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1. Document everything in writing
Keep a written record of everything that is agreed on, and be careful to use the right terms in the agreement.
"Refrain from using the words 'credit,' 'seller' and 'buyer' in your agreements. Instead, use the words 'non-refundable option,' 'landlord' and 'tenant,'" Bill Bronchick, a nationally-known attorney, author, entrepreneur, speaker and CEO of Legalwiz Publications, wrote in his article "Lease Option Tips & Strategies" on REIClub.com.
Written documentation helps the tenant/buyer to prove the lease option's validity in applying for a mortgage at the end of the agreement, William J. Archambault, Jr. of The Real Estate Institute said.
A record also protects the lease option claim on the title against other claims and liens, Archambault said.
Documenting the fair market rent up front is useful because "it's a very difficult thing to go back and recreate what the fair market rent was a year or two years or three years ago," Archambault said.
2. Consult an attorney
Have an attorney draft a legal document specifically for this situation. "Use a legal document that is drafted specifically for your situation. Don't use a form document that you've downloaded from the internet or purchased at a drugstore," Craig Blackmon, a Seattle attorney who specializes in assisting people with the purchase or sale of a home, said.
"Those forms may or may not satisfy the requirements for the investor's particular state. And those forms may or may not specifically address the investor's particular concerns in any one transaction," he said.
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Author: Elizabeth Smith
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