Can I Sell My House with a Lease/Purchase if I Have a Mortgage?

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Many sellers want to know “Can I sell my house with a lease purchase”.  The short answer to that question is “yes”.  Although most mortgages contain a due on sale clause requiring the loan to be paid in full when the property securing the loan is sold, the due on sale clause does not prevent a homeowner from entering into a lease purchase agreement. 

How Does a Lease Purchase Work?

A lease purchase is an agreement between a buyer and a seller whereby the seller agrees to lease the property to the buyer for a specified period of time.  At the end of the lease period, the buyer must purchase the property.  The parties may agree on a purchase price at the time they enter into the lease purchase agreement or they may agree that the purchase price will be determined by market conditions as evidenced by an appraisal at the end of the lease term. 

A lease purchase agreement actually consists of two agreements: one containing the lease terms and the other containing the purchase and sale terms.  The lease agreement is similar to a standard lease.  However, if may make reference to the purchase and sale agreement.  The purchase and sale agreement is similar to a standard purchase and sale agreement, but it usually makes reference to the lease agreement. 

At the beginning of the lease period, the buyer must pay option money which is usually non-refundable and will not be applied toward the purchase price or down payment.  The monthly lease payments required under the terms of the lease will usually be applied toward the down payment or the purchase price. 

During the term of the lease, the seller is prohibited from selling the property to anyone else.  If the buyer fails to purchase the property, the seller is not required to refund the option money or any portion of the monthly lease payments which were to be applied toward the purchase price. 

What is the Difference Between a Lease Purchase and a Lease Option?

A lease purchase requires the buyer to purchase the property at the end of the lease term.  If the buyer fails to purchase the property, the seller may have a claim for specific performance against him.  A lease option, on the other hand, gives the buyer an option to purchase the property at the end of the lease term; however, the buyer is not legally obligated to purchase the property.  

Getting Legal Help

Lease purchases and lease options are risky for both buyers and sellers.  Therefore, it’s best to have a lease purchase agreement or a lease option agreement reviewed by a qualified real estate attorney before signing it.  A real estate attorney will explain the agreement to you and advise you of the legal ramifications of entering into such an agreement.

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