What is a Lease-Option Assignment?

August 3, 2018 by Marty Orefice | Real Estate, Rent to Own

Consider assigning your lease-option to someone else before you give up your option fee.

Typically, when circumstances change for buyers and they can no longer purchase the home they lease-optioned, they lose their option fee and any premium payments made.

There is another option that few people consider. You could assign your lease-option to someone else, kind of like a sublease.

What Happens When You Assign a Lease-Option

When you assign a lease-option, you give someone else your option to purchase the home.

Normally, you assign the lease-option to someone who is ready to purchase the home right away. It’s a lot easier to work out an arrangement for someone to buy the home from the seller than to convince the seller to allow this new person to move into their home.

You can do this with the seller's permission or without, but you will need the help of a qualified realtor or attorney.

An attorney can redraft the contract so that you never take possession of the home. In this scenario, you will need the seller’s permission. This is the true definition of lease-option assignment.

A different more complicated scenario involves a whole bunch of escrow accounts. Your lawyer or realtor would work it out for you, but basically, you would purchase the home from the seller as the buyer. Then, you would immediately sell the home to the new person you’ve found and use the money they pay to pay the buyer. The arrangement is very similar to that used in a sandwich lease-option.

While the process is complex, real estate attorneys are well versed on how they work. Though people do not assign rent to own contracts very often, they assign other types of contracts quite frequently. The field is called wholesale real estate.

That means the seller wouldn’t have the chance to keep your option fee and premium payment in addition to selling to someone else.

The Assignee May Want to Negotiate

In this scenario, the assignee would benefit from your option fee and any premium payments, which are applied to the purchase price of the home.

You should ask the person to whom you’re assigning the lease-option to give you back most if not all of the money you’ve put into the lease-option.

Otherwise, there is no point for you to bother finding a new buyer for the seller. Getting nothing out of an assignment has an equal benefit to you as assigning it to someone else. In one situation the seller benefits from your money, in the other the assignee does, but neither of these options benefits you.

Unfortunately, you’re kind of in a hard place when you’re assigning a lease-option to someone else in that this person has all the leverage. This person might try to negotiate with you to keep some of the option fee or premium payment.

The person can purchase the home after your lease-option has ended and not interact with you at all, in which case you would lose everything you’ve invested. However, with this person’s help, you don’t have to give up the full amount. Therefore, if the person who is helping you wants a cut of the option-fee or premium payments, you should consider it. Giving up part of the money is a lot better than giving it all up.

Why Should You Assign a Lease-Option?

You should assign your lease option if you’re not going through with your lease-option. This way, you have a chance at getting back some of the money you’ve invested into the lease-option.

This process is beneficial to the seller too. Sure, they miss out on keeping your option fee and the premium payments. However, the amount of money they would have lost while looking for a new buyer balances it out. Plus, this way the seller can move on with new investments or pay off their own mortgage.

Mosby Front by Glenda Cherry is licensed under CC BY-ND 2.0.

Marty Orefice

About The Author

Marty Orefice

Martin Orefice is a real estate investor who has been in the industry for over a decade. He has experience with rent to own deals from all sides—as a buyer, seller and investor. He created RentToOwnLabs.com to provide the #1 resource where people can find information about all things rent to own.

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