The Community EmpowerLease-To-Own Certification

Brought to you by Community Empower

About The Courseware

This Program Will Help You Understand the Lease-To-Own (LTO) Transaction. It Will Teach You:

– How LTO Works– How to Use Lease-To-Own (LTO)– How to Identify an LTO Opportunity– How to Transact Business With Your Seller and or Buyer

Who is Community Empower?

Community Empower LTO Preparing for Change

• RMBS Lease-To-Own Program• Only LTO Program Ever Reviewed by a Rating Agency (Moodys Rating Services

2007)• $1+ million invested in legal and statutory compliance over 6 years• Fully production tested• Fully Vetted

– Kutak Rock, LLC OmaOnlyha (tax and regulatory review)– Peck Schaeffer, LLC Cincinnati, Atlanta (bond counsel)– Lloyds of London, UK (insurer)– Moodys’ Rating Service (Rating Agency)– Coastal Securities, LLC Houston , TX (Structure firm)– Mitas, LLC (Servicer)– State Counsel (Attorneys at State Level)

• Agent model introduced in Summer 2010• Currently debuting in 19 states servicing 3,000 zip codes• 500 agent/broker panel with 250 Five Star Certified and growing

Ranieri Asks U.S. for National 'Rent to Own' ProgramWednesday, September 29, 2010 Lewis Ranieri, one of the co-inventors of the MBS, says in a new letter to Congress that a national 'rent-to-own' program could help alleviate the national foreclosure crisis.

The 30-year mortgage is outdated, the standard fixed-rate mortgage is outdated, and it has to be improved,” housing expert R obert J . S hiller told C NBC .

Home financing will undergo mass ive change

What is Community Empower LTO?

• A Private Transaction Between Buyer and Seller• A Purchase Agreement With a Temporary Lease (Up to 18

Months)• An Ordinary Transaction Just Like Any Other

– Title Works the Same– Lending Works the Same– Servicing Works the Same– Realtors Work the Same

• LTO Acts as a Program Guarantor to Protect both the Buyer and Seller in an Organized and Professional Structure

About Your CertificationYour Certification Will Provide You With Many Benefits:

– Preferred Relationships With Lead Providers– State Regulatory Updates– Help Desk for Transaction Support – National Support for Program Materials, Inspection

Appraisal– www.forgettherent.com– 1-800-362-6101/480-226-9989 – Linda’s Cell– max@communityempower.com– ldearing@communityempower.com

Buyer Protection

Plan________

•Locked in Purchase Price•Rent Credits •Appreciation •Financial Counseling

Buyer Protection

Plan________

•Locked in Purchase Price•Rent Credits •Appreciation •Financial Counseling

LT0 Program ____________________

Buyers and Sellers Receive:•Transaction Flexibility•Freedom to Move•Financial Security Surrounding Their Transaction•No-Hassle Service from Qualified Realtor Professionals

Seller Protection

Plan______________

•Less Days On Market•Rent Guarantee•Property Mgmt•Qualified Tenant•Full Price Offer•Home Warranty

Seller Protection

Plan______________

•Less Days On Market•Rent Guarantee•Property Mgmt•Qualified Tenant•Full Price Offer•Home Warranty

Benefits___________

•Flexibility•Earn Ownership•Move-in Now•Build Wealth Through Home Ownership

Benefits___________

•Flexibility•Earn Ownership•Move-in Now•Build Wealth Through Home Ownership

Benefits______________

•Flexibility•Financial Security•Asset Protection•Screened Tenant•Full Price Offer•Fully Managed Process

Benefits______________

•Flexibility•Financial Security•Asset Protection•Screened Tenant•Full Price Offer•Fully Managed Process

LTO - One of the Most Productive Ways to Buy or Sell a Home

LTO Lifecycle

BuyerQualification

Local AgentFinds Home

Temporary LeaseAgreement

Purchase Agreement

Credit CounselingProperty Management

Permanent Financing

SignageBroker Support

Property Qualification

Full Doc Qualification Transaction Support

6 – 18 Months Lease Period

• Customer Applies for LTO Program• Customer Evaluated Against Underwriting Standards• Customer Undergoes Comprehensive Credit Risk Evaluation• Customer Agrees to Participate in the Continuing Counseling Program

• Full Doc Underwriting• Customer Selects Property from Real Estate Agent• Lease Period Begins with Client Under Credit Management• Lessee Improves Score and Qualifies for Permanent Financing within 18 Months

Program Structure• Structures the Transaction

• Guarantees the Rental Income During the Lease Period• Rent• Taxes• Insurance• Property Management Fees

– Insures the Property from Peril– Insures the Property with a Home Warranty Covering Mechanicals and

Other Typical Repair Scenarios– Provides Transaction Support and Program Providers

Monthly Flow of Funds During Lease Period

LeasePayments

LeaseServicer

PrincipalInterestTaxes

InsuranceCredit Counseling

Property Oversight

ServicingFee

$35/mo

Purchase price x 30 year amortization at prevailing rate

plusActual Taxes, Insurance, $135 for Credit

Counseling and Property Oversight

Lease Payment Stripped & Distributed

Collected Via ACH

Reserve Pool

Seller

Carrier

ProgramAdministratorDue 1st of Month

Late After 5th

Late Fees go to theServicer

Funded by Buyer’s Program Fee1 1/2 % of Purchase Price of Home

Pays if Renter Defaults

Re-InsurerBacks Reserve Pool

Transaction Administration

• Program Administrator Manages the Transaction• Manages the Flow of Funds

– Lease Servicer (3rd Party)– Default Servicing (Collection & Eviction)

• Manages the Reserve and Escrows funds• Manages the Asset• Manages the Tenant• Manages Reporting• Manages the Insurance Policies

When to Use the Program With Buyers

• Use LTO When Buyers Have:– Less than Perfect Credit – Good to Excellent Credit With Little to No Down Payment– Good Credit With Clients Who Want to Use Their Cash for

Something Other Than a Down Payment

• LTO is NOT a Program for Risky Borrowers

Tenant Qualification

• Tenant Will be Fully Screened and Documented for Income, Credit and Debt

• Seller Can be Comfortable because– Rent will be Paid– Property will be Insured and Protected

• LTO Tenants Want to be Home Owners and Consider Themselves Buyers, Not Renters.

Tenants Earn Rent Credits

• Rent Credits = Rent Paid Minus Fair Market Rent• Fair Market Rent is Average Rental Rate in Area / HUD

Estimated Rate Guidelines Established by Appraiser at Time of Purchase Contract

• Rent Credits are Applied as Down Payment Credit, then to Closing Costs (As May be Allowable by FHA/Fannie/Freddie Underwriting Guidelines)

Rent Calculation

• The Rental Payment Consists of the following:– Principal & Interest – is the Purchase Price Calculated at 6% Interest Amortized

Over 30 years.– Taxes – Actual Taxes– HOA – Actual – Insurance – Calculated at $1.09 per thousand– Property Management and Credit Counseling - $135.00 per Month.

Example $100,000 Purchase PriceP & I = $599 per Month ($100,000 x 6% Interest, Amortized for 30 Years)Taxes = $100 per Month ($1,200 per year) or Actual Property TaxHOA = $50 per Month or Actual HOA fees, if AnyInsurance = $91.00 per Month / $1.09 x 1,000 = $1090/12CC & PM = $135.00 per Month – Actual CostTotal Rent= $975.00 per Month

How to Calculate Fair Market Rent

• Obtain Rental Comparables in Subject Subdivision• Evaluate the Average Rent Payment for That Specific Property Type with

Similar Features• Once Rent Comps are Established You Will Calculate:1. Rent – FMR = Above Fair Market Rent Example: $975 Rent - $775 FMR = $200 AFMR A Surplus of $200 per Month (per UW Guidelines) Can be Credited from

the Seller Can be Applied Toward the Buyers Down Payment. So - $200 per Month for 18 Months = $3,600 Credit.• FHA Requires 3.5% Down Payment. So on a $100,000 Purchase the DP is

$3,500. The AFMR of $3,600 Completely Covers the Buyers Down Payment.

• The Seller Can Still Pay up to 6% of Buyers Closing Costs and or Pre-Paids

Tenant Credit Counseling• Every Buyer/Rent Must Participate in Monthly Credit Counseling Which

May Include:

– Structured Bill Payment– Continual Credit Score Simulation Estimating Take-Out Date– ACH (Auto-Draft) from Buyer/Renter’s Bank Account

• Proprietary Credit Counseling Technology Monitors Buyer/Renter Monthly With Automated Oversight

Buyer Protection Plan• Lock-in Purchase Price

– Based on Market Value and Established by Appraisal

• Rent Credits• Paid-in Principal Credits• Appreciation• Credit Counseling Assistance • Home Warranty• Buyer Support from Qualified Realtors

Property Appreciation / Devaluation

• If Price of Home Increases, Buyer Gets the Advantage of the Increase– Purchase Agreement Established Price– Avoids Misunderstanding– Encourages Buyer

• If Price of Home Decreases, Buyer/Seller Can:– Void Transaction– Mutually Re-Negotiate Price or Terms – Re-Establish Home at New Appraised Value

Maintaining The Property Driven by the Lease Agreement • Generally, Tenant is Responsible for: – Regular Maintenance of the Home – Maintaining the Home During the Lease Period– Notifying the Administrator With Serious Issues– Notifying the Home Warranty Company for Routine Issues

• This Includes Paying All Utilities, Telephone and Cable Charges, Mowing etc.

Program Fees for the Tenant• The Tenant Program Fee is 1 ½% of the Purchase

Price of the Property– Due at Lease Signing With 1st Month’s Rent– Can Come from Any Source

• Tenant Also Pays the Inspection Fee ($200)• No Deposit Required because Program Insures Loss-

of-Rents and Damages• Seller Can Ask for Pet Deposit (Optional)

Reserve Pool• One-Percent of the 1 ½% Tenant Program Fee is Applied to a

Reserve Pool and is Held by the Lease Servicer (Mitas Specialty Servicing) on Behalf of the Program as a Condition of our Llyod’s of London Policy.

– It is Utilized to Protect the Seller’s Cash Flow from Default by the Tenant During the Lease Period.

Buyer Support From Realtors• Realtors Have a New Group of Transaction-Ready Buyers

• Realtors Develop a Long-Term Relationship with the Buyers Encouraging– Life Time Customers– Referrals

• Realtors Have New Ways to Assist the Home Buyer

When to Use the Program with Sellers• Sellers with Flexible Terms

• Sellers with Slow Moving Properties

• Sellers Who Want or Need Income with a Defined Take-Out

• Move-on Sellers with Less than 30% Equity Who Can’t Obtain New Financing Until They Sell Their Home

• Investment Properties– Investors Desiring a Managed Process with an Exit– Investors Who Want Guaranteed Higher Returns with Less Risk

Loss of Rents• If for Any Reason the Tenant Does Mot Make Their Monthly Rent Payment,

or Otherwise Defaults, the Program Administrator Will Pay the Seller its Customary Rent Under the Lease

• The Lease Servicer is Responsible to Collect from the Tenant

• The Lease Servicer Earns Late Fees if the Tenant Defaults

• The Lease Servicer is Responsible for Eviction at the Seller’s Expense

Property Peril Protection• Peril Protection is Provided by Lloyds of London• It is Mandatory• If you Have an Existing Policy it is Not Necessary to Have Two

Policies• The Peril Policy and Binders will be Provided to the Seller by

Lloyds of London• The Annual Premium is Pre-Paid at the Beginning of the Lease

Period by the LTO Program

Seller Protection Plan

• Tenant Qualification• Peril Protection• Reserve Pool• Loss of Rents• Home Warranty• No Property Management

Q: Does the Seller Pay Any Program Fees to LTO?

A: Yes. 2 ½% of the Listing Price is Due When the Tenant Becomes the Owner of the Property (At the end of the Lease). Traditional Real Estate Commissions/Fees Still Apply. Seller Also is Responsible for an Appraisal Fee and Title Search.

Seller fees

Remember!Seller Receives a FULL PRICE OFFER

Seller Receives Guaranteed RentCash flows are Insured Against Loss

Seller Earns More Net Seller ProceedsRealtors Earn More Money

Commissions and Referral FeesAgents Earn Revenue in Three

Ways:

• Lease Commission• $500 - $900• Property Oversight• $900• Purchase Commission

Program Marketing Support

• Centralized Call Center Support• Lead Support• Collateral Materials

– Signage– Brochures (Seller & Buyer) – Newsletters

• Quarterly Legislative Updates

Sign Riders

Newsletters

Tenant and Seller Pamphlets

Payment Calculator &Spreadsheet Models

Getting Started

• Complete LTO Certification• Sign the Broker Agreement• Order Marketing Materials • Establish Territory with Program Administer• Post Your Listings with Program Administrator

– Email or Fax PDF of Listing Information

• Commissions and Referral Fees

Broker Agreement• Broker Agreement Establishes the

Relationship Between the Broker and the Program

• Specifies:– Duties Performed by Parties– Confidentially– Price for Service– Commission Structure

BrokerAgreement

betweenProgram and

Broker

Checklist for Lease-to-Own(most states)

• Buyer’s Temporary Residential Lease (AAR Lease Agreement)• Residential Purchase Contract (AAR Contract)• Addendum to Purchase Agreement• Addendum to the Lease• Exhibit “1”• Any Appropriate Disclosures for Each Property

EasyNo New Process to Learn

Customary DocumentsAny Single-Family (1-4 Units) Property

We Fully Support You During the Entire Process

Lease-to-Own Documents

Add Lease Addendum

Add Purchase

Addendum

Exhibit 1

Exhibit 1Ties Agreements

Together

Lease

PurchaseContract