I met with Derek Jarr this afternoon to talk about his filled lease option properties that his company sells. Specifically, I wanted to address the questions that Kenric and some others raised in comments to a previous post about this. What all the questions really come down to is how does the investor cover his butt and prevent the former owner from raising legal issues a year or two down the road when their option and pre-paid rent run out?
First off, realize you can never fully protect yourself from having someone sue you. No matter what documents they have signed, if they feel you are abusing them, they will sue. If you have done things right, they will lose the lawsuit, but they can still file. It's a fact of life in real estate investing.
That said, it appears they do cover their bases pretty well. Their standard filled lease option deal with the seller involves three separate documents: a purchase contract, a lease, and an option to buy. They are very upfront with the seller and tell them that they will no longer own the property, that they will now be renters, and that they (Live Free Investment Group) may sell their house to another investor and that the investor still must honor the terms of the lease and option to buy. The company will soon have an additional document that the sellers will sign that states, in big, bold letters, that they are selling the house and are now renters to further emphasize the fact and to provide written proof of that this disclosure was made.
From listening to Derek talk, the company is concerned with helping the seller get back on the path to financial solvency. The pre-paid rent payments they work out with the seller are ones the seller can afford. They strongly recommend to the seller that they enter a credit counseling program. They are working on establishing relationships with mortgage brokerages that can help these people get loans a year down the road that will enable them to buy the place - and by getting them in contact this early, the brokers and banks can instruct them what they need to do to improve their credit. In short, I am pretty convinced that the company makes every effort to help the people they are buying homes from.
All in all, I feel comfortable dealing with them.
Full disclosure: I found out there are a couple people in his office that read this blog. I also have not actually done a deal with them yet. These are my unsolicited comments.