Rent to own situations can be structured in two popular ways. One is the lease purchase. A lease purchase usually requires the tenant to commit to buy the home over an agreed to period of time. Terms can be quite flexible to suit the renter's needs. These terms include the time frame, the amount of rent applied to the rent to own purchase, and the price of the property. The second approach is called a lease option. In a lease option, many of the same terms apply as in a lease purchase. The difference is in the lease option, the tenant may not be required to purchase the home at the end of the option time period. However, in each case, the renter usually needs to put up a non-refundable option fee to initiate the rent to own contract.
If a property fails to sell at a foreclosure auction or if it otherwise never went through one, lenders — often banks — typically take ownership of the property and may add it to an accumulated portfolio of foreclosed properties, also called real-estate owned (REO). Foreclosed properties are typically easily accessible on banks' websites. Such properties can be attractive to real estate investors because in some cases, banks sell them at a discount to their market value, which of course, in turn negatively affects the lender. (See more on this here: Buying a Foreclosed Home).
Other types of foreclosure are considered minor because of their limited availability. Under strict foreclosure, which is available in a few states including Connecticut, New Hampshire and Vermont, if the mortgagee wins the court case, the court orders the defaulted mortgagor to pay the mortgage within a specified period of time. Should the mortgagor fail to do so, the mortgage holder gains the title to the property with no obligation to sell it. This type of foreclosure is generally available only when the value of the property is less than the debt ("under water"). Historically, strict foreclosure was the original method of foreclosure.
For a developing country, there is a high rate of foreclosures in South Africa[citation needed] because of the privatisation of housing delivery.[neutrality is disputed] One of the biggest opponents of foreclosures is the Western Cape Anti-Eviction Campaign which sees foreclosures as unconstitutional and a particular burden on vulnerable poor populations.[52][53][undue weight? – discuss]
Several U.S. states, including California,[17] Georgia,[18] and Texas[19] impose a "tender" condition precedent upon borrowers seeking to challenge a wrongful foreclosure, which is rooted in the maxim of equity principle that "he who seeks equity must first do equity", as well as the common law rule that the party seeking rescission of a contract must first return all benefits received under the contract.

Because the right of redemption is an equitable right, foreclosure is an action in equity. To keep the right of redemption, the debtor may be able to petition the court for an injunction. If repossession is imminent, the debtor must seek a temporary restraining order. However, the debtor may have to post a bond in the amount of the debt. This protects the creditor if the attempt to stop foreclosure is simply an attempt to escape the debt.
Another drawback could be liens recorded against the property that will become your problem after title transfer. Some investors who buy at trustee sales pay for a title search in advance to avoid this problem. These guys who show up to bid on the courthouse steps are professionals, and they buy foreclosures at auction as a business. They hope to buy the foreclosure at a low price to make a nice profit when they later flip the home. You do not need to hire a real estate agent to buy a foreclosure at the auction, but you do need to know what you are doing to compete with the pros.

Because the right of redemption is an equitable right, foreclosure is an action in equity. To keep the right of redemption, the debtor may be able to petition the court for an injunction. If repossession is imminent, the debtor must seek a temporary restraining order. However, the debtor may have to post a bond in the amount of the debt. This protects the creditor if the attempt to stop foreclosure is simply an attempt to escape the debt.
A dual-tracking process appeared to be in use by many lenders, however, where the lender would simultaneously talk to the borrower about a "loan modification", but also move ahead with a foreclosure sale of the borrower's property. Borrowers were heard to complain that they were misled by these practices and would often be "surprised" that their home had been sold at foreclosure auction, as they believed they were in a "loan modification process". California has enacted legislation to eliminate this type of "dual-tracking" - The Homeowner Bill of Rights - AB 278, SB 900, That went into effect on January 1, 2013.[27]
The mortgagor may be required to pay for Private Mortgage Insurance, or PMI, for as long as the principal of his or her primary mortgage is above 80% of the value of his or her property. In most situations, insurance requirements guarantee that the lender gets back some pre-defined proportion of the loan value, either from foreclosure auction proceeds or from PMI or a combination of those.
While rent-to-own agreements have traditionally been geared toward people who can’t qualify for conforming loans, there’s a second group of candidates who have been largely overlooked by the rent-to-own industry: people who can’t get mortgages in pricey, non-conforming loan markets. “In high-cost urban real estate markets, where jumbo [nonconforming] loans are the standard, there is a large demand for a better solution for financially viable, credit-worthy people who can’t get or don’t want a mortgage yet,” says Marjorie Scholtz, founder and CEO of Verbhouse, a San Francisco–based start-up that’s redefining the rent-to-own market.
The mortgage holder can usually initiate foreclosure at a time specified in the mortgage documents, typically some period of time after a default condition occurs. In the United States, Canada and many other countries, several types of foreclosure exist. In the US for example, two of them – namely, by judicial sale and by power of sale – are widely used, but other modes are possible in a few other U.S. states.
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There are exceptions to this rule. If the mortgage is a non-recourse debt (which is often the case with owner-occupied residential mortgages in the U.S.), lender may not go after borrower's assets to recoup his losses. Lender's ability to pursue deficiency judgment may be restricted by state laws. In California and some other US states, original mortgages (the ones taken out at the time of purchase) are typically non-recourse loans; however, refinanced loans and home equity lines of credit are not.
If you have a lease-purchase contract, you may be legally obligated to buy the property when the lease expires. This can be problematic for many reasons, especially if you aren’t able to secure a mortgage. Lease-option contracts are almost always preferable to lease-purchase contracts because they offer more flexibility and you don’t risk getting sued if you are unwilling or unable to buy the home when the lease expires.
In both of these countries statutory reform has altered the manner in which real property dealings are conducted. What is termed a "mortgage" is a legal interest that is registered against the fee simple title of the property. Since in both countries, the Torrens title system of land registration is used, being registered as proprietor or as a mortgagee creates an indefeasible interest (unless the acquisition of the registration was by land transfer fraud). The mortgagee therefore never holds the fee simple, and there is a statutory process for initiating and conducting a mortgagee sale in the event that the mortgagor defaults. In New Zealand, as in England, say, the land title database is now electronic so there are no paper "title documents".
A foreclosure, as in the actual act of a lender seizing a property, is typically the final step after a lengthy pre-foreclosure process, which can include several alternatives to foreclosure including many that can mediate a foreclosure's negative consequences for both the buyer and the seller. As with foreclosures, states have their own laws to handle this process.
At HousingList we believe home-ownership should be accessible to everyone. We work to spread awareness around alternative, non-traditional routes to home-ownership such as rent-to-own and HUD properties. These alternative paths to owning a home can help people who don't have enough funds saved for today's rising down-payments, people who need to improve their credit scores, or any number of factors that prevent today's buyers from the dream of homeownership.
Nevertheless, in an illiquid real estate market or if real estate prices drop, the property being foreclosed could be sold for less than the remaining balance on the primary mortgage loan, and there may be no insurance to cover the loss. In this case, the court overseeing the foreclosure process may enter a deficiency judgment against the mortgagor. Deficiency judgments can be used to place a lien on the borrower's other property that obligates the mortgagor to repay the difference. It gives lender a legal right to collect the remainder of debt out of mortgagor's other assets (if any).
Rent-to-own agreements should specify when and how the home’s purchase price is determined. In some cases, you and the seller will agree on a purchase price when the contract is signed – often at a higher price than the current market value. In other situations, the price is determined when the lease expires, based on the property's then-current market value. Many buyers prefer to “lock in” the purchase price, especially in markets where home prices are trending up.
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