Over the past several years, “lease-to-own” programs, also known as “rent-to-own” programs, have become very popular. They are frequently offered as a second option for alternative financing. Whether the program is promoted by mortgage brokers, telemarketers or individuals, this option seems interesting on the surface, as it allows you to remain in your home while also being able to buy it back in the future at a predetermined price, oftentimes the financing price plus 5% per year.
An uncertain buyback
In addition to the numerous clauses in the contract that can eliminate your ability to buy back your home (ex. default on payment) there is another factor that the client doesn’t control: the financial stability of the property purchaser.
You can lose your life savings
Below is a real case which was told to me by a client less than a month ago.
Mr. Paradis had financial problems and his financial institution had sent him a 60 day notice. He risked losing his home at any moment. After being advised by a mortgage broker who was a member of a large Quebec-based brokerage firm, he opted for a “lease-to-own” program.
On completing the sale to the notary, Mr. Paradis met Mr. Bélanger, the real-estate investor who acquired his property in order to “temporarily” rent it to him to then allow him to buy back his home. Mr. Paradis believed that the property would be repurchased by a recognized company, not an individual. After having been reassured by the mortgage broker, he went forward with the transaction and sold his property, worth $250,000, for $150,000, with the option to buy it back the following year for $157,500.
Then the unexpected happened. A Revenue Quebec legal mortgage for the amount of $153,453 was registered on Mr. Paradis’ property. In reality, Mr. Bélanger, the real-estate investor, had not paid his taxes relating to previous real-estate projects and did not have the means to pay them in full. Now in financial difficulty, Mr. Bélanger ceased his monthly payments on the mortgage and the bank sent a notice of exercise of hypothecary right in order to seize said property.
In addition to losing the full equity that he had in the property, Mr. Paradis and his family once again faced the risk of eviction…
In the majority of cases similar to this one, the only recourse available is to sue the owner. Given that the owner is in financial difficulty, it would most likely be impossible to recover the lost amounts.
Why would obtaining alternative financing have been a better option?
Obtaining refinancing or a second mortgage with an alternative mortgage lender would have allowed the client to keep their home in their name and avoid being exposed to the risks that occurred in the case cited above.
If you have additional questions about alternative mortgage financing, or if you are currently looking for alternative mortgage financing, please contact me at firstname.lastname@example.org or by telephone at 1 (877) 220-7738 Ext. 101.