Landlords and people offering “Rent to Own”, “Lease to Own”, or “Contract for Deed” contracts should be handled with caution. Sometimes these agreements are made with good intentions by honest people. They are told they are purchasing but don’t realize the “seller” does not intend to transfer ownership. Sometimes they are made by landlords preying on people and families struggling to get by. However, there are usually terms in the agreement that we can argue make the agreement a purchase disguised as a lease and the court should resolve the ambiguity in favor of the purchaser.
These agreements are governed by Oklahoma law in 16 O.S. § 11A.
Rent/lease to own, or contract for deed, agreements are housing contracts in Oklahoma. These contracts are seen as constructive mortgages, which are not actual mortgages, but can be just as binding. They are attractive to home buyers who may not qualify for a traditional mortgage or have been denied in the past.
These are agreements made between and property owner and a person looking to buy the home. Banks or other lending institutions are not involved. The property owner offers the home to a buyer without a mortgage. Instead, the buyer agrees to make a large payment in the beginning and regular payments that go towards the future purchase of the home.
How Does it Work?A "rent to own" contract is a way for someone to eventually buy a home, but they start by renting it first.
Here's how it works:
At the end of the day, it will feel like you are buying the home. However, you are a renter according to Oklahoma law until ownership of the home is given to you.
What Issues Could Come Up?The contract will not look like a typical mortgage contract and may read more like a lease agreement. This gives the seller the same legal rights as a landlord. Homeowner’s insurance that covers the seller is usually required in the contract. The insurance does not cover you though.
Can I Be Evicted?If there is no land, then the seller could use normal eviction procedures and file a Forcible Entry and Detainer (FED) lawsuit in court. FED cases are how landlords typically evict renters. If the property is something like a mobile home the seller could file a standard eviction, or FED case, to force you out. This is because the mobile home and land are usually rented or sold separately.
The seller can use the terms and specific conditions of the contract to evict you for reasons like:
Normal eviction procedures cannot be used if the contract is for the sale of the home and the land it is on. Instead, the seller will have to file for an Ejectment in court. An ejectment can take much longer and requires a foreclosure and all the foreclosure steps required by Oklahoma law.
How Can I Protect Myself?Buyers should protect themselves by filing a copy of the agreement with the county clerk (land records). The seller can sell the home to someone else if you do not file your agreement. If that happens, you will lose your investment.
What is an "Option Contract"?Under the Option contract, a buyer pays $1000 for the option to buy the house at a later date. The contract says that all payments toward principle are forfeited. The Option contract requires that the buyer pay off the entire balance at a specific date or get outside financing from somewhere else. The option payment is not refundable. Many times, if the buyer is able to purchase the home, the seller finds a reason to evict.
These types of agreements should be avoided. A legitimate contract for deed with be a purchase agreement, not an option contract. It will not have terms that allow the seller to use the eviction process to remove the buyer.