Re: Scared to do Lease Options? - Posted by Chris in FL
Posted by Chris in FL on April 19, 2006 at 09:54:23:
Brad Crouch e-mailed me personally asking if I am able to collect a nonrefundale option fee since I do a ‘contract for option’, and not an actual option. Yes. The ‘option for contract’, IMHO, has every benefit of the option itself, but gives you more protection from unintentionally giving tenant/buyer an equitable interest. I state in my documents that the contract fee is non-refundable, and, in the event tenant/buyer does not purchase the property, all contract fee is forfeited as rent (same as you would say about option fee).
Also, something I should have mentioned about equitable interest. If tenant/buyer puts enough money down, and builds enough ‘contract for option’ fees, they, at some point, do have an equitable interest. Regardless of paperwork or anything else, if the tenant/buyer has accumulated 30% of the property values in contract fees, they deserve to have an equitable interest. Anyone who thinks they should build up that much and have to forfeit it completely doesn’t have the same values I do (I am not in this business to take advantage of people; I am in it to help people). If they build up that much equity, and want/have to leave, I anticipate I will offer two options: 1) they can find a cash buyer for the property and sell it for FMV; they buy it from me on their contract, and sell it, and make a profit in between, which might be more or less than their contract fees, or 2) we negotiate a settlement fair to both parties, where I keep some of the contract fees and return some as well.
My thinking is that, all paperwork done correctly, tenant/buyer is unlikely to get away with ‘stealing’ an equitable interest (forcing me to refund money not due to them, or forcing me to foreclose for nonpayment instead of evicting). Reality is, if they try to, and negotiating fails, it will come before a judge, and whatever happens is case by case. I hope any judge would be able to see that I do fair business, am not trying to take advantage of anyone, and rule on my side. However, I recognize that anything is possible.
Now, my understanding is that there is a magic number where accumulated buyer/tenant fees reach a certain percentage of sell price or FMV (I mentioned 30% above in speculation), that legally gives them equitable interest. Does anyone out there have insight into this??? If so, please share! Thanks, and Best wishes!