Posted by John Sterling on January 30, 2004 at 14:52:21:
very good point…it sure seems to me to be a slippery slope we are walking on, considering that I am not not in an shape or form to give any kind of legal advice.
Taking it one more step: couldn’t someone agrue that not disclosing the option could be construed in the same light?
John
L/O with re-fi? - Posted by John Sterling
Posted by John Sterling on January 30, 2004 at 12:27:29:
Would a 1 or 2 year L/O have any negative effect on re-fi underwriting?
I know the actual lease would be no problem, but when the underwriters see the option to purchase in say 1 year or 2 years, would this cause any problems do you think?
(I am considering L/O a rehab, but I also want to re-fi the property and I understand that some lenders might be turned off by the option to purchase in the same way they may say no if you have the property listed for sale?)
Any ideas?
Thanks in advance
John Sterling
Re: L/O with re-fi? - Posted by Russ Sims
Posted by Russ Sims on January 30, 2004 at 12:36:46:
As long as your tenant/buyer’s option is unrecorded your lender will never know of it.If their option is recorded your lender won’t like it at all. This is one reason it’s a good idea to tell your t/bs they can’t record their option.
Re: L/O with re-fi? - Posted by John Sterling
Posted by John Sterling on January 30, 2004 at 12:45:38:
well here is the rub that I see.
when I re-fi, I will need to show the lender the actual L/O…which will have the option spelled out somewhere in the lease agreement, as far as I can tell…unless I should motify the agreement into two seperate agreements 1. the actual lease, and 2. the actual option.
Otherwise, all the L/O contracts that I have looked into so far have the option to purchase spelled out in the actual lease.
Or maybe the lender just doesn/t like the recorded option? as far as chain of title, etc etc etc. Maybe just not recording will solve any problems? Or?
John
Re: L/O with re-fi? - Posted by Ryan
Posted by Ryan on January 30, 2004 at 12:47:09:
You can have a l/o with a separate lease contract which just spells out the lease.
Re: L/O with re-fi? - Posted by John Sterling
Posted by John Sterling on January 30, 2004 at 12:50:15:
Ok… I think I get it now?
There would be the Lease and option and there would be the Lease?
John
Re: L/O with re-fi? - Posted by Ben
Posted by Ben on January 30, 2004 at 13:36:10:
No, there’d be a lease and there’d be an option.
Two separate documents each with a different purpose.
Could be interesting to structure if your deal has a rent credit feature that is meaningful–just haven’t thought through how to fully separate performance on the lease being tied to credit toward purchase price without tipping my hand, but I bet a better legal (or more experienced) mind could handle this if it’s a part of your deal that you can’t get around somehow.
Re: L/O with re-fi? - Posted by john sterling
Posted by john sterling on January 30, 2004 at 13:53:00:
ok of the two possible lease option contracts that I have considered purchasing…both have information about the option in the lease terms…which, considering the fact that I have never in my life done a L/O, is why I have concern. I could I guess motify the doc’s to make them totally seperate, but this seems like a lot of work and risk?
I looked at one PDF sample download of a Lease option, (of which i can’t find the link now…it was just yesterday) and low and behold lease spells out option terms, which if you think about it makes legal common sense? does it not?
If part of the lease money is going to the future purchase price, wouldn’t that need to have some reference in the actual lease terms? I would think so?
So really I don’t know for sure, but it would seem to be a better idea to have an iron clad L/O and a lease as a back up?
John
Whys and wherefores - Posted by Marc Donovan
Posted by Marc Donovan on January 30, 2004 at 19:40:23:
You use two non-related agreements so you can evict under tenant-andlord law and not judicial foreclosure law. Your lease should not mention the option. DO NOT give rent credits nor apply option premium to the purchase price. Your state’s statutes and case law determine this, but generally, if you give rent credits, your deal can be deemed a land contract and you will have to go through a full judicial foreclosure, even if you live in a trust deed state.
I use an escrow account for additional payments to be applied to down-payment and my option agreement says that these payments are refundable upon demand prior to closing. You don’t want to give the T/B an equitable interest in the property, so you should spell that out in the option.
Re: L/O with re-fi? - Posted by Ben
Posted by Ben on January 30, 2004 at 14:19:37:
Gurus differ on the strategy, and I’m not sure why. Some (e.g. Wendy Patton, if I recall) say “two separate documents: a lease and an option”.
Some are more lax about it, and have only one, all-inclusive document.
Here’s my question, and I’m the furthest thing from being an attorney: if you have two leases in effect simultaneously, which one is legally binding? What does basic contract law say? If they have overlapping language and you fail to disclose the one with the option, aren’t you showing clear evidence that you sought to intentionally defraud the re-fi company? How could you avoid overlap? What would a tenant who truly understood what he was signing say and how could you explain it?
It doesn’t sit right with me to have L and L/O. I believe you never put something in writing that you’d feel uncomfortable explaining in “court” (court of law, or explaining with 100% truthfulness to all parties to the transaction).
I’m not categorically against withholding one document (pure option) while disclosing the lease on the same property.