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Banking setup for Rent-to-Own

Clinton Boyda

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May 10, 2015
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Looking to fix a rent-to-own agreement. Bank is saying that our rent collected can't be used as a downpayment so it looks like we need to setup a separate bank account to illustrate the renter's mortgage down payment that has grown during the term.

I am worried if I setup the bank account strictly under the renters' name they will simply liquidate and walk (totally breaking the agreement but leaving me no way control the collection), how should the financial side of the rent-to-own bank accounts be setup?

Is there a way to create a bank account they can only deposit but not withdraw from?
We were thinking of putting a second signature on the account to control withdrawls and just use a third party. Could anyone be that 3rd party and just act like a control?

If the agreement fails how can I ensure the money put into that account is forfeit to me/the property owner? Sure the agreement can be written that way but if the tenant and a 3rd party need to mutually sign for withdrawls then the tenant could break the agreement and never release the funds.
 

Sherilynn

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There is no need for rent and option to be in separate bank accounts, and under no circumstances should any account have the tenants' names attached to it.

There could be an issue with the amounts, the contracts, or the way the deal was presented to the banks. Please feel free to email your contracts to me for review. [email protected] It could help to copy me on the exact wording of the bank's response.
 

Clinton Boyda

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Thanks, after sleeping on it, I totally found the REIN seller financing information and realized my "account" statement simply need to reflect this increasing growth of equity the tenant is growing while they pay their rent.. not literally a separate bank account.
The prompt response is greatly appreciated!
 

Sherilynn

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Ok, but RTO is not the same as Seller Financing, so be careful of your wording. The tenant is not growing equity. He is paying option consideration that will be credited to the purchase of the property only if he buys the property. The terms: equity, down payment, deposit, and seller financing all infer a "purchaser's interest" in the property; whereas in fact the tenant is only a tenant with an option to buy the property.
 

Thembi

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Feb 27, 2008
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If I were you, I would ask an experienced lawyerm/accountant and someone like SherryLyn to review your documents. She is really experienced and has done a lot of these deals. Rent to Own and seller financing are different. Be careful on your wording cause that can tie you in courts if the deal doesn't go through.
All the best in whatever you do!
 
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