It's called a "lease-to-own" or "lease-option," and they have been around for years. But it's easy to see why such agreements are so popular right now.

Home sales are down in many areas locally, in great part because some buyers are having difficulty qualifying for loans under tighter lending criteria put in place after the nation's subprime lending meltdown.

Enter the lease-option or lease-to-own agreement. Through such arrangements, a buyer with credit blemishes can sign an agreement to lease a home for a specified period of time (typically two or three years), and then gain the right to purchase the property outright. In some cases, part of the rent payment goes toward a down payment on the property.

Even some builders, facing a sharp downturn in home sales, are offering lease options on some homes they can't sell, which could put the total inventory of such deals in Utah in the thousands.

Buyers often like such arrangements if they aren't sure whether they are going to move within a few years or they want to "test" a neighborhood before officially buying a home there. But many take part in such agreements because they can't qualify for a home loan - or one at a reasonable interest rate. By leasing a home with an option to buy, they can work toward homeownership, while having a window of opportunity to improve their credit scores.

Utah mortgage lender Al Bingham, author of the book Road to 850: Proven Strategies for Increasing Your Credit Score, said people with poor credit who can't qualify for a home loan can dramatically raise their scores over a two-year period if they work hard to pay their bills on time and avoid more debt.

"If you do everything right, you could raise your score enough to qualify for a [home] loan," Bingham said.

Sellers often are drawn to lease-option agreements because they afford a way to generate income streams to help pay their mortgages instead of just having their homes languish on the market.

That's the goal of Greg and Esther Hatch, who have had their home in south Sandy with granite countertops, hardwood floors and a one-third acre lot on the market for some time. They have been offering the five-bedroom, three-bath home for sale in the $350,000 range but have recently lowered it by about $35,000. But to increase the pool of available buyers, the couple began offering a lease-option for $1,850 per month for up to two years. The rent would be higher if the buyer wants the Hatches to set aside money for a down payment.

The Hatches are open to the idea of a lease-option - something they have never done before - because they are worried that if they rent out their home while they try to sell it, people may not treat it very well. "We feel like with a lease-option, people will take better care of it," Esther Hatch says.

Some lease-option agreements are being marketed by Realtors, who can earn commissions on the deals, while others are being touted by people selling their homes without an agent.

Gary Cannon, president of the Salt Lake Board of Realtors, said lease-options "can really be a great opportunity for both buyers and sellers."

But they can also have a dark side.

The state recently filed criminal charges against a group of Utahns promoting lease-option agreements to Latino families, who allege that they were scammed out of thousands of dollars.

And there is no shortage of disputes involving such agreements.

Troy Sample and his former landlord are still haggling over the terms of a lease-option agreement they entered into three years ago. Sample said this summer, when his option to buy the home arrived, he couldn't track down the property owner. "We were fully approved, but we couldn't close," Sample said. The property's owner, Abraham Fox, declined to comment because Sample has taken legal action against him.

Sample said he made one crucial mistake: He failed to officially file the lease-option agreement with the county.

Sean Monson, a partner with Bennett Tueller Johnson & Deere in Salt Lake City, said that is one of the most important things buyers should do to protect themselves. Doing so makes it less likely a homeowner would be able to sell the home to someone else - or kick out the potential buyer - during the term of the lease-option agreement.

Another potentially sticky area is the purchase price. Sometimes it is pre-set when the agreement is signed; other times an appraisal is ordered years later when the buyer is ready to close the deal.

In either case, it's important for contracts to clearly spell out the selling price or how and when that price will be determined, Monson said.

But there are risks, even with a clearly written contract.

The risk for the seller, of course, is that in setting a price ahead of time, two or three years down the road the home's value could vastly exceed that obligated price. The risk for the buyer is that home values could fall in that time period.

Though there are pitfalls, the Samples say that a short time ago they entered into another lease-option agreement. This time, they had a lawyer look over their contract. And they made sure their agreement was officially filed with Salt Lake County.

"We learned a lot," Troy Sample said. "And that's why this time, I'm pretty sure this is going to turn out just fine."

lesley@sltrib.com

What you should know about lease-option agreements

Tips for buyers:

* Consider hiring an attorney to review your contract.

* Record the agreement with the county. This helps prevent a homeowner from selling the property to someone else while you have the option to buy it.

* Make sure the contract spells out clearly how and when you can buy the home.

Tips for sellers:

* Make sure you have the ability to terminate the contract if the buyer violates the terms of the lease, including not paying rent or damaging the property.

* Take some time to determine the selling price. It can be predetermined, or an appraisal can be ordered closer to the time the home can be purchased.

More online

* For more stories, analysis and other entries about local real estate, go to www.sltrib.com/ realestate.