In a lease/option situation, to protect yourself from your seller getting a second mortgage during your lease period, you’re supposed to use a performance mortgage. Are you as the potential buyer giving the seller the performance mortgage, or is the seller giving it to you? Why is a “mortgage” used at a stage when there is not yet a sale, but merely a lease? In simple terms, if possible, what is the construction of this performance mortgage in what it says or might say?
The seller is giving you the mortgage. The mortgage allows you to enforce your L/O agreement by giving you the ability to foreclose if the seller later refuses to sell to you when you exercise your option. Normally a mortgage is used to secure debt, but in this case it is used to “secure” your agreement.
Thank you, but your good answer prompts another question. It appears to me that there probably isn’t a performance mortgage “form” that I could use. Since the particulars seem to be just that: particular, would you (or your attorney) have to custom-author it or, in fact, is there a form I can get for this purpose? Thanks in advance.
I think Bronchick’s materials has one. Not sure which course. I’m not doing sandwich L/Os yet so I haven’t had the need to use one. You could just get an attorney to draw one up and then use that as a template for future deals.