Posted by DaveD (WI) on March 19, 2008 at 19:29:29:
Wrong tool. Don’t put yourself into a sandwich lease if there is an alligator to be fed.
This assumes you are renting for less than his underlying PITI. You already know the problem if they stop paying. You will get sued from your tenant-buyer if the underlying lenders move against your seller. So stay out of the middle.
Get the deed instead, and figure out a way to bomb-proof yourself. It’s nice when sellers make payments to you, but don’t expect them to keep up. Ask me how I know this! Or stick with options. Or find a better deal.
How do you deal with sellers who are in a lease option and the seller’s are still responsible for paying the negative on the cashflow?
What happens if they can no longer pay the negative after a few months or years?
If the seller can no longer cover the negative, what recourse would the tenant/buyer have when they initially put up the option fee and built in their rent credits?
If you were sandwich in this type of problem, are there any recourse against the investor who structured the lease option?
The 60+ tenant/buyers that I have can realistically afford $1000-$4000 a month. They’ve got 3 months and 5% but the homes here in Southern California mostly have bad loans and high mortgage payments. It’s either a loan modification has to take place, a credit investor can buy out a short sale, or the seller would have to cover the negative.
So how do you deal with the seller’s paying any negative cashflow to make a lease option work in this down market?
Do you ask for any collateral or any UCC1 filing against their personal property in case they default?