Setting the Stage for Success

• It is the seller's responsibility to qualify buyers prior to engaging them in a lease option agreement. Likewise, it is irresponsible for a seller who is in financial difficulty to enter into a lease option for a home with a tenant-buyer who needs time to improve her own financial situation. Time is a critical element of the agreement. Most buyers need one to three years to be able to improve their situation and qualify for financing, and a seller in financial straits may not be able to hold out that long. If a buyer suspects the seller is having financial trouble, she should meet with the buyer and, if need be, consult with an attorney.
  
  

Problems Stemming From the Seller

• Some buyers discover, often too late, that the seller they put their trust in is in serious financial trouble and the house they optioned is in foreclosure. A seller's finances can turn upside down quickly by being naive or over-optimistic. Major repairs, failure to budget for property taxes and property insurance and expenses unrelated to the house can trigger a financial crisis for the seller. Buyers should be aware of changes in the seller's behavior. Seller defaults can be especially damaging for buyers who have paid an option fee and faithfully paid rent on time in order to earn rent credits. The buyer may have no real recourse but to negotiate a few months of pre-paid rent until foreclosure begins.
  
  

Gap in the Law

• In 2005 the Texas State Senate passed a controversial law, House Bill 1823, which effectively converts a lease with an option to buy to a contract for deed. Other states, notably Minnesota, have considered legislation to address what is generally considered to be a gap in consumer protection with many lease options. The feeling among landlords in Minnesota, and elsewhere, is that the Texas law is too one-sided in favor of buyers, but greater disclosure and safeguards to prevent unscrupulous sellers from taking advantage of naive buyers should be in place.
  
  

Remedies That Could Safeguard Buyers

• Safeguarding includes having a better understanding of the seller's financial situation, knowing what encumbrances, if any, are on the house and being assured that mortgage payments and other expenses related to the house are paid on time by the seller. If a seller flagrantly violates the tenant-buyer's option to buy by entering into a contract with another buyer, the tenant-buyer would have a strong case against the seller, but only if the tenant-buyer is in compliance with the lease and the option agreement. The tenant-buyer should contact an attorney immediately for advice on how to proceed. If the tenant-buyer intends to exercise her option to buy, she must do so in writing prior to the option date.