Why Record An Option? - Posted by Cweins

Posted by bob on June 28, 2002 at 13:54:34:

To cloud the title is one reason…

Why Record An Option? - Posted by Cweins

Posted by Cweins on June 25, 2002 at 23:42:22:

Could someone please help. I am trying to do a straight option and people are telling me to record it.
Is option recording enough to protect my interest? Or do I need to record a memorandum and/or performance mortgage?

What happens if I only record the option?


Re: Why Record An Option? - Posted by Brian M. Powers(MI)

Posted by Brian M. Powers(MI) on June 26, 2002 at 05:15:07:

you record the memorandum of option which gives notice to the world that you have an interest(option) on this property.
if the seller were to go and try to sell this place and undercut your position, it is unlikey a title co. would close the deal with your “cloud” on title.

Re: Why Record An Option? - Posted by Cweins

Posted by Cweins on June 26, 2002 at 10:34:07:


I have three questions:

  1. Is an affidavit the same as a memorandom of option?

  2. What will the title company do with this “cloud”? If seller were to backout on me, what would title companies do for me?

  3. What is the difference between affidivate and performance mortgage?

Your help is much appreciated.


Re: Why Record An Option? - Posted by michaela

Posted by michaela on June 26, 2002 at 06:37:18:

i had never done this, until i had this great craftsman under contract last year and the seller stopped returning my calls, which made me suspicious. (i know she had some other investors looking at it. i gave her full asking price 72k.it takes about 30k to bring it up to 200k) i then filed an affidavit. she wouldn’t return any of my calls and even cussed me out when i surprised her once, by calling in the morning. i did all the right stuff, sent a registered with closing date. the closing atty called and she was going to close 2 days later, but didn’t. i ended up filing a lawsuit (my contract provides for the loser paying legal fees), because it’s a pretty straight forward case (isn’t it funny how things always work out for the best? i would have closed end of june and the house would have been on the market on 9-11. she also signed a contract with someone else and put a new roof on, which would have been a major expense, since it had still cedar shakes). all of that is now coming togethe and the prices in the neighborhood have come up a little, too.
so, in the future i will always file affidavits.

Re: Why Record An Option? - Posted by KC Questions

Posted by KC Questions on June 26, 2002 at 17:23:38:

The form that I use is titled “Affidavit and Memorandum of Agreement.” The recorder’s office has a list of all of the types of forms that can be recorded. A “Memorandum” was not on their list but an “Affidavit” is, so I filed the form using the requirements for an Affidavit (grantor’s signature and filing fee) and they took it.

“file an affidavit”? - Posted by dianna

Posted by dianna on June 26, 2002 at 09:32:22:

hi michael

just curious. you say “in the future i will always file affidavits”.

an affidavit is different from recording an option, or recording a contract (an affidavit is a sworn statement). i always record my contracts but am wondering what you meant by file an affidavit… and whether that’s something ELSE i can do in addition to recording the contract.

could you clarify and congrats on how it all worked out for you.

Re: Why Record An Option? - Posted by CWeins

Posted by CWeins on June 26, 2002 at 20:06:02:

What is the difference between recording an affidavit and performance mortgage?

If there is no difference could you give an example of when and why a performance mortgage would be needed?



Re: “file an affidavit”? - Posted by michaela

Posted by michaela on June 26, 2002 at 11:25:38:

this is a form, that i got from another investor. basically, i have it notarized and i regord, that i
have a contract on this particular property, due to
close on such and such date. with my contact information. it clouds the title and most other investors won’t touch the deal. BUT i heard from another investor, that he did this and someone else bought the property with cash anyway. he even spoke to the other investor, so he was aware of the situation and he went ahead and bought it anyway. the only definit way to really keep it from selling is a lis pendant and that can only be filed in conjunction with a lawsuit. that’s why i went ahead with it.
this may be different than recording an option. i assumed, this was the same thing

Re: Why Record An Option? - Posted by KC Questions

Posted by KC Questions on June 26, 2002 at 20:48:48:

A mortgage provides security for something, usually a debt but in this case an agreement. Think of it like this- The bank loans you money to buy a house. The bank wants collateral for the loan. You give the bank a mortgage- which is your agreement to use the house as collateral for the loan in case you default on the loan. In short- a mortgage is you agreeing to let the bank take (foreclose) on the house if you don’t adhere to the agreement.

In the case of a lease option, when the owner gives a mortgage to the investor, the mortgage is not securing debt, but instead is securing an agreement, the option agreement where the owner obligated themselves to sell the house to you. If down the road, the owner changes his/her mind about selling to you, if you have a recorded performance mortgage, at that point you could foreclose on the property to gain possession because the owners violated the option agreement.

A performance mortgage would also protect you from the owner getting new loans on the property before you exercise your option. Any mortgages recorded after the performance mortgage would be in a junior position and would be eliminated if the performance mortgage had to foreclose, which protects your investor’s interest.

An affidavit and memorandum of agreement says that someone has an agreement with the owners. It doesn’t state the terms of the agreement. This form might not necessarily stop someone else from buying the property from under you before you have a chance to exercise your option, but it should stop them from being able to get title insurance. This form doesn’t provide any means for the investor getting the property back if the seller does something inappropriate with it.

Caveat: I am not an attorney, this is only my opinion, and while most of this should apply, some things might be different for your area and/or situation. You might want to check out Bill Bronchick’s Lease Option and/or Nuts and Bolts of Real Estate Transactions Courses. He is an attorney and his courses have helped me a lot.

Re: - Posted by dianna

Posted by dianna on June 26, 2002 at 16:20:51:

thanks for the extra info michael.

Re: Why Record An Option? - Posted by Tim Savage

Posted by Tim Savage on June 27, 2002 at 15:52:52:

Something I’m not clear on. If I hold an option on a property, and the bank forcloses, does my option get wiped out?

Re: Why Record An Option? - Posted by KC Questions

Posted by KC Questions on June 28, 2002 at 24:13:48:

You might want to ask Bill Bronchick this question on legalwiz.com