Lease option pitfall? - Posted by JAQ

Posted by JAQ on June 19, 2001 at 16:26:48:

I want to thank all of you for your responses, it will help me out a lot. One question I do still have is about this “preformance mortgage”. This is something new to me and I would like to know more detail about it. I guess one of my biggest questions is, Does this affect the first mortgage(held by a bank) on the property or is this just putting a cloud on title? I very concerned with due on sale clause and not triggering it.

Thanks again,
JAQ

Lease option pitfall? - Posted by JAQ

Posted by JAQ on June 18, 2001 at 22:50:17:

I have the oppurtunity to lease option a property. My question is if I get the property under contract, then sub-lease it to a tenant/buyer, what happens if the seller decides he wants to default on the contract and wants his house back after I already have a tenant/buyer moved in.
What recourse do I have? Is there something that I can write into the contract to prevent this from happening…any suggestions? Sould I record the option?

Thanks for any help,
JAQ

Re: Lease option pitfall? - Posted by Jim IL

Posted by Jim IL on June 19, 2001 at 15:17:32:

JAQ,
You may want to goto www.legalwiz.com and look for some forms there. Bill Bronchick has some that should help.
When you enter into a L/O with a seller you should get them to sign the agreement, as well as get the deed held in escrow. You may also want to record a performance mortgage, as described in another response to your post, or you can record a “memorandum of agreement”.
This only needs to be signed and notarized by you, and does not need to include the terms of the agreement.
This will keep your deal private, while clouding the title of the property.
If the seller tries to sell out from under you, or over encumber the home in anyway, they will have to clear title, which means they need to settle up with you, so you release your cloud.
And of course, to settle, they’ll need to adhere to the agreement with you as signed, or pay you off with cash!

HTH,
Jim IL

Re: Lease option pitfall? - Posted by Buddy

Posted by Buddy on June 19, 2001 at 07:48:06:

Good Question! I too have found out that there can be serious pitfalls to a lease option and think I’ll try to stick with land trust and pactrust deals. I l/o’d a property at 98K, 1050/mo and had the deal done with a tenant/buyer at 5k non refundable option money up front, 1250/mo and purchase agreement at $112K in 24 mos. I thought the deal was going smooth and ready to make a nice profit…Guess what? Two days after securing the tenant/buyer, the original owner called me and told me he was going into chapter 7 bankruptcy and was going to lose the house. Oh well, live and learn…I refunded the disapointed tenant/buyers money and will have to find him another one. So, the lesson learned…yes there can be pitfalls to a l/o

Re: Lease option pitfall? - Posted by Russ Sims

Posted by Russ Sims on June 19, 2001 at 24:28:19:

Yes, you should record the option, as well as a “performance mortgage”. Basically, this is a mortgage that the homeowner gives to you to secure your option. The mortgage is recorded and if the homeowner defaults, that is if he tries to sell to someone else, you can foreclose on him. Bill Bronchick has a performamce mortgage in his lease/option course.