L/C or L/O part1&2 - Posted by robert

Posted by Mike Schmidt (IL) on July 29, 2001 at 18:30:16:

I think you should find a different attorney. I am no pro here, but from reading here for several months the subject of using a seperate lease and option have not only been talked about but have held up in court many times. Again this is from the posts here, in fact I think Jim FL had this issue come up before he moved and the judge ruled in his favor because the two contracts WERE seperate.

Maybe the laws are different in your area? Also not sure I understand your first post on the numbers. He is giving you $20K and the balance when he exercises the option would be $190 for a total sell price of $210?? Or the total is $190 MINUS the consideration funds? To me, either way it does not seem out of line, he is getting a nice deal if the total is $190 and getting a pretty fair deal if its for a total of $210 since it appraised for $224K.

What was the big concern? Was it the amount he was putting down?

L/C or L/O part1&2 - Posted by robert

Posted by robert on July 29, 2001 at 01:08:23:

part 1

i have a house that i have been trying to sell for sometime now and have i have someone that wants to
L/C or L/O it.


  1. buyer has 20k to put down.
  2. he is self employed for the last 9 months.
  3. his credit is not the best.
  4. i owe 179k on the home payments of 1600 month.
  5. he will L/C or L/O.
  6. sell price of 190k with 20k down and payments made to me of 1700.
  7. contract or option for 2 years then he must try to get a loan from a back or we go for 2 more years.

??? how do i cover my behind on this? i have talked to him and his wife over and over just to get a
feel for them and thay seem like there trying to do the right things.

i’m worried that if thay can’t make the payments that thay may damage the place. but i do have 20k?

now for part 2
Well I talked to two lawyers today about L/O this home and here is the advice they gave me:


Why I ask?
Because he is paying too much for the option and it would never hold up in court.
Why I ask?
Because if it ever went to court the judge would find the contract unfair and unjust. Because if the T/B can?t fulfill his end of the option it would be too much money to lose.

Me -But isn?t that how a L/O works if he want?s to exercise his option he can if not he can walk away?

Them- yes and that?s the point here. If he wants to but can?t come up with the money it would be unfair for me to receive that much money. A judge would only give you 5k (maybe if he had a lawyer to help him with his side of the L/O).

OK so we go round and round about how this won?t work and I say I can?t believe it. So they call a judge and we explain it to him and he tells me there RIGHT! Because my T/B would be out of his mind to sign such a contract and his lawyer would be a fool to help him. He told me I would lose ever time. So I asked him what would be the best way to handle this and he said L/C with 20k down, for 12 months with balloon, payments of 1700, 8% int. and look out for the due on sale clause. Hah hah I lol.

Well that?s a little how my day went. And I still love this stuff.

Feel free to give question or comments


Re: L/C or L/O part1&2 - Posted by JohnBoy

Posted by JohnBoy on July 30, 2001 at 07:24:21:

Heres a question to run by your attorney and the judge.

Farmers are known to sell options on their land to developers a lot. This is something they may relate to better.

Ask your attorney if you were to find 50 arces that you were able to buy for $200k and you were able to get an option on that land to buy it 2 years from now for an option price of $20k, would the judge order the farmer to give you back most of your option money if you decided NOT to buy the land???

There would be NO lease on the land, only an option to buy it for $200k within the next two years. The farmer has agreed to SELL you the option to buy it two years for an option price of $20k. See what he says to that!

Re: L/C or L/O part1&2 - Posted by Jim FL

Posted by Jim FL on July 30, 2001 at 02:42:15:

I’m not sure what state you are in, so some of this may not apply where you are.
But, as Mike said below, I did have an eviction case where my T/B’er showed up to court claiming he not only should not have to pay rent, but that his “option money” should be used to pay it, and the remainder refunded to him.
The tenant/buyer also waved a copy of the deed, showing that I was not on title, and therefore in his opinion, I should have never been entitled to rent to him, or give him an option to buy.
The judge did peak his eyebrows a bit, and this concerned me. But, I could tell by the smirk on his face as I answered his questions, and the tenants claims that he was merely getting a kick out of the tenant trying to save his non paying rear.

The judge asked first, "Why are you not on the deed to this house?"
I responded with; "I have a terms sale with the person on the deed, and title does not transfer to me until I satisfy all the terms of it.“
He asked,” Do you have a copy of that with you?"
I said, “no”…
And he said; "Well, it is not important here anyway."
Score one for me! YAY!

Then the judge said, "What is this about a $5k deposit?"
I said, "Your honor, there was no “Deposit” for this lease, there was a completely SEPERATE agreement for an option to purchase this home, which CLEARLY stated there was a “Non-refundable option fee” paid.
"But, we are here on the SEPERATE LEASE agreement, for the fact that the tenant has not paid rent, and refuses to leave the home."
The judge asked me: "Does the lease mention this option in it anywhere?"
Me: "No sir, it does not, they are seperate agreements."
The judge then turned to the tenant, smirked a bit and said “Sir, it does not matter WHO is on title here, you signed a lease with Mr. Mitchell, and agreed to pay him, why did you not do that?
And if you want to contest the option agreement, I suggest you bring another suit about that, but it looks pretty shut and closed to me.”

I got the precedence I wanted from the case, meaning the judges opinion and interpretation of “How?” my L/O works, using two SEPERATE agreements.
That stood up in court, and the tenant was NOT allowed to claim equitable interest.
Sadly however, I made a technical error on my 5 day notice, and the judge caught it, dismissing the case as a result.
But, the judge then gave the tenant a lecture, told him to meet with me now, right in front of the judge and give his word as to when he’d be out of the house. The judge explained that this would not be court ordered, but if he worked against me me, rather than with me, surely I file again, correct the technical error on the form, and most likely win, costing him more money in the long run.

So, this is why I tell you, “I would use the Lease Option, if I had this deal you are working with.”

And search out a new attorney, there has to be a better one out there for you.
I do have one question.
When the attny called the judge, and the ran the scenario by the judge, did they tell him there would be two SEPERATE agreements or just one?

Bottom line, if you goto court to evict this guy, and have two seperate agreements, and he brings the option money up, or that agreement, it will at the very least give you reason to continue the case to address a new issue. Especially since the lease violation is why YOU are there to PROVE.

Also, make it VERY clear in the agreement, and perhaps in some sort of CYA that the buyer signs, acknowledging the fact that the option money is lost if they do not purchase for ANY reason.
This may or may not hold up in court, but perhaps if you MAKE IT CLEAR in the beginning to the T/B’er, they will think twice before attempting to bring a suit, or use it in some way.
and by the way, I’m by no means an expert, or a lawyer, so certainly run everything by someone well versed in your state laws before doing it, just make sure they actually know what they are doing.
Perhaps talk to a local REI club, find someone doing these deals, and get their attorneys contact info.
A second opinion sure seems worth it when there is a possible $20 involved now.(more later, in both potential profit, and cost with an OOPS!)

I hope this helps a bit, and sorry to ramble,
Jim FL

Re: L/C or L/O part1&2 - Posted by Mike Schmidt (IL)

Posted by Mike Schmidt (IL) on July 29, 2001 at 11:10:56:

Maybe I am missing something here but I don?t understand why the TB would have a case. What is the home worth? I thought this was the purpose of having a separate lease and separate option??? What am I missing or is the house not worth anything close to what your option price is?

Re: L/C or L/O part1&2 - Posted by JohnBoy

Posted by JohnBoy on July 29, 2001 at 01:45:38:

He’s right about watching out for the DOS clause. That’s assuming the contract is recorded, which if your buyer has an attorney, he will advise the buyer to have it recorded to protect his interest.

Some states will require recording the contract to make it enforceable. Some states forbid the seller from preventing the buyer from being able to record it. Some states have statues that say you can’t put anything in the contract that prohibits the buyer from being able to record the contract or the buyer can void the contract at their option at any time and all monies paid will have to be refunded to the buyer.

So it all depends on what state you’re in and what your state laws are pertaining to contract for deeds.

I’m assuming the $1700 payments at 8% are including the taxes and insurance?

Re: L/C or L/O part1&2 - Posted by robert mi

Posted by robert mi on July 29, 2001 at 17:40:57:

house just app. at 224k.

lawyer said to use just one L/O contract.
not to use a lease and an option contract.

but this is what i wanted to do. to keep things clear.
the house is worth a lot more but i’m haveing a hard time moving it.

let me know what you think.

Re: L/C or L/O part1&2 - Posted by robert mi

Posted by robert mi on July 29, 2001 at 04:10:40:

i’m ok with the DOS clause. i called my lender who holds the note on the home and talked it over with him and he said it would be fine. i think it comes from me useing him in all of my deals so far that we have a trust. so all seems a go as long as the buyer comes through. we will be meeting tuesday to set things up i’ll keep you posted.

and yes the 1700 covers taxes and insurance.

thanks for the advice
robert mi.