Posted by JPiper on May 25, 2000 at 09:05:18:
This wouldn’t happen in a lease/option either had it been done correctly.
JPiper
Owner getting equity loan on Lease/Purchase property? - Posted by Paul
Posted by Paul on May 25, 2000 at 24:32:38:
Can an owner of a property that he has Lease/Purchased get an equity loan on that property, and how would that affect the agreement between him and his tennant/buyer?
Thanks, Paul.
Re: Owner getting equity loan on Lease/Purchase property? - Posted by Ben (FL)
Posted by Ben (FL) on May 25, 2000 at 16:48:15:
If we are buying on a Lease/Option, our agreement specifically states that the owner cannot further encumber the property. If we are selling on a property, our agreement just states that we will deliver clean title.
Re: Owner getting equity loan on Lease/Purchase property? - Posted by Ed Copp (OH)
Posted by Ed Copp (OH) on May 25, 2000 at 10:14:29:
Paul,
The short answer to your question is: YES. The owner of the property can encumber the property. The second question: it should not affect the agree ment at all…
Now this presumes that all people are honest and above board with all dealings.
FROM THE SELLERS POINT OF VIEW, I always reserve the right to use my equity as I see fit. When the time comes to deliver the deed I will do that, but in the meantime I want the use of my equity.
An example would be a house that I owe $80,000 on YOU have an option to buy from me at $90,000. My equity is $10,000. Most institutional lenders will not laon against my equity here, but a private individual may. Let me continue. “Charlie” is retiring and moving to Florida. He has a little house worth $40,000 ( free and clear) and he wants to sell. He needs security, and not necessarily cash at this point. I offer charlie a note for $40,000 secured by the little house that he is selling me, and my equity in the house that you have an option to buy from me. This is extra security for charlie, and he agrees. He also agrees that if I pay him $10,000 he will release the houes that you have an option on, from this mortgage (so I can close with you).
This would be a perfectly legitimate use of My equity in this case. This $10,000 equity does not sound like too much but it should be mine to use if I want or need to. This might be quit a different story if I had 8 or 10 houses with the same situation in effect.
Just a little thinking outside of the box, so to speak…ED
Re: Owner getting equity loan on Lease/Purchase property? - Posted by Glenn-OH
Posted by Glenn-OH on May 25, 2000 at 06:44:28:
This is the type of situation I avoid by using the PACTrust. With the title in the trustees control, and the direction of all beneficiaries needed to approve the equity loan, this could not happen.
Glenn
Re: Owner getting equity loan on Lease/Purchase property? - Posted by JPiper
Posted by JPiper on May 25, 2000 at 02:22:10:
The question “can he do it” can only be answered by looking at the paperwork and any other documents that may have been executed and/or recorded at the time.
As Pat says below, there really isn’t a particular problem with this as long as the total loans don’t exceed the tenant/buyer’s option price. By “total loan” I mean the amount of the existing first, together with the total equity line, whether it has been drawn down or not.
Obviously if he encumbers the property beyond the option price, he would only be able to deliver title by bringing money to the close. That’s not something I would want to count on.
At a minimum a memorandum of contract should be or should have been recorded. If it is recorded now, and if the equity line has already been recorded, the memorandum will be behind the equity line…so it’s a little too late.
JPiper
Re: Owner getting equity loan on Lease/Purchase property? - Posted by PBoone
Posted by PBoone on May 25, 2000 at 02:05:35:
Our agreements all state that we can do anything with the underlying as long as it does not exceed the T/B’s purchase price.
Pat
Ditto - Posted by Tim in South Jersey
Posted by Tim in South Jersey on May 25, 2000 at 21:01:55:
It all depends on what side of the fence you’re on as to whether you want it to happen or not.