here is a very simple solution here. ALWAYS have the buyer make payments through a third party contract collections company or escrow company that handles contract collections. This is a very important step to help protect the buyer's interest in the property. This should be the case in both a lease option and an owner contract. The buyer will make payments to the third party contract collection company each month and then the contract collection company will make the underlying mortgage payment if there is one for the seller and then send any extra balance to the seller. The contract collection company can also make the annual or semi annual tax payment on the property and an annual insurance premium for the property. This will help in three important ways.
1. It ensures both the buyer and the seller that the underlying mortgage payment is always made each month the buyer makes a payment which in turn will remove any chance that the seller may stop making payments and allow the property to go to foreclosure.
2. It provides a record of the buyer making timely monthly payments to the seller. This is very important to a potential lender providing a loan for the buyer in the future. The third party contract collections company will be able to provide a verification of mortgage to a lender that the buyer has been making timely payments which is a very important condition of getting a conventional loan.
3. The third party contract collection company will keep accurate accounting records of the payments made by the buyer and will provide monthly or annual reports to both the buyer and seller. This is an easy way to always know what the remaining balance is for either party when requested. It makes it easy to know a required payoff when the buyer wishes to exercise the option or refinance the owner contract.
In all offers that are presented for buyers make sure that you request that the payments be made to a third party contract collections company and the third party contract collections company is to make the underlying mortgage payment. Also ask that the cost of the contract collection company to be split equally between the buyer and the seller. You also want to request that escrow is to figure out what the annual taxes are an the cost of an annual insurance policy for the buyer and ad that into the monthly payment by the buyer to the contract collection company. This will keep the property current on taxes and will ensure the seller that the insurance policy is always kept current on the property protecting both parties.
Each company has different fees depending on how many disbursements they make for the clients each month. A typical monthly fee should be around $18.00 per month so $9.00 per party. This will come out of the monthly payment each month.
Make sure the title company has the name and the number of the contract collection to be used in the transaction. Both parties will have to fill out an application and sign escrow instructions with the contract collections company telling the company exactly what to do with the funds collected each month. This can be handled through the title company at closing.
Jeremy Jordan
Helping America RE/GROW!
Principal Broker,
RE/MAX Metro Gold
Lease Option GroupTM
www.leaseoptiongrouphomes.com
503-726-4653 (office)
503-209-6183 (cell)
503-726-4654 (fax)
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