If you recall from our last general update, our lease purchase contract on The Corn House is about to expire at the end of August. Given that the buyers hadn’t much improved their credit since April, and worse yet that they had bounced a rent check (that they immediately replaced with a cashier’s check), we needed to sit down with them to have a serious heart-to-heart conversation.
We were considering letting the contract end, kicking them out, and then putting the house back on the market to sell, but we wanted to get some feedback from them before making any final decisions. It’s worth noting that these buyers are very good people and are serious about *wanting* to buy the house. In fact, they have already done a good bit of improvements to the house, including replacing some cheap light fixtures with nicer ones, improving the landscaping, etc. So, while we’ve never questioned their sincerity at following through with the purchase, we’re concerned that they don’t have the knowledge or discipline to actually make it happen.
It’s also worth noting that these buyers are paying a large fee each month that will go towards their down-payment and purchase should they buy the house. While market rents in this area are probably about $900-950/month, these buyers are paying $1000 per month in rent and then another $500 per month towards the purchase of the house should they exercise their option to buy. Given that, we’re making out well financially even if they never buy the house.
But, we don’t want to take advantage of them by having them continue to pay large sums towards a house they can never purchase, and we also want to sell the house as quickly as possible, as we purchased it for all-cash and a have a lot of equity tied up in the property.
When we got to the house to speak with them, they were practically in tears. They knew we were considering ending the contract, but clearly weren’t ready to give up the house. They had already written out the next two months rent checks (in hopes we’d extend the contract) and they provided proof that they were actually working with a credit repair company to try to improve their credit. Both of these things were reassuring, and again, given that we are making good money off these buyers even if they never buy the house, we just wanted to see that they were serious in their efforts.
In the end, we decided to have them call a credit repair company that a couple of our team members (our broker and our lender) recommended. We’ve gotten great feedback about this company, and have been told that if they can’t get these people’s credit to where it needs to be, nobody can. We told the buyers that if the credit repair company said they’d have a shot of qualifying for a mortgage within 6 months, we’d extend the contract for 6 months.
After a 3-way discussion between me, the buyers, and one of the senior folks at the credit repair company, I’m now fairly convinced that our buyers have a good shot at qualifying within 6 months if they continue to do all the right things. So, we wrote up an extension to the contract, we a couple stipulations around checking in with the credit company several times per month, getting a couple large bills paid off, etc. The contract has been extended through February 2010, and if they do all the right things between now and then, they have a reasonable chance of qualifying for their FHA mortgage.
And if they don’t do their part to try to qualify, I won’t feel bad taking the extra $3000 in option fees they’ll be paying between now and then…