was previously leased)
  • the total amount of the initial payment, including advance payments, delivery charges and trade in amounts
  • the amount of each rental payment to be paid and the due date
  • an itemization of any additional charges not included in the rental payment
  • the total amount tennant will end up paying for the purchase of the property under the agreement -- including the total of all the rent payments, the initial payments and any other fees or charges
  • the extent of tenant's responsibility for loss or damage to the property other than normal wear and tear
  • tenant's right (or not) to reinstate the agreement if tenant falls behind in payments, including disclosure of any penalties and other charges, and the method to be used for calculating any amount tenant woulod need to pay to reinstate the agreement
  • the party that is responsible for maintaining or servicing the property during the term of the agreement and a brief description of the extent of the responsibility
  • when and under what circumstances you and the tenant may terminate the agreement
  • disclosure that tenant has the option to complete the purchase during the term of the agreement and the price or method for calculating the price if tenant exercises this option
  • a statement that any manufacturer's warranties in effect at the completion of the purchase will be transferred to the tenant, and
  • the actual cash price of the property if tenant purchased it rather then enter into a rent to own agreement.
Expert:  Lane replied 1 year ago.

Please let me know if you have any questions at all.

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If this HAS helped, and you DON’T have other questions … I'd appreciate a positive rating (using the faces or stars on your screen, and then clicking “submit")

I know it takes an extra step, but JustAnswer won’t credit us for the work until you rate.

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Thank you!

Lane

I have a law degree, with concentration in Tax Law, Estate law & Corporate law, an MBA, with specialization in finance & tax, as well as CFP® and CRPS designations. - I’ve been providing financial, Social Security/Medicare, estate, corporate, both for-profit and non-profit, and tax advice on three continents, since 1986.