Lease Option Vs. Contract For Deed
Howdy all,
Looking at selling a proprty we own using either a L/O or CfD... any comments? I have a fairly good understanding these mechanics of these two methods, but I'm hoping to get a view of the real-world benefits and liabilites from those who have actually done it... (for instance -- if I've got to evict, which one is faster?)
Thanks!
A CFD will vary by State on whether or not you have to foreclose or how long it takes before you can begin an eviction. A CFD will get you more in down payment money, because it gives the Buyer more of a feeling of ownership.
[addsig]
A CFD is a marketable asset that can be purchased for a cash lump sum, whereas a lease/option is not.
So if you want to increase your options, and leave open the potential for wanting access to cash should life circumstances change or needs arise, CFD will give you that option.
Best, Dave
p.s. this assumes you own the property, cannot do this with sandwich CFD deals
Thanks guys
I'm in NY state - any idea about Cfd foreclosures here?
If it's a lease option and the furnace breaks, your responsibility. If it's CFD and it breaks, it's their responsibility. Thats one big key as well. Although from what I hear it takes a lot less time to evict someone from a LO since they are technically renting, versus a CFD.
Quote:
On 2004-11-04 18:21, 4Lane wrote:
Thanks guys
I'm in NY state - any idea about Cfd foreclosures here?
CFD? Contract For Deed correct? I am about to fill my out of state property rent to own with a lease option contract, but saw this topic. Is a CFD better way to go over a lease contract?
Please explain.
[addsig]
OK, I do see the advantages in a CFD (no responsibilities for repairs), but if they default on payments to you, you can't evict them as if they were renting correct? So how would one go about kicking them out? Just ad a clause into the CFD contract for defaults? Anyone have a sample CFD we can share and look at?
Welll, I spoke to two lawyers so far about this, our regular real estate lawyerand a guy he referred me to concerning evictions specifically. Apparently where I live (Syracuse, NY) if you are going to evict somebody outside of the City of Syracuse, ie local municpalites like Balwinsville, Clay, etc. there is not much problem evicting someone if they default on a land contract.
However, he said that if it's inside the City, it's going to go to the City housing court, in which case there is a quite real chance that the vendee (tenant) will get some hippy-dippy housing lawyer doing pro bono workj (there's plenty of them around here, in fact right up the street from our office is a "community center" where evey Thusday night you can go for free legal advice.) and challenge the eviction by caliming that the buyer has an equitable interest. His point was that while this may be totally false, it doesn't matter bcause the housing court judges basically have no idea about land contracts, and in that it can then go to trial, causing unbelievable delays (while the buyer sits in the property and pays nothing.)
So apparently this is VERY dependent on locality, even down to what _town_ you're doing it in. *sigh*
I guess I should have expected something like this, since I learned long ago when leasing propereties in NYC that when it comes to landlord-tenant law, basically what is in your contract doesn't mean a damn thing, once the courts get involved. I didn't realize I'd have to look out for the same problems here in upstate NY. Damn socialistic freeloading liberal bleeding heart twits... maybe I'll move to Nevada.
P.S. Colin22,
Just search the web for '"contract for deed" legal forms' or similar... there's plenty of them out there. I thought the one at www.uslegalforms.com was very well written, but it does cost money.
I haven't seen any free ones that I particularly liked so far. Best to talk to a lawyer anyway.
On the subject, Bob Bruss has an excellent article about the pros and cons of Lease Options; doesn't say anything abot CfD's but well worth looking at, http://fdc.mortgage101.com/partner-scripts/inman_story.asp?p=fdcfnlc&ID=40237
4Lane,
Glad to meet you.
I read the article by Mr. Bruss and I am curious as to why you think it is an excellent article?
John $Cash$ Locke
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I think that for a quick menu of lease options that it was an OK article. I think that LO is another tool you can use depending on your market. If I can't get it Sub To then maybe they will go for an LO? An advantage to LO is that the price is usually "on top of the market price" this is also true for most owner financing.
I think I like the fact that you can do it over and over again. In the Sawtooths in ID there is a lodge that has sold at least 6 times in 12 years LO. KACHING!
4Lane, a L/O also violates the DOS clause.
[addsig]
yes, I'm aware; I was saying that the mortgage on this property has no due on sale. It's 100% seller financing, w/ a baloon @ 7 years - but no DoS
Lotsa really bad info here..so i had to post.
1) '4Lane, a L/O also violates the DOS clause'. -lease optionking.
This is wrong as it only applies if l/o is over 3 years in length
2) 'A CFD is a marketable asset that can be purchased for a cash lump sum, whereas a lease/option is not.' -davehays
A l/o is personal property..not an interest in real property. You own it..like a car, and you can sell it also for a 'cash lump sum'
I'd advise most newbies to do there homework on this complex subject before making a mess of everything, I'll also add that in calif. 'land contract' or CFD are rarely used anymore as options are cleaner and the parties duties and obligations are more clearly defined. good luck all -b_ca
Lotsa really bad info here..so i had to post.
1) '4Lane, a L/O also violates the DOS clause'. -lease optionking.
This is wrong as it only applies if l/o is over 3 years in length
2) 'A CFD is a marketable asset that can be purchased for a cash lump sum, whereas a lease/option is not.' -davehays
A l/o is personal property..not an interest in real property. You own it..like a car, and you can sell it also for a 'cash lump sum'
I'd advise most newbies to do there homework on this complex subject before making a mess of everything, I'll also add that in calif. 'land contract' or CFD are rarely used anymore as options are cleaner and the parties duties and obligations are more clearly defined. good luck all -b_ca
Lotsa really bad info here..so i had to post.
1) '4Lane, a L/O also violates the DOS clause'. -lease optionking.
This is wrong as it only applies if l/o is over 3 years in length
2) 'A CFD is a marketable asset that can be purchased for a cash lump sum, whereas a lease/option is not.' -davehays
A l/o is personal property..not an interest in real property. You own it..like a car, and you can sell it also for a 'cash lump sum'
I'd advise most newbies to do there homework on this complex subject before making a mess of everything, I'll also add that in calif. 'land contract' or CFD are rarely used anymore as options are cleaner and the parties duties and obligations are more clearly defined. good luck all -b_ca
b_ca,
Actually, a LEASE of 3 years or over is considered a change in occupancy and can trigger a DoS, but ANY lease/option is considered a transfer of interest in real property. See http://a257.g.akamaitech.net/7/257/2422/12feb20041500/edocket.access.gpo.gov/cfr_2004/janqtr/12cfr591.2.htm for relevant Department of Treasury regulations.
[ Edited by 4Lane on Date 11/23/2004 ]
b_ca, so you are telling me and us that you can sell your lease/option INSTRUMENT for a cash lump sum to another investor, who will put cash out of their pool of money, to buy that lease and purchase option, and exercise it themselves?
That's news to me, how about telling us an example of your experience with that, or an experience you discussed personally with another investor, would love to hear it!
There is a difference between a tenant/buyer exercising their purchase option, resulting in cash to the investor, and SELLING THE INSTRUMENT ITSELF for a cash lump sum, to another entity will now be receiving lease payments, and be given the same rights as the original seller/investor. With sandwich deals, I think this would be impossible with too much legal liability and ambiguity for an investor to be interested. PERHAPS it could be possible with the OWNER selling to a 2nd party via lease/option, but I have not heard of it.
I work directly with buyers who are very creative and have decades of experience. I will run it by them and post back here. Thanks, Dave
Hello all,
Just wanted to report what I suspected to be true re: the post that lease options are marketable instruments. The answer to that question is VERY RARELY, and only with the very small pool of private individuals who are understand and are comfortable with lease options. The response to my question is pasted verbatim from one of the note buyers I work with directly:
"While its possible to purchase "lease income" payments - its really not being done on any grand scale. Some individual investors might be willing to purchase a "lease option" or the income generated from such a vehicle used to sell a home. However I don't categorize them as being very marketable because of the reason listed below.
As you know a lease along with an option is NOT an instrument of indebtedness but merely a landlord / tenant type arrangement. We focus on bonafide instruments of indebtnesess (mortgages, trust deeds, contract for deeds, etc.)"
Hope this helps clarify, Dave
I think alot of confusion is stemming from the 'lease' aspect of l/o's. Yes its hard to 'sell' a residential lease. (altho in biz sales the lease is an important saleable item) The part that is commonly sold is the 'option'. A correctly documented l/o should have 3 elements. 1) fully executed purchace agreement
(which applies upon excercise of option) 2) option agreement
and 3) interim occupancy agreement or lease.
Certain language in the lease can void your option so be careful there (missed payments etc). Anyway..my previous post refrred to an 'option' only. Those are personal property and you can sell them. The lease is an interest in real property and may contain language that prevents it from being 'sold' without owners approval. Hope this helps..b-ca
I think alot of confusion is stemming from the 'lease' aspect of l/o's. Yes its hard to 'sell' a residential lease. (altho in biz sales the lease is an important saleable item) The part that is commonly sold is the 'option'. A correctly documented l/o should have 3 elements. 1) fully executed purchace agreement
(which applies upon excercise of option) 2) option agreement
and 3) interim occupancy agreement or lease.
Certain language in the lease can void your option so be careful there (missed payments etc). Anyway..my previous post refrred to an 'option' only. Those are personal property and you can sell them. The lease is an interest in real property and may contain language that prevents it from being 'sold' without owners approval. Hope this helps..b-ca