L/O FIVE Homes From Builder!!! Need Some Advice - Posted by Jim_NC

Posted by Alex Gurevich, TX on November 13, 1998 at 09:59:05:

>>As far as do the tenants have to move out if the
>> builder goes down, it is my understanding
>>that a lease in place has to be honored whoever
>>ends up with the property.

Not always so. One of the criterias is the senjority. If the lease was signed prior to the origination of mortgage the tenant may have a case of staying in the property. However, in many cases the leases have language where the lease is explicitly made subordinated to the mortgage. If the foreclosure occurs, the lender will have the right to terminate the lease.

L/O FIVE Homes From Builder!!! Need Some Advice - Posted by Jim_NC

Posted by Jim_NC on November 10, 1998 at 15:25:26:

As some of you know, I have been working with a builder for the last couple of weeks. We met yesterday and he has agreed to L/O me several of the homes he has in inventory. He told me that the market is kinda slowing down for new home sales and the interest is eating him up. One of them is a $322,000 house I will have for $1500/mo! I am renting all the homes for the interest payment on each house. The thing that has me a little worried is: What if he would go belly up 6 months from now and the bank calls all his notes due on these homes or they foreclose? If I do all my paperwork correctly, will I be protected if this happens? He is a very reputable builder and has been in business for some time but you never know what can happen. I just want to be sure I am not getting into something that could bite me in the a** down the road. I am going to end up with five of these homes if I want them. If I have tenant/buyer’s in these homes and something happens to his company would they have to move out?

Any comments will be greatly appreciated.

Jim Mullins

Re: L/O FIVE Homes From Builder! - Posted by Irwin

Posted by Irwin on November 11, 1998 at 05:36:48:

You do have a considerable risk if the builder defaults on his loans, and you have committed to l/o to your buyer. Protecting yourself can be tricky, so I suggest the services of an attorney in preparing the l/o with the builder. Yours, not his.

Re: L/O FIVE Homes From Builder! - Posted by phil fernandez

Posted by phil fernandez on November 10, 1998 at 17:02:04:

Hi Jim,

Your concerns are legit. I would have an exit plan if the builder did indeed go bellyup. Don’t spend the option money until the options are excersised or expire. If your builder can not deliver title to you, you will not be able to deliver the title to your buyer and by rights should refund the tenant/ buyers money, even though the option money is usually nonrefundable.

Chances are 3 of the 5 will excercise and you’re home free. How many actually excercise their option will depend a great deal on how you thoroughly qualify them from the beginning.

As far as do the tenants have to move out if the builder goes down, it is my understanding that a lease in place has to be honored whoever ends up with the property.

See ya in the chatroom tonite.