Unique S2 problem: Help Exp inv/attorneys - Posted by Sandee Houston, Tx

Real Estate Investing Real Estate Law
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Posted by John-Fl on July 28, 2004 at 08:18:12:

I’m not an attorney nor am I from Texas. Why would you resign a lease option with someone who most likely will not be able to qualify for a mortgage to cash you out. Why not politely ask them to cut their losses and move somewhere else? Then, secure a t/b with a better chance at cashing you out. Unless of course you ultimately don’t want to get cashed out. But taking someones money who has a very slim chance of having the financial ability to follow through on the terms of the option agreement isn’t something I make a practice of.

My 2 pennies worth.

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Unique S2 problem: Help Exp inv/attorneys - Posted by Sandee Houston, Tx

Posted by Sandee Houston, Tx on July 27, 2004 at 19:45:26:

Hello all!
A little over a year ago we entered into a Lease/Option disposition of a house that we had acquired Subject To. The sub2 and lease/option documents were all done correctly, ie. "the Bill Bronchik way? and Texas State specific. We just finished the one year option period on 7/26/04. Both the separate lease and separate option agreement were for one year only. This has been a really good tenant/buyer who has cooperated and paid on time faithfully every month. We are in the process of writing a new one year option agreement and in Texas her lease defaults to a month-to-month basis. Here comes the problem with a unique twist.
On 7/26/04 we received a first class letter, as opposed to certified mail, from the Bankruptcy Court where the tenant/buyer had filed Chapter 13, personal bankruptcy, announcing a creditors meeting. The tenant/buyer has paid the August 2004 rent as of today. Now, all of a sudden, I am a little confused as to what to do. Something tells me that I may be dealing from a position of strength because the first year option agreement has expired and they are simply on a month-to-month lease. If they threw the lease agreement into the bankruptcy I think I can ask the judge to lift the stay and evict them with only two months lost. I?m not sure if I?m right.
If I enter into a second year option agreement I am afraid somehow their bankruptcy attorney will use it to their benefit and my detriment but I don?t know exactly what would transpire. The tenant/buyer is currently pressing me for this second year option agreement. Additionally, there is another confusing thing. The tenant/buyer says they are on a Chapter 13 five year payout plan. The five year term messes up what we usually have as an 18-36 month option holding period. Also, if I have prior knowledge today that she has just filed Chapter 13 and subsequently next week enter into a 2nd year option period I?m afraid it might make me culpable somehow.
I would really appreciate it if any experienced investors or attorneys on this board could shed some light on my dilemma. Thanks in advance for any opinions.

Sandee Houston,Tx

P.S. Terry (HOU), where are you when I need you??

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The most feared Alligator… - Posted by David Alexander

Posted by David Alexander on July 30, 2004 at 24:32:50:

It’s the least talked about animal in the REI world… and the one that can have some devasting effects.

I’ve had it filed on me alot of times and have the scars to prove it… :slight_smile:

If they are paying… Let em’ stay… Most folks in a BK… don’t pay and only use it as a tactic to delay the inevitable…

They’ve already paid you August… they are gold in my book…

They are using the system to do what it is supposed to be for… get back on track.

Givem’ the option… but, slate it for only 3 months at a time… and here’s why…

If they default… it doesnt matter the Option is null and void anyway… and I have had my buyers refi during a BK… They did it with FHA… after 13 to 20 months of on time payments…

FHA doesnt care about credit… just an on time payment history.

Culpable to what… It’s your house… you can sell it… to anyone you choose… you can give an option to anyone you choose…

You won’t be able to evict them unless they are behind and in default… and then you’ll have to get a lift of stay… And it ain’t instant. Don’t try that without an attorney… it’s a good 'ol boys club…

David Alexander

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Re: Unique S2 problem: Help Exp inv/attorneys - Posted by B.L.Renfrow

Posted by B.L.Renfrow on July 29, 2004 at 17:18:28:

I’m going to agree with rm here…why get rid of a decent tenant who in your own words has “paid on time faithfully every month?” Unless there’s some reason you absolutely have to go with the 18-36 month time frame, I’d sit tight. A tenant who pays faithfully every month is far better than having the property sitting empty while searching for another one who might do the same. Just because they filed BK doesn’t mean they aren’t going to pay you…if they intended to default, they would have likely already done so.

Brian (NY)

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Re: Unique S2 problem: Help Exp inv/attorneys - Posted by JohnBoy

Posted by JohnBoy on July 29, 2004 at 17:14:40:

They paid on time every month so I would not have a problem with them staying on as a tenant. However, I would not give them other option at this point because of the BK.

If they had 6 months remaining on a lease and filed BK you could not evict them because they filed a BK when they are current and have paid on time. You could only evict if they were in default and after getting a lift of stay.

If they have paid like you say they have, I would not have a problem with signing another year’s lease. If they mess up their BK, so what? As long as they continue to pay you on time, who cares? If they default in the future then get a lift of stay and evict. If they pay they stay. Just don’t give them another option right now. A month to month lease or even a year lease, why not. Just no option.

Tell them if they can get a loan in the next year then you’ll deal with that when the time comes. You can always sell them the property at any point if they can buy it. You just can’t tie it up with them under a new option right now because of their BK. So stay and just rent if you want, otherwise move out. That is the best you can offer for now.

They got themselves into this mess, not you. Their lease and option is expired. So if they can’t buy now then that is their problem, not yours. Stay on as a tenant or move. But no option at this point and time until after their BK is resolved.

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Re: Unique S2 problem: Help Exp inv/attorneys - Posted by John Katitus

Posted by John Katitus on July 29, 2004 at 01:02:53:

Give them a 30 day notice and get them out of there asap. Don’t let their problems become yours any more than they already are. I can’t imagine their bankruptcy would violate your rights under a month to month tenancy.

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Re: Unique S2 problem: Help Exp inv/attorneys - Posted by rm

Posted by rm on July 28, 2004 at 20:18:45:

1- Get an attorney who’s experienced at representing creditors in a Ch 13 proceeding.

If they’ve just recently paid you, then they probably intend to continue doing so. Their attorney probably suggested you be named, which is a good idea.

Do you need to cash out in 18-36? Maybe it’s just me, but I’m not in the habit of kicking out paying tenants. On a month-to-month, you’re not bearing much risk.

If you feel more comfortable, perhaps you could renew the option at 6-month intervals, raising the price each time. Forget obtaining additional consideration, as the 13 trustee will probably take nearly all of their disposable income.

If their BK is dismissed at some point, they’re not going to qualify for a loan, anyway, so you’re not really in any danger of being committed to them in the event that they default.

There are lenders who will do a loan to a debtor who’s one day out of discharge on a Ch 13.

Problem is, the fall-through rate on 13’s is extraordinarily high. If they fall out, they won’t be able to qualify for a loan. However, the fact that they just paid you and do want to work with you is a good sign. If they’re committed, they’ll eventually be able to cash you out.

If you do want to try to work this out, be sure to find a lender who specializes in sub-prime- esp. post-BK, who can help them to do what’s necessary so that they can get a loan once they’re done.

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Re: Unique S2 problem: Help Exp inv/attorneys - Posted by Randy (SD)

Posted by Randy (SD) on July 28, 2004 at 10:38:12:

I agree with John-FL I would not enter into another lease agreement with this tenant buyer. Additionally you would be well advised to contact your attorney immediately. Your obligation to renew the lease or allow the tenant to stay on a month-to-month basis indefinitely is one where your rights need to be protected, IMHO you do want to be forced into a situation where you have to accept a month-to-month tenant who cannot exercise their option for 3-5 years.