Future Leins On Lease Op
It has yet to happen, but what if you are the buyer/tenant in a lease opt and your seller simply loads up the property with liens over the course of the next several years of the lease term and you or your end-buyer wants to exercise the option and buy? I always try to escrow the deed & instructions, PA, and record the option(memo). Still, if the seller is successful in attaching a lien, goes bankrupt, or simply doesn't make their mortgage payment during the term of the lease option, what is my recourse other than simply not exercising the option?
[addsig]
You don't have much recourse available. Sure, you could probably sue, but all you are going to get is more money spent thru attorney fees. It's highly unlikely that you'll be able to get the house without the added liens, and even more unlikely that you'll get any reimpursement. This is just one of the many risks involved when "buying" houses thru a L/O.
Add to it, that if this happens, then your T/B won't be able to buy AND will probably be out to sue you for non-performance and you've got some serious trouble ahead. Doesn't really matter if you "have that in the contract," etc. If they sue, you have to go to court and court cases cost money, win or lose.
Roger
4kash,
There is one other way to secure your position in addition to the steps you are already taking.
I'll say this ahead of time though, its been a LONG time since I've done a sandwich lease option.
I'd rather take title, same amount of time to accomplish and more control when you OWN.
However, with that said, if you choose to do lease options, use what you are already, and add in a performance mortgage.
After this gets recorded, should the seller try to encumber the property further, a title search will reveal your position as a lein, and not allow anything in front of you on title.
Judgements, etc, would also fall behind you.
So, worst case scenario, seller defaults somehow by not agreeing to close, or attaching a lein against the house, you simply file foreclosure on your performance mortgage and cleat it up that way.
Yes, time and money involved, but if you bought right, the deal should still cover that expense and generate a profit for you.
I have a sample performance mortgage I offer FREE of charge to EVERYONE online, but cannot state the url here, and won't out of respect for their rules.
But, if you look in a search engine for 'sample performance mortgage' in quotes, you'll find one.
There are other advantages to using this as well.
For example, should your sub-tenant buyers obtain approval for financing, but the lender has a title seasoning issue, guess what?
You are not on title in a sandwich lease option.......so, the buyers cannot close with you as the seller.
with the performance mortgage, you have your closing attny draft a contract with the sellers as the sellers, and your buyers as the buyers, with the terms you laid out for the buyer with you.
At close, you show up, and sign off to release your performance mortgage, which the title report will catch and title rep or attny will call for a payoff to release.
And the amount to release that, is of course, the difference between your price with the sellers, and your price with the buyers, minus whatever expenses to close you agree to pay, or not.
Anyway, just wanted to share something I've learned over the years.
HTH,
Jim FL
[addsig]
Thankyou, that's exactly what I was looking for. I had forgotten about a Deed of Trust that secures the seller's performance of the lease option. Future creditors wouldn't loan on the property. Of course, the seller has to sign the deed of trust. But then, if their not willing to do that, that's a good sign their not serious anyway.
Is there a reason you can't just assign the option to the sub-tenant-buyer for the difference between your buy price and sales price?
Quote:
On 2004-12-21 12:55, jdflybuy wrote:
Is there a reason you can't just assign the option to the sub-tenant-buyer for the difference between your buy price and sales price?
Just one, if the amount of the difference is small enough for the T/B to have laying around pre-closing(ie, mortgage), then where did you make money?
No. There is no reason you can’t assign, but that really wasn’t my question. A possible scenario would be that you sign up a two year lease option w/ you as the T/B, the property appreciates in value over the first year of the lease, the original owner takes out a HELOC or other mortgage for the full amount of the appreciated value which surpasses your purchase price, then during the second year of your lease the property depreciates a bit in value below your strike/purchase price. Who would want to exercise an option or assign when your option price is now less than the total debt on the property?