Land Contracts – What to Know Before You “Rent to Own”

Full disclosure – in my time working at OG+S, I have not had one single client ask me about Land Contracts. That said, all of us volunteer a ton, so we luckily get a lot of exposure to other issues our OG+S clients may not normally run into. Erin is very active with the Community Foundation of Southern Wisconsin, and Jeff puts in countless hours with multiple Madison startup and beverage related organizations. For my part, I volunteer with Legal Action of Wisconsin in their Eviction Defense Project (EDP). The EDP helps low income individuals in Milwaukee who are being evicted from their homes and provides free “day of” representation both at the initial return date and the eventual trial. It’s a great organization; you should check it out.

One issue that comes up sadly, pretty often, is the rent to own scam. Basically, the scam works like this:

  • Landlord approaches potential tenant with a “great opportunity!”
  • Landlord says, “Rent to own! This place can be yours! The rent is $600\month plus another $600 towards the eventual purchase of the house! You take care of the maintenance and pay on time, and it will be yours sooner than you know it!”
  • Tenant asks for all of this to be put in a lease and signed.
  • Landlord gets a form WI lease from Office Max and fills in the blanks – noting the “rent” as $1,200 – wildly higher than the other houses on the block.
  • Eventually, after paying on time for a year, the Tenant falls on some hard luck and can’t make the rent. The Landlord evicts…but…what happens to that additional $600 the tenant has been paying?

For people with means, this scam might seem far fetched, but for the thousands of people who cannot get a conventional mortgage to buy their home, “rent to own” or more appropriately, “Seller Financing” is often the only route available to them. So, if you or someone you know is about to enter into a “rent to own” transaction, here are some tips:

  • Until you own the house, your Landlord is still the Landlord, and it’s illegal for Landlords to force tenants to make repairs under Wisconsin law. This is probably the most often misunderstood part of the transaction. Just because you enter into a rent to own agreement, that does not change the rental relationship with your Landlord. Rather, the Landlord remains the Landlord until you own the house, so by extension, they are still required to make the repairs any Landlord would.
  • The WI Form Lease is not made for rent to own transactions. You really need two documents to fully explain the landlord\tenant\seller\buyer relationship. The first document – the Lease! The second document – the Land Contract (which is also a form available here).
  • The Lease explains all the regular Landlord\Tenant items and includes your regular rent payment. The Land Contract explains your relationship with the Landlord as an eventual buyer of the house and includes your payment towards eventual ownership of the house.
  • When you move in, the house should be all ready to go. Do NOT move into a “rent to own” house that you wouldn’t move into as a regular tenant. If the house needs to be fixed before you move in, that’s the Landlord’s responsibility.
  • Keep track of everything! And, record the Land Contract with the Register of Deeds, just like any other important real estate document!

If you need help getting setup in a rent to own, or would like to offer the opportunity of home ownership to your current tenant, OG+S can help.

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