Posted by Joe Lee on January 04, 2003 at 06:52:10:
Yea, if there is no ‘Option’ and you ‘Must’ to purchase at the end of the lease agreement regardless of what the buyer want to buy or not (Therefore not an option), then that well may be around the DoS! And yes, I do need to ask a good RE attorney about this when I get some money to do so 
Lease Purchase a way to avoid DoS? - Posted by Joe Lee
Posted by Joe Lee on January 03, 2003 at 10:32:14:
After reading an article at www.legalwiz.com, it says that if a seller leases the house to a tenent with an Option to buy, and the lender finds out the lender can call the loan due (But I understand that they probably won’t if the payments are kept current).
Now, a Lease Purchase says the tenent WILL buy the house, since it’s not an Option to buy, but a promise to buy, can that keep the lender from calling the loan due?
I’m asking this just incase I run across someone thats not behind on payments, house has little equity, and the seller needs to sell and they are edgey about risking their good credit by deeding me the house. I just want to further open up deal possibilities and try to limit the number of people I have to turn away becuase they don’t want to risk their credit.
Read the contract! - Posted by John Merchant
Posted by John Merchant on January 04, 2003 at 12:00:00:
As every lawyer knows, one of the very first things one should do when checking out a written contract, breach of same, its application, etc…is to READ THE CONTRACT!
A D/T with DOS, is a written contract, and it has to be read in detail to see what it says. They’re NOT all the same, and what might slide by one DOS clause, won’t necessarily pass another one.
Just like any other contract, the only way to know what it says, and how to deal with it, is to read it.
Re: Lease Purchase a way to avoid DoS? - Posted by KC Questions
Posted by KC Questions on January 03, 2003 at 19:26:10:
As the other posters said, they are both the same. Regardless of the title of the contract, the contents of it are what are really important. If the contract states that you are purchasing, it is a purchase contract. If it states you have an option, it is an option.
A lot of investor’s use the terms interchangeably. Other investor’s have found more success in using a contract with the name “Lease Purchase” on it as the title when dealing with the seller to make the seller feel more confident that the property is no longer their problem. They still use language in the body that makes it an option.
I personally use forms with the name “Lease Option” on them, but I guess it is personal preference.
As far as Due on Sale is concerned, I believe it is only violated when there is either a transfer of beneficial interest (like in an installment sale) or if there is an option on the place of 3 years or longer.
Long story short, keep your options to less than 3 years and you should be okay. I use 12 month options for mine (to minimize my risk- since I am only tied to the property for only one year at a time) and I make sure that my contracts allow me to extend my options for another 12 month period by paying the owner a small fee (like $50). I try to get as many of these extensions as I can.
I highly suggest studying one of the courses on Lease Options as they explain them in detail. I use Bill Bronchick’s course, as I felt more confident buying his since he is a lawyer, and I definitely am not.
Re: Lease Purchase a way to avoid DoS? - Posted by Jerry
Posted by Jerry on January 03, 2003 at 16:40:17:
Lease Purchace and Lease Option is one and the same. In court if it looks like a duck??? Both violate the DOS. However the lending institution has the right to call the loan due and payable, it is not a law, only company policy. LOL
Re: Lease Purchase a way to avoid DoS? - Posted by John H.
Posted by John H. on January 03, 2003 at 12:48:04:
Joe -
While I’m not an expert on this, I believe the typical language is something like “a lease of not more than 3 yrs. not containing an option to purchase”. So, you would want to have a lease contract and a completely separate purchase option contract. Works better in case of default too, as you’re evicting a “tenant” rather than foreclosing on an “owner”.
John H.
Lease Purchase is not a sale - Posted by Craig - SoMD
Posted by Craig - SoMD on January 03, 2003 at 11:18:48:
An option to purchase is not an actual purchase. Who cares if the lender finds out about it? The owner with the loan maintains ownership until the option is exercised. DOS is not a concern.
Re: Read the contract! - Posted by Joe Lee
Posted by Joe Lee on January 04, 2003 at 12:34:39:
So you’re saying one mortgage companys DoS may be different from another mortgage companys DoS policy??
Re: Lease Purchase a way to avoid DoS? - Posted by Joe Lee
Posted by Joe Lee on January 04, 2003 at 06:47:47:
So why is CountryWide calling loans due now? any ideas?
“Triggering” the Due on sale clause - Posted by Brad Crouch
Posted by Brad Crouch on January 03, 2003 at 21:01:56:
KC Questions,
> As far as Due on Sale is concerned, I believe it is
> only violated when there is either a transfer of
> beneficial interest (like in an installment sale) or
> if there is an option on the place of 3 years or
> longer.
The language of the Garn St. Germain act of 1982 says that a lease of three years or longer “can” be enough reason for the lender to call the loan due.
In other words, a lease agreement NOT containing an option, is “excluded” from triggering the DOS if it is LESS than 3 years, by Federal law.
Any “option” to purchase . . . of any kind, can likewise “trigger” the due on sale clause.
So, consider making your lease agreements 2 years, 11 months and 29 days . . . or less. And do not offer an option to purchase at all, if you’re afraid of the DOS. The idea is to have cash reserves built up, or another way to deal with the DOS, should it become necessary.
I understand that Countrywide is now exercising their DOS clauses when they find out that an option has been transacted on a property they have an interest in. Also, you cannot guarantee that the seller will not “spill the beans” to the lender . . . innocently or not.
By the way . . . the DOS cannot be “violated” since it is not against the “law” (only a “breach of contract”). And the lenders have no “requirement” to exercise their DOS clauses. The DOS clauses technically get “triggered”, not “violated”.
Disclaimer: I am not an attorney and one should be questioned before risking any funds.
Hope you find this helpful,
Brad
Re: Lease Purchase a way to avoid DoS? - Posted by Joe Lee
Posted by Joe Lee on January 03, 2003 at 13:30:59:
So a Lease Purchase is legally different from a Lease Option, as in a Lease Purchase will NOT trigger the DoS? I want to know this true or not, as well as my (hopefully) correctly informed seller.
Thanx
Re: Lease Purchase is not a sale - Posted by Joe Lee
Posted by Joe Lee on January 03, 2003 at 13:04:08:
Who would care if the lender found out??? The credit consious seller would care a LOT!
And since the seller would have little/no equity I don’t want to be making payments to them, I want to make them direct to the bank. If the bank wants to know whats up I’d like to tell them the truth instead of a 1/2 truth.
Besides, I’m talking about a Lease Purchase, not a Lease Option…
Re: Read the contract! - Posted by John Merchant
Posted by John Merchant on January 04, 2003 at 13:00:25:
Absolutely. Why? Who knows why lawyers don’t always use the same wording? But trust me…they DON’T.
Lawyers constantly collect substantial money for clients whose insurance polcies and employment contracts and other so-called “standard” contracts were presumed to say things…but in fact the specific language of those written contracts said something entirely different.
I’m remembering a case where fella was killed when falling from an oil rig in AL. His mother was the only beneficiary on an insurance certificate the deceased had bought into. The insurance adjuster denied coverage and said the accidental death didn’t meet the terms of the policy…but when the mom’s lawyer finally was able to see the policy itself (the policy language controls, not the certificate language)it was quite clear that the death was within policy coverage, so the ins.co. did owe. When the adjuster saw the actual policy language, even he was shocked and amazed, and paid up promptly.
So again…always read the contract, and take nobody’s word about what it says.
Re: Lease Purchase a way to avoid DoS? - Posted by John H.
Posted by John H. on January 03, 2003 at 19:54:44:
Joe -
Best take this over to the legal forum; methinks there might be some misinformation about this subject. You might also want to search the archives, but check the archives over in legal first (and then bounce it off a GOOD RE Lawyer if you have any doubts).
JH
Same Thing!! - Posted by Craig-SoMD
Posted by Craig-SoMD on January 03, 2003 at 18:30:30:
A Lease Purchase ie exactly the same thing as a Lease Option. Since you are technically leasing the property, and not actually purchasing until and when you actually exercise your Option(or purchase the property), why would a lending institution foreclose on an owner that is making payments and doesn’t plan on selling it for the next few years. How would that be different from saying a lender will foreclose if I list it with a Realtor, even if the house doesn’t actually sell for a year or so? No sale has taken place. Once the sale goes through, then maybe a lender will be interested. There is nothing keeping an owner from renting out his or her property.
Craig
Re: Lease Purchase is not a sale - Posted by Eva_VA
Posted by Eva_VA on January 03, 2003 at 17:20:28:
Once and for all, will someone please confirm whether or not a Lease Purchase and a Lease Option are one in the same or if they actually different. If they are different, please briefly describe each. :o)
Re: Read the contract! - Posted by Joe Lee
Posted by Joe Lee on January 04, 2003 at 13:28:49:
Can the seller request a copy of the mortgage agreement from the lender, and then I can see what DoS clauses they have to work around the DoS if possible??
Re: Sure Not the same thing at all !!! - Posted by Greg
Posted by Greg on January 03, 2003 at 22:09:09:
A lease purchase says that one ‘Must’ purchase the home at the end date. It in effect turns into a contract to purchase at the end date. A Lease Option, says that the buyer may exercise that option to purchase, but is not required to. Period. Ask any good real estate attorney.
Greg
Lease Purchase vs. Lease Option . . NOT the same! - Posted by Brad Crouch
Posted by Brad Crouch on January 03, 2003 at 20:32:35:
Eva,
My understanding is this: Strictly speaking, a lease option is not the same thing as a lease purchase.
A lease option is where some one (or some entity) has the “option” to purchase within a certain time frame and “may” specify a certain, pre-determined price. This “option” is generally given in conjunction with a lease agreement. Understand that this is simply an “option” to purchase, and not a guaranteed sale. This option becomes a “guaranteed sale” when the option holder excercises the “option” to purchase, that is being held. But the buyer is NOT OBLIGATED TO BUY!
A lease purchase is where a buyer has ALREADY agreed to purchase, at some point (could be years in the future). The closing date will be contained in the “purchase agreement”. If you have not already guessed, this is a “contract to purchase”. A lease agreement usually accompanys this purchase agreement. The buyer is OBLIGATED TO BUY under such an arrangement, but with a liquidated damages clause, there is no penalty if the buyer/investor fails to perform.
A lease purchase usually is more palatable to the seller because it “hints” that the property is actually “sold”, even though it isn’t. There is a clause that is widely used that, in effect, turns this lease purchase transaction into a lease option, and is the primary reason why most folks believe that lease options are the same as lease purchases. And that is a “liquidated damages” clause. A liquidated damages clause simply states that in the event the deal does not close (because of the buyer), the monetary damages are limited to the monies which have already been “laid out”, and that no further recourse from the buyer will be sought.
So, it’s a simple way to limit the investor’s downside, if he doesn’t complete the deal. In this way, a lease purchase and a lease option “function” the same.
The usual disclaimer . . . I am not an attorney, and one should be questioned before any funds are put at risk.
Hope this helps some,
Brad