Exercise Purchase Option If Owner Defaults?
Can we lose our right to exercise an option if the Owners who gave us this option default on their loan?
My wife and I are paying $7,000 for the option to buy 5 acres of land in Show Low, Arizona, for the low price of $750, anytime within the next ten years.
Our friends need $7,000 for a Down Payment on 20 acres of land, which we're giving them. They're getting a bank loan for the balance. Instead of a partnership, we're using an option to guarantee our position.
My wife and I will first, pay 1/4 th of the 20 acre sales price and 1/2 the Attorney's fees (total $7,000) for our Option.
To take possession (we've discussed which 5 acres and will describe in contract) as well as avoid partnerships AND yearly tax issues, we have a purchase price of ~ 1/4 th cost of property taxes for 8 years, or $750. Our friends, the actual owners will pay 100% of property taxes each year and not need to call us for this.
This seems to need a double closing so we don't lose $7,000 getting an option from the not current owners.
1.) Am I correct about needing a double closing?
2.) Will our option always be secure, say by exercising it with the bank if our friends defaults on their loan?
3.) Is there a better way to go about this?
Sincerely Great Forum! Alan[ Edited by fearnsa on Date 03/23/2004 ]
Can we lose our right to exercise an option if the Owners who gave us this option default on their loan?
Yes. You only have the option to buy from the current owner. If they lose the property your option is worthless.
1.) Am I correct about needing a double closing?
You do not need a double closing. There is only one exchange of deed. You are not taking possession of the property and then selling it to your "partner".
2.) Will our option always be secure, say by exercising it with the bank if our friends defaults on their loan?
No
3.) Is there a better way to go about this?
Why not list your 7k as a 2nd lien on the property. You can still have an option to buy. If your "partner" defaults on the loan you will be notified by the first lienholder. You will at that point have the option to cure the 1st loan and take over the deed.
My other thought would be if you are that concerned about your "partner" defaulting on the loan, why are you fronting the money. Money does a strange thing to friendship. Make sure everything is spelled out in writing and there is a clear understanding of expectations or else you may lose both your friend and the money.
That being said, I hope it all works out for the best.
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Thanks very much. Love the 2nd lien idea. Alan
Hope it all works out
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