Would it be legal to accept a down payment from someone and use that payment to purchase a rental home for them with an option to buy through our LLC?

UPDATED: Nov 30, 2011

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Would it be legal to accept a down payment from someone and use that payment to purchase a rental home for them with an option to buy through our LLC?

My business partner and I own a small real estate investment company. Recently we have come across a couple families who have poor credit and cannot get approved for a loan. These families want to live in a house with an option to buy later on when their credit gets better. They also have steady jobs and enough money for a down payment. What we were wondering is if it would be legal to accept this money from these families and use it to purchase a house for our own and then rent it out to them.

Asked on November 30, 2011 under Real Estate Law, Washington


FreeAdvice Contributing Attorney / FreeAdvice Contributing Attorney

Answered 11 years ago | Contributor

If you simply bought property and entered into a lease option with the family that you are writing about and the loan did not require owner occupation, that situation would be fine assuming that the money used for the purchase is your own.

What is somewhat amiss is how would you classify the money given to you by the family to buy the property where they could have a lease option? For the family to push money to you where you would use it to but property in your name and then do a lease option with them sounds like it is an attempt to get a loan for this family where they cannot about a loan and the loan is actually in your name. Possibly the scenario that you are describing could be a form of loan fraud.

I suggest that you consult further about your plan with an experienced real estate attorney.

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