L/O Question Affidavit and Memorandum of Agreement - Posted by Gary (Texas)

Posted by David Alexander on July 06, 2001 at 21:59:04:

There ain’t no stinkin’ deals in Dallas either… :wink:

Must all be down there further south… After all I’m sure this everywhere except where I live.

David Alexander

L/O Question Affidavit and Memorandum of Agreement - Posted by Gary (Texas)

Posted by Gary (Texas) on July 05, 2001 at 21:10:07:

I am doing a L/O on a house that bought with the owner financing. The optionee wants to file the memorandum of agreement with the county courthouse. It will be him and his family living in the property. My question is if I agree to this, will the mortgageholder get a notice that this is being file with the courthouse. This is a simple owner financing loan.
Thanks Gary

simple owner financing loan - Posted by Bud Branstetter

Posted by Bud Branstetter on July 06, 2001 at 11:13:13:

Gary,

You do not mention if this simple loan has a due on sale clause. If it does not then there is nothing to stop you from giving someone an option to buy and recording that or a memeorandum of it in public records. The notice will go back to whatever name is put in “After recording Return To” at the bottom.(Some counties scan it in and you get back the original immediately)

Only if the mortgage holder bothers to look will they discover it. Only if they have a DOS would it make a difference.

An asute buyer would also request a performance mortgage. That would give them a way to clear title if needed. It would also give them a way to cover their interest in the house with the hazard insurance.

Ask the question of your TB,“If you where able to deduct the taxes and interest that is paid on your personal tax return, what would it be worth to you?” If it were set up properly you could get that additional income and not have a worry even if it did have a DOS clause.

About the time your TB wants to exercise the option remember to ask the lien holder how much he would discount if you were able to may him off early.

What kind of sucker would NOT record it? - Posted by GL

Posted by GL on July 06, 2001 at 08:23:18:

What kind of sucker would pay $3000 or more for an option, plus move in, pay rent, build up rent credit toward a down payment, possibly spend money fixing and decorating the place, and NOT have the protection of recording the option? What would stop a shyster from lease/optioning a property, then selling it to someone else as a tenant occupied dwelling?

What are you afraid of an why don’t you want the option recorded?

Re: You do not have a choice. - Posted by Ed Copp (OH)

Posted by Ed Copp (OH) on July 05, 2001 at 21:55:45:

The memorandum of option is his statement that he has an option, he swears to that. He then records that statement you are not involved at all. He does not need your permission. He is most likely doing this to protect himself, or at least he thinks that he will be protected.

Generally the court house does not notify lenders of activity concerning thier loans. The recorded memorandum will be there for all to see, but it is not likely that the lender will go and look, unless there is some other activity that arouses suspicion like someone not making payments.

Re: L/O Question Affidavit and - Posted by Terry (Houston)

Posted by Terry (Houston) on July 05, 2001 at 21:20:17:

My thoughts would be to take control of the situation.

Tell him it is our company policy to not record the Option.

Wha would happen if he does not exercise the the option. Getting a release can be a pain if the deal goes bad.

I would make sure it is clearly in the lease that that is not an option.

Did he say why he wanted to file it?

Terry

What kind of sucker would NOT record it? - Posted by JohnBoy

Posted by JohnBoy on July 06, 2001 at 12:36:18:

The purpose of not recording the option is to prevent the lender from seeing it should they ever check title on the property, since an option violates the DOS clause.

As far as what kind of sucker would pay $3k or more for an option, plus move in, pay rent, build up rent credit toward a down payment, possibly spend money fixing and decorating the place, and not have the protection of recording the option…EVERY SINGLE TENANT/BUYER I PUT INTO A PROPERTY!

If they record anything their option becomes null & void. It also puts them in breach of their lease agreement. They lose all monies paid!

BTW, none of the rent credits are put towards their down payment. NOTHING in my contracts credits anything towards a down payment. In fact, “down payment” is not even mentioned anywhere in my contracts. They pay option consideration which is to BUY the OPTION, that’s it! IF, they exercise the OPTION, then the option consideration is applied to the PURCHASE PRICE, not the down payment. If there is any rent credits involved, they apply towards the PURCHASE PRICE, not a down payment.

A down payment is used for one purpose only…to put towards buying the property! If they don’t exercise the option they would not be buying. If they’re not buying then you can’t very well take a down payment from them. They may decide they want the down payment back since they won’t be buying the property! I wouldn’t want to argue this in front of a judge how I should be entitled to keep their down payment on something they’re not buying.

Now if it’s being applied towards the purchase price, then they can take advantage of the credits by BUYING the property. It’s NOT a down payment they paid with credits of any kind, it’s only a reduction in the purchase price “IF” they exercise the option. The ONLY way they can actually realize the credit is “IF” they BUY the property, period!

There’s a difference between stating “down payment” vs. “applied towards the purchase price”. Especially if you’re standing in front of a judge that will be ruling on the case!

If I ever have to argue this before a judge I’d much rather be arguing they never paid anything towards a down payment than arguing how their down payment is non-refundable since they decided not to buy the property!

Just my opinion.

I was reading it to say… - Posted by Terry (Houston)

Posted by Terry (Houston) on July 05, 2001 at 22:26:11:

That the buyer wanted to file the option agreement. Not a memorandum. With that being said 2 things.

  1. Ed you are right. He does not need the sellers permission. I mis read that.

  2. This would not be your typical buyer. How many regular Joe buyers would know about that? None that I have met. It would make me think twice.

Just my thoughts Gary.

Terry

Re: I was reading it to say… - Posted by Ed Copp (OH)

Posted by Ed Copp (OH) on July 06, 2001 at 10:51:07:

Only the buyer who visit this site or Legalwiz.com

That is a very small percentage, but it only takes one to mess up your day.

My best strategy is to make sure the payments are made on time every time to the lender. Then there is little or no reason for the lender to even look at the account.

One other thing… - Posted by Terry (Houston)

Posted by Terry (Houston) on July 05, 2001 at 22:29:18:

You could put a claus in to say that
"any filing of this option would be a vilation of this lease and option agreement to become null and void"
or something like that. Such as you would on a contract for deed.

Would it hold up? Don’t know but it is worth a try.

Re: One other thing… - Posted by JohnBoy

Posted by JohnBoy on July 06, 2001 at 12:13:16:

In our state if you put anything in the contract forbiding the buyer from recording the contract, the buyer at their option, can void the contract for deed at any time. I couldn’t find anything pertaining to a L/O though.

Also, if we sell a property on contract that is held in a trust we must disclose the names of all beneficiaries of the trust to the buyer.

Re: One other thing… - Posted by Terry (Houston)

Posted by Terry (Houston) on July 06, 2001 at 18:29:27:

Then move to Texas! Up Dallas somewhere of course because there are no deals here :wink:

I know that is the case in some places. Good point though.

Terry