How to Avoid Rent-to-Own Schemes in South Carolina

The ways to enter these kinds of contracts and avoid predatory landlords

By Benjy Schirm

For some Americans, the dream is to own a home. But for far too many, it’s a goal that is out of their financial reach. While you may not qualify for a mortgage, you still need a place to live, and one option to consider is a rent-to-own contract.

Essentially, rent-to-own contracts are an agreement between a homeowner and a buyer to slowly transfer the property without involving a mortgage company or third-party lender. The three types of rent-to-own sales that are most common are: a lease with an option to purchase,  a land installment contract, and a wrap-around mortgage.

Lease with an Option to Purchase

In this model, a buyer will often give a large down payment and then rent from the owner of the property for a set amount of time. When that time runs out, the buyer/renter has the option to pay the rest of the purchase price.

If the buyer cannot pay the whole amount for the house before time runs out, the seller keeps the down payment, keeps the house and keeps all the payments the buyer made. The buyer gets nothing.

Land Installment Contract

A land installment contract is an agreement to give monthly payments to the owner of a property until the property is paid off. This can take a really long time, and often these contracts say if you miss one payment, you will lose the house and any and all equity you have paid into it.

Wrap-Around Mortgage

A wrap-around mortgage is an agreement where a renter/buyer gives monthly payments to the seller who agrees to pay their mortgage payments with this money. This agreement often makes the seller money when they charge more in rent than their mortgage payments and they pocket the excess. These agreements are sometimes broken in South Carolina.

There is a right way to enter into any of these agreements, and, unfortunately, many wrong ways to do them.

In a 2018 case involving Kingdom Connected Investments, tenants said the company kept the rent they were paying instead of putting it toward the original mortgage debt. As a result, the original lender foreclosed on the homes, leaving the tenants out of a house and their money.

There are many recommendations from both the Federal Trade Commission and the Better Business Bureau on the best ways to enter into these agreements. In general, you will want to find out as much as you can about who you are entering into a contract with. Know who owns the property, if the property taxes are paid up, and the quality of the property through an inspection report.

It may seem like you don’t have time or the ability to properly investigate an opportunity for a new home. And if you are in the situation of financial difficulty, it may seem even less likely you will want to take the time and money to investigate your new home. But there are services to help you make the best decision possible. And remember: You may not have much money now, but over the course of a year or multiple-year lease, you are likely to spend tens of thousands of dollars on this place. Make sure you’re entering into something that is worthwhile instead of losing out on the back end.

Most importantly, if you decide to enter into one of these agreements, be certain that the contract you sign is in your best interest and a smart option. Be sure to contact an experienced and reputable attorney before signing anything.

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