Lease Option Contracts
Hello All,
I am trying to sell a property via a lease option. (rent to own) I am the seller. I know I need a separate lease. I am trying to locate an option contract for a lease option. Remember I am the seller. I tried to buy one in the store on this site and could not find one.
could someone point me in the right direction please.
Thanks
Matt
Hope the contracts work for you Matt.
God Bless.
Hello,
I emailed you a thank you. Thanks again.
Matt
Matt,
Make sure to have your attorney review the documents to ensure that they will work in your state. Your attorney can also fine tuned them for your specific needs.
Roger
Matt I can't find the thread right now but there was a discussion last week about the pros and cons of using a seperate lease and option, it may not always be the best idea. Good luck.
Create two separate documents. Get the Lease agreement signed and then fill out the option to purchase. Make sure you have the ****Must Reach Senior Investor status before posting URL's***ptionee sign a statement that he/she agrees that the option is not an agreement for deed or any form of owner-financing, not does it create an equitable interest of any sort.
I would also add that it is prohibited for the tenant/optionee to record the option or any memorandum thereof and if recorded it will render the option nell and void.
All this helps protect you as the optionor. Email me if you need to know more.
I hear it's also a good idea to have your buyer/lesee sign a quitclaim deed. That way, if they default, you can kick them right out.
right on out.
triowder,
Glad to meet you.
Quote -Optionee sign a statement that he/she agrees that the option is not an agreement for deed or any form of owner-financing, not does it create an equitable interest of any sort.
$.- What is the option for if not to purchase the property?
Quote - I would also add that it is prohibited for the tenant/optionee to record the option or any memorandum thereof and if recorded it will render the option nell and void.
$ - Why would you prohibit this from happening? Does the tenant have an option to purchase or don't they?
The reason I ask these questions I am wondering how a Judge would rule on this. Because if your tenant/optionee (your words) records the Option forget about the option being null and void you have a cloud on the title, which you may have to explain in court.
John $Cash$ Locke
davidahess,
Glad to meet you.
If your tenant buyer has an option on the property and claims equitable interest, then a Quit Claim deed means nothing.
A judicial foreclosure is what you will need to do to get your tenant buyer out of the property. Even if you had them sign a Deed in Lieu of Foreclosure, once equitable interest is established you are looking at a juducial foreclosure.
John $Cash$ Locke
Hey John,
I guess I should explain the contract I use a little more.
The first statement of the contract reads:
In consideration of Tenant/Optionee meeting all legal obligations herein stated, Landlord/Optionor hereby grants Tenant/Optionee an Option to Purchase said Property under the following conditions:
One condition reads:
The recording of this Oprion or any memorandum thereof is prohibited and will render this Option null and void and will result in all monies thus aid to be retained by Landlord/Optionor as liquidated damages and not as a penalty; futhermore, Tenant/Optionee will be responsible for all legal expenses incurred, plus damages, to correct title.
A second condition states:
Tenant/Optionee understands and agrees that this option is not contigent upon tenant/optionee obtaining financing from a lender or for any other reason and that the failkure of tenant/optionee to purchase said property before the expiration of the option term will result in the loss of all monies paid, as will the default of any of the covenants of the lease agreement, and tenant/optionee further agrees that this option is not an agreement for deed or any form of owner-financing, nor does it create an equitable interest of any sort, but this option is simply a right to purchase said property under said terms and conditions, with said limitations and under said time limit.
As a CYA I have the T/Owrite in his own words that he agrees that he has no equitable position in the property.
What do you think?
Here's a little reading material as to why you should use 2 separate agreements.
I borrowed this from very knowlegeable investor. It should be copywrited.
I hope it helps and changes some of the advise I've been hearing, and more importantly I hope it helps a new investor understand the L/O a little more clearly.
Shawn(OH)
BOGUS LEASE OPTIONS REVISITED!
The following is a closer look at an article that has been posted about bogus lease options. In taking a closer look at this article, I've added my NON-lawyer opinions of how I read this based on the author's exaggerated interpretations. By taking a closer look I think this could become beneficial to those that are just starting out and being able to see what you shouldn't do when doing lease options and what you should do when lease optioning a property to a tenant.
For anyone that may have gotten any second thoughts about doing lease options after reading this over exaggerated and misleading article, I hope this helps to clear things up regarding any concerns this may have given you.
BOGUS LEASE OPTIONS
A Purchase by Any Name
By Stephen Stralka
NOTE: The title of this article says, "Bogus Lease Options", yet the first thing the author starts out with pertains to what may be construed as a sale and would have nothing to do with a lease option.
The author says"
"""A home buyer with insufficient funds for a ten percent down payment responds to a broker's ad under "Home for Sale"; the ad indicates that the credit worthy can move into a pricey single family residence with a small down payment."""
The fact that the author indicates an ad to refer to a buyer being able to move into a home with a "small down payment" would indicate a sale is to take place. In a "sale" a "down payment" is usually required by a "buyer".
In a "lease option" there is no "down payment". In a "lease option" the "landlord" will typically collect "option consideration" for giving a "tenant" the "right" to purchase the "landlord's" property at a predetermined future date. The "option consideration" is in no way, shape or form, a "down payment" and should never be construed as being a "down payment". It is exactly what it is called, "option consideration", period!
Next the author says:
"""The buyer inspects the property, and decides that he would like to buy it. The seller is asking for five-percent down, and is willing to carry the balance."""
Here the author claims the "buyer" decides he would like to "buy" it. Whether this is a "buyer" or a "potential buyer" that becomes a "tenant" under a lease option agreement is irrelevant as to what they would "like" to do. If the "potential buyer" enters into a "lease option" agreement then the "potential buyer" is in fact, a "tenant" and not a "buyer". The "tenant" does not become a "buyer" until the "option" is exercised, IF, the "option" is ever exercised. If the "option" is never exercised, then the "tenant" is never a "buyer" since in order to be a "buyer", one must actually "buy" something.
Next the author states the "seller" is asking for "five-percent down" and is willing to "carry the balance". Well if the "seller" is asking "five-percent down", then this would indicate a "sale" is to take place with "seller financing". In a "lease option" there is no "down payment" and there is no "seller financing" since the "potential buyer" will be a "tenant" under a "lease" agreement with an "option" to buy. Any money paid up front to the "landlord" under a "lease option" agreement is not received as a "down payment". Any money paid up front by the "tenant" is paid as "option consideration", period! It has nothing to do with a "down payment" since the "tenant" is merely "leasing" the property with an "option" to buy at a future date. There is no "carrying of a balance" in a "lease option". There is only "rent" to be paid under a "lease", not a "balance carried". A "balance" is carried under a "sale agreement", not a "lease option" agreement!
Next the author states"
"""The five-percent down payment is called "option money," and is to be applied to the purchase price should the option be exercised. Correspondingly, the monthly payment is called "rent," and a portion of the rent is to apply to the purchase price - upon exercise of the option.
Thus, except for the absence of a note, trust deed and grant deed, the terms of this so-called "lease option" have all the economic characteristics of a carry-back sale. There is an agreed-to-price, a down payment, monthly payments toward principal and interest, and a three-year due date."""
WRONG! If this is a "sale" taking place with seller "financing", then a "down payment" is collected. If it's a "lease option", then only "option consideration" is paid. It can't be both! Either one or the other. It's either a "sale" or it's a "lease option", but it can't be both. If your contracts were to state a "down payment" as being paid, then that could be construed as a "sale" is taking place. If the money paid is stated as being "option consideration" being paid, then that is no indication of a "down payment" having been paid and is merely what it's called, "option consideration", plain and simple!
The author states the monthly payment is called rent. Under a "lease option" the money paid each month IS "rent". Under a "sale" agreement the money paid each month is called "monthly payments".
The author states there is an agreed-to-price, a down payment, monthly payments toward principle and interest, and a three year due date.
In a "sale" agreement this would be correct. In a "lease option" agreement this is not correct. A "sale" agreement would state an agreed-to-price, a down payment, monthly payments toward principle and interest, and a due date.
A "lease option" would NOT include a down payment, monthly payments, principle or interest being paid, or a due date.
A "lease option" would include "option consideration" being paid, "rent" to be paid, and a agreed upon "option price".
You can't have both. Either it's a "sale" or it's a "lease option". How you word and structure the contracts can determine whether a "sale" is taking place or whether it's a "lease option". You either pay "monthly payments" that apply to principle and interest when a sale, or you pay "rent" which does NOT apply to principle and interest when a lease option. You either pay a "down payment" towards buying the property, or you pay "option consideration" towards getting the "option" to buy. Whether you "buy" under a contract "sale" or pay "option consideration" to get an "option" to buy, a purchase price is set and agreed upon between both parties. In some cases in a lease option, the purchase price could be determined based on having an appraisal done on the property at the time the option is exercised. But whether you set an option price up front or to be determined by an appraisal at the time of exercising the option, neither way affects the validity of whether or not it's a lease option or a sale. It's still a lease option regardless of when you determine what the purchase price will be.
The author further states:
"""After closing, the buyer incurs financial difficulties and is unable to keep up with his payments. The seller attempts to evict the buyer for non payment of rents. The seller claims that the lease is terminated by a Three Day Notice to Pay or Quit and the buyer forfeits the right to the possession of the property and the amounts to be credited toward the purchase price."""
Here the author has terms that would be described in both, a "sale" agreement and a "lease option" agreement. You can't have both, it's either one or the other depending on which method the property is being offered. It's either a "sale" taking place or it's a "lease option", but not both!
In a "sale" agreement there may be a closing at the time of entering into a "sale" agreement or the closing may take place later at the time the "buyer" pays off the balance owed on their contract, depending on the type of method being sold under. In the event of a default by the "buyer" in a "sale" agreement the "seller" may be able to "evict" or the "seller" may need to foreclose. That will depend on how the "seller" "sold" the property, the terms of the contract, the wording used in the contract,the type of contract used and what the laws are pertaining to the type of method the "seller" sold the property. In some States a "seller" may be able to "evict" the buyer vs. having to go through a judicial foreclosure to get the property back. Each State has different laws pertaining to contract "sales" and anyone "selling" on a contract should seek proper legal advice on how they are handled in their own State.
Under a "lease option" agreement, when the "tenant" defaults under the "lease", the "landlord" can "evict" the "tenant". A foreclosure is not necessary because there is NO "sale" involved under a "lease option" until the "tenant" exercises their "option".
The author also states the "seller" claims the lease is terminated by a Three Day Notice to Pay or Quit and the buyer forfeits the right to possession of the property and the amounts to be credited towards the purchase price.
In a "lease option" the "landlord" may "evict" after serving proper notice. In a "lease option" there is no amounts forfeited that were credited towards the purchase price. Under a "lease option" anything offered as a credit to be credited against the purchase price is NOT credited until the time the "tenant" exercises their "option". NO credits are given before that! The "option" agreement states any "option consideration" and any "rent credits", if any, shall be credited towards the purchase price, IF, and ONLY IF, the "optionee" exercises the "option".
So before any "credits" are actually given, the "tenant" must FIRST EXERCISE THE OPTION! If the "option" is not exercised, NO credits have ever been actually given to the "tenant". The "tenant" MUST exercise the "option" before any credit towards the purchase price can be realized. The author claims this is all forfeited by the "buyer", which is not a "buyer", but merely a "tenant" until the "tenant" becomes a "buyer" later, only IF, the "tenant" exercises the "option". So how does a "tenant" forfeit something they have never received to begin with??? In order to have something forfeited, one must have already received it! Any "rent credits" or "option consideration credit" is NOT received until AFTER THE FACT! The "tenant" must FIRST exercised the "option" BEFORE ANY CREDITS OFFERED CAN BE RECEIVED! So their is nothing forfeited in a "lease option" as far as "option consideration" and "rent credits" are concerned because the "tenant" never exercised the "option" in order to realize and receive the "credits" to begin with!
Next the author states:
"""Can the seller terminate the agreement as a lease with an option and keep the buyer's money?"""
See how the author has worded this question and can easily confuse someone? Let's rephrase the question the way it should be asked pertaining to a "lease option".
Can the "landlord" terminate the "lease" and "option" and keep the "tenant's" "rent" and "option consideration" paid???
If the "tenant" has defaulted and breached the contract, then ABSOLUTELY!!!!
The author goes on to say"
"""No! When a buyer in possession under an agreement receives credit toward the purchase of a portion or all of his payments to the seller, he has established and built up an "equity" in the property, and "ownership interest" which must be terminated by foreclosure."""
HUH??? WHAT CREDIT??? First of all, it's the "tenant", not the "buyer". Second, the "tenant" has NOT received any credit towards the purchase price or any portion of the "rent" (not payments) towards the purchase price. There has been NO established built up "equity" in the property because the "tenant" does not "own" the property, nor is the "tenant" under any kind of a contract to "buy" the property. NO credits have been received by the "tenant" because the "tenant" has not exercised the "option" in order to receive and realize any "credits" that may have been offered, "IF", and "ONLY IF", the "tenant" exercises the "option", the option must first be exercised. Again, you CAN NOT claim an equity interest because of something you NEVER HAD to begin with! The ONLY way the "tenant" can get any credits is by FIRST exercising the "option". If they exercised the "option" then none of this would have ever been an issue since the "tenant" would have purchased the property!
Next the author states:
"""A lease option agreement structured on terms economically consistent with a credit sale is neither a lease between a tenant and a landlord, nor an option to buy. This bogus "lease option" agreement is a disguised purchase agreement between a buyer and carry-back seller [Oesterreich v. Commissioner (1955) 226S2d 798]."""
Here the author would be correct based on what he's saying. IF the lease option is structured on terms economically consistent with a CREDIT SALE, then the lease option could be claimed as being bogus and disguised as a purchase agreement. This is WHY it's very important to use properly worded and structured contracts. If it looks like a duck, walks like a duck and quacks like a duck.....it's a duck!
What the author doesn't tell you about the case he mentions above is, that this case involved the IRS that reclassified the lease option as a sale because it involved a 30+ year lease.
Here is a quote from Attorney, Bill Bronchick pertaining to this case:
"The article refers to the ONE IRS CASE (Oesterreich v. Commissioner (1955)) that reclassified a lease/option on real estate as a sale. That case involved a 30 + year lease/option. That case is also 45 years old.
In TC Memo 1999-11 (decided 2 years go), the tax court clearly stated that a 3 year lease w/option was NOT a sale. You can read the case by following this link:
http://www.legalwiz.com/articles/tcmemo.pdf"
The author goes on to state:
"""Thus, the seller can only terminate the buyer's ownership interest in the real estate through judicial foreclosure - no trustee foreclosure provisions are written into lease options, since such agreements are purportedly not sales at all."""
Again, more garbage being blown completely out of context attempting to use terminology found in a "sales" agreement and mixing into a "lease option" agreement.
In a "sales agreement" there is a "seller", a "buyer" considered to have "ownership interest" that may or may not require the "seller" to go through a judicial foreclosure.
In a "lease option" there is NO "sales agreement", but merely a "lease" with an "option" to buy. The reason there are no trustee foreclosure provisions written in a "lease option" is because a "lease option" is NOT a "sale". A "lease option" is just what it says it is....a "lease" with an "option" to buy. There is no foreclosure involved with a "lease option". In the event the "tenant" defaults and breaches the "lease" or "option" agreement, the "landlord" files for eviction just as any "landlord" would have to do under any other "lease" agreement. A "lease option" is not, "purportedly not a sale at all". IT'S NOT A SALE AT ALL, PERIOD!
THE BOGUS LEASE OPTION
The title used here is funny because what the author states under this title has nothing to do with a "lease option" what-so-ever!
The author says:
"""A seller has a number of possible ways to structure carry-back financing for the sale of his property. He may, after a down payment:
· Convey title and carry back a trust deed (first or second) for the balance of his equity in the property;
· Convey title and wrap an existing first TD with all-inclusive trust deed (AITD);
· Enter into an unexecuted deposit receipt retaining title until escrow is opened and closed, and give the buyer occupancy under an interim occupancy agreement; or
· Use a land sale contract, also called a "Contract for Deed," retaining a deed to secure payments of the balance due on the price."""
Conveying title and carrying back a trust deed for the balance of the seller's equity is a "sale" and has nothing at all anything to do with a "lease option".
Conveying title and wrapping an existing first TD with all-inclusive trust deed (AITD) is a "sale" and has nothing at all anything to do with a "lease option".
Entering into some, unexecuted "deposit receipt" of some kind, retaining title until escrow is opened and closed, giving the "buyer" occupancy under an interim occupancy agreement has nothing to do with a "lease option".
Using a land sale contract, also called a "Contract for Deed", where the "seller" retains the deed until all payments have been made and the balance paid in full, is a "sale" and has nothing at all anything to do with a "lease option".
Perhaps what the author should have included here was something stating to the effect...
"Anything including provisions listed below that are included in a lease option agreement would be considered a bogus lease option in an attempt to disguise a sale taking place and not a lease option."
At least that would have added some merit to the title he used. Otherwise the title itself has no merit since everything he mentions pertains to a sale taking place and has nothing to do with a lease option!
The following section the author states:
THE CREDIT-TO-PRINCIPAL FEATURE
"""Incongruously, the bogus "lease option" has the buyer/tenant receiving credit on the price for both the down payment/option money and a principle portion of the payment called rent."""
If in fact, the lease option agreement has the tenant/buyer receiving credit on the price for a "down payment" and a "principle" portion of the "payments", calling it rent, then the lease option may be construed as being a sale and not a lease option. But under a "lease option" there is NO "down payment", there is NO principle being paid, only "RENT" is paid and "rent" is called "rent", plain and simple!
Again, ANY credits offered in a "lease option" are only applied AFTER the "tenant" goes to exercise the "option". Until that happens, there is NO credits issued to the "tenant", period! The "lease option" does not automatically apply any credits during the term of the "lease" or during the term of the "option". NO credits are given or applied until AFTER the "tenant" exercises the "option". The "option" must be FIRST exercised before ANY credits are to be applied! Otherwise, NO credits are given or applied, nor have any ever been given or applied! The "lease option" clearly states that, "IF", and "ONLY IF" the "optionee" exercises the "option", shall ANY credits be applied towards the purchase price!
The key words here are, "IF" and "ONLY IF" the "optionee" exercises the "option", which clearly means there are NO credits given nor applied until AFTER THE TENANT EXERCISES THE OPTION!!!
The author goes on to say"
"""Seller financing, no matter how drafted, delays payment of all but a small fraction of the purchase price. Thus, buyers are able to own and occupy a home with little or no down payment. Sellers are able to move their real estate in a slow market."""
And??? This refers to "seller financing" and delays payment of all but a small fraction of the purchase price. Umm....can we say....that's because on ANY loan installment almost all of the payments being made are applied to the interest and only a small amount applies to the principle owed, due to the loan being amortized over 20 - 30 years!!! None of this has a thing to do with a "lease option".
"""The lease option becomes viewed as a form of seller financing, and is, in effect, a financing aberration which gains popularity in times of recession and tightening of credit."""
BS! Absolutely NOT true! A "lease option" has nothing to do with being a form of "seller financing". If "seller financing" is involved, then it's a "sale" taking place, period! "Seller financing" includes principle and interest payments. A "lease option" does not. A "lease option" pertains to a lease that collects "rent" and an "option" to buy at a future date. There is NO principle or interest payment involved with a "lease option".
"""Trust deeds and land sale contracts are fairly secure in their legal treatment - there exists a substantial body of case law and statutes relating to each, in spite of the extremely different foreclosure procedures. The legal situation of lease option financing is considerably less certain."""
Trust deeds and land sale contracts have nothing to do with "lease options". "Lease options" does NOT involve any "financing". The potential legal situation of a "lease option" can depend on how the contracts are structured, worded, length of time involved, whether principle and/or interest payments are involved or not, whether the "tenant" is required to pay property taxes and/or insurance or not, whether you use terms like "down payment" vs. "option consideration" or not, etc...
Again, this WHY it's important to use properly structured contracts that include proper wording in order to prevent the "lease option" being ruled as a "sale" instead of a "lease option". If you don't, then the potential legal situation of a "lease option" is less certain.
Next the author says:
"""Sellers - and unfortunately, brokers - view the bogus lease option as a purchase lease/option, a financing hybrid."""
Well I can't speak for what some "sellers" and "brokers" may view a "lease option" as. Everyone has their own opinion as to how they may "view" something. But regardless of how one may "view" a "lease option", "viewing" it has nothing to do with what it really is! Which IF properly structured and worded, it's a "lease option" no matter what I or anyone else may "choose" to "view" it as!
Next the author states:
"""A seller under a bogus lease option seeks to avoid all ownership responsibility and risk of loss by drafting the terms of the lease option to conform with those of a completed sale - that is, until the buyer defaults and the seller attempts to revert to the role of landlord and evicts the buyer as a non-paying tenant."""
If in fact, the "lease option" was set up as a "bogus lease option" in an attempt to cover up a "sale" where the "lease option" included wording that would constitute a "sale" has taken place, then perhaps. But under a "lease option" that is properly structured and worded, the "tenant" is responsible for taking care of repairs and maintenance as per the "lease agreement" which could easily be construed as being part of additional consideration for getting an "option" to buy, and does not avoid all ownership responsibility and risk of loss by the "landlord". The "landlord" IS the owner and/or optionor of the property until the "tenant" actually exercises the "option" and "buys" the property! Regardless of who the "lease" makes responsible for taking care of any repairs and maintenance, the "landlord" bares ALL the responsibility and RISK involved, because the "tenant" could simply vacate the property and leave town at any time. The "landlord" is stuck with having to take care of any repairs and risks all the cost and losses involved by having to go in and take care of everything to protect the "landlord's" investment!
Under a properly structured and worded "lease option", if the "tenant" defaults the "landlord" evicts, period! That IS the way "lease options" are handled, plain and simple!
Next the author states:
"""Specifically, inappropriate weight is placed upon the question of who holds the deed - which becomes a mortgage-in-fact."""
Specifically, the author is full of BS! There is no inappropriate weight placed upon the question of who holds the deed! There is NO QUESTION as to holds the deed. The "landlord" holds the deed because the "landlord" OWNS the property! The "tenant" is under a "lease" with an "option" to buy, period! The "tenant" has NO ownership interest in the property what-so-ever! The "tenant" is just that....the TENANT!
"""What the seller has created is a land-sale contract, but with the wrong name on it."""
BALONEY! In order to be considered a land contract the "lease option" would have to be written under a long term agreement and include things within the contract to appear like a sale has taken place. That could include principle and interest, an amortization schedule, property taxes and insurance to be paid by the tenant, etc. Without any wording in the "lease option" to appear as if a "sale" has in fact, taken place, then a "lease option" is NOT a "land contract".
Next the author says:
"""The seller can't have it both ways. A transaction is either a sale, or a lease with an option to purchase, but it can not be both. The hybrid purchase/lease/option arrangement does not exist. [Smith v. Morton (1973) 29 CA3d 616]"""
Really??? Isn't that what I've been saying all along, that you can't have it both ways? It's either a "sale" or it's not! A "lease option" is NOT a sale if properly structured and worded!
Here is a quote taken from a post made by Attorney Bill Bronchick pertaining to the case cited above:
"As for state courts reclassifying a lease/option as a sale, it almost NEVER happens unless the lease/option really looks like a sale, e.g.:
*Large option deposit
*Long term lease
*Declining purchase price, as in a loan paydown
The article cites some very old CA cases which are not at all on point. The article cites Smith v. Morton, 29 Cal.App.3d 616, for example, which involved a 5 year contract written just like a sale. It used words like "interest," "balance of the purchase price paid" and "monthly payments on account of the purchase price." "
Next the author goes on to say:
THE REAL OPTION TO BUY
"""Under a lease, a tenant pays rent, no part of which is credited toward the purchase of the property occupied. Non-refundable option money can be paid for an option to purchase which runs with the lease."""
Under a "lease" the "tenant" does pay "rent"! That's what I've been saying all along! Under the actual "lease", no part is credited towards the purchase price. But under a separate "option" agreement, a portion of the rent may or may not be offered to be credited towards the purchase price, "IF" and "ONLY IF", the "tenant" exercises the "option". Whether a credit is given when the "tenant" exercises the "option" is entirely negotiable between the "landlord" and the "tenant", and it has NO bearing what-so-ever as to whether giving a credit against the purchase price at the time of exercising the option is construed as a sale or not! Anyone can agree to reduce the purchase price on their property if they so choose to do so. There is no law that I'm aware of that states you can't! Whether the credit comes in the form of just lowering the price, giving allowances for any repairs, or giving a rent credit or crediting the option consideration paid makes no difference! Until the purchase actually takes place, then there is NO credits or price reductions given or realized! In order to receive any credits, you must FIRST BUY THE PROPERTY! This isn't just freely given automatically to where you would be entitled to it if you didn't buy the property! You have to first buy the property before the actual credit can be realized or actually given to you! That has nothing to do with the "lease" agreement. It all pertains to the separate "option" agreement!
Next the author states:
"""However, the signing of the lease itself is nearly always the consideration for giving an option to purchase. Even if option money is paid, it is not credited toward the purchase price - option money is simply the consideration paid to keep the option open."""
Says who??? Sure, the signing of the lease itself "could" be accepted as the consideration for giving an option to purchase, but that is entirely up to the "landlord" to accept, not the "tenant"! Otherwise, ANY "tenant" just leasing a property could claim they paid consideration by signing a lease and that they are automatically entitled to an option to purchase! Get real!
Even if option money is paid, it is not credited toward the purchase price? Well, I guess I could agree with that since any option money paid that is credited towards the purchase price is only credited and applied, "IF" and "ONLY IF" the "tenant" exercises the "option"! I think I already covered this several times here!
Even though the option money is simply the consideration paid to keep the option open.....that doesn't mean the "landlord" can't agree to give the "tenant" that amount as a credit towards the purchase price, "IF" and "ONLY IF", the "tenant" exercises the option. That's entirely negotiable between the "landlord" and the "tenant", and has no affect as to whether a "lease option" is a sale or not!
Here is a quote taken from a post made by Bill Bronchick pertaining to the option money and rent credits given in a "lease option" pertaining to this article:
"The article states that if ANY option money or monthly credit is given to the tenant, the lease/option is really a sale. Really? According to what legal authority?
Let's look at the law:
In re Merten, 164 B.R. 641 (Bankr. S.D. Cal. 1994), a federal case applying CA law, ruled that an unexercised option to purchase real estate is PERSONAL property, not a real estate interest (hence no "equitable interest" in the real estate).
A recent GSA board of appeals tribunal (In the Matter of SAMUEL G. BAKER, GSBCA 15408-RELO, Jan 2001) ruled that a $15,600 option deposit on a lease with option did NOT create an interest in the property. You can read the facts of this case here:
http://www.gsbca.gsa.gov/relo/r1540810.txt
Again, the article is a GROSS exaggeration of the truth. A typical one to three year lease/option, even with option money down and small monthly rent credits will NOT be construed as a sale requiring foreclosure."
Next the author says:
"""The option is the landlord's irrevocable offer to sell the real estate to the tenant within a certain period of time - should the tenant decide to buy. The tenant is given the absolute right to buy or not to buy the property, at his discretion."""
Whoa!!! I don't believe it! The author actually has a sentence in this article that he's correct on without distorting the facts! It's about time he got "something" completely right without exaggerating the truth!
Next the author says:
"""When a tenant with a genuine option to buy exercises the option, it become an enforceable bilateral purchase agreement. Until then, the agreement between the two parties is a lease for all purposes, and the roles of the parties are narrowly defined in terms of a landlord/tenant relationship."""
Whoa! This guy is on a roll here! That's two in a row he's gotten right! Of course, this contradicts everything he's been claiming all along in this article!
Here's what the author says about an option not being an option at all:
NOT AN OPTION AT ALL
"""If the tenant receives credit toward the price of the property, the lease option will be re-characterized as a land sale contract - a carry-back sale without trust deed provisions to avoid the seller's need to judicially foreclose and exhaust his security; thereupon wiping out the equity the buyer has paid-for and built up in the property."""
Says who??? WRONG!
Again, here's the quote made by Attorney Bill Bronchick pertaining to this:
"The article states that if ANY option money or monthly credit is given to the tenant, the lease/option is really a sale. Really? According to what legal authority?
Let's look at the law:
In re Merten, 164 B.R. 641 (Bankr. S.D. Cal. 1994), a federal case applying CA law, ruled that an unexercised option to purchase real estate is PERSONAL property, not a real estate interest (hence no "equitable interest" in the real estate).
A recent GSA board of appeals tribunal (In the Matter of SAMUEL G. BAKER, GSBCA 15408-RELO, Jan 2001) ruled that a $15,600 option deposit on a lease with option did NOT create an interest in the property. You can read the facts of this case here:
http://www.gsbca.gsa.gov/relo/r1540810.txt
Again, the article is a GROSS exaggeration of the truth. A typical one to three year lease/option, even with option money down and small monthly rent credits will NOT be construed as a sale requiring foreclosure."
Next the author says:
"""In each case, the seller (or the purported landlord) keeps the deed, while the buyer (or purported tenant) is in possession of the property, having paid money to the seller, which money is applied toward a purchase price to be fully paid in the future."""
There is no "seller", "buyer" relationship until the "tenant" exercises the "option". Until then, there is only a "landlord/tenant" relationship because the "landlord" is merely "leasing" the property with an "option" to buy. I have never heard of a case involving a "landlord" giving up the "deed" to their "tenant" in a "landlord/tenant" relationship!
There is NO money that has been paid as "rent" that has been applied toward any purchase price during the term of the "lease option". The "lease option" is just that....a "lease" with an "option". ANY monies offered by the "landlord/optionor" is only agreed to be applied as a credit towards the purchase price, "IF" and "ONLY IF", the "tenant" exercises the "option". Until the "option" is actually exercised, NO credits have been given what-so-ever, period!
Next the author claims:
"""Other signs for establishing a purported tenant as an actual buyer in possession include:
· Shift of the burden of care and maintenance, and risk of loss to the tenant;
· Payment of property taxes and insurance premiums by the tenant in addition to the regular monthly payment, and impound agreement;
· Good faith improvements made by the tenant - i.e., improvements made in the good faith belief that he is the owner of the property [CA. Code of Civ. Proc. §871.1];
· Monthly payments which substantially exceed the property's fair market rental value - since it costs much more per month to own a higher end property than to rent it; and
· A fixed dollar purchase price."""
WRONG!
A lot of leases that don't contain an option to buy shifts the burden of care, maintenance and risk of loss to the tenant! That has nothing to do with a "lease option". I use a straight lease that consists of 6 pages on legal size paper that shifts all the burden of care, maintenance and risk of loss (loss caused by the tenant's negligence) to the tenant. This lease has been to court evicting a tenant that had no option involved and the Judge never blinked an eye about the lease! Just because someone was to give a "tenant" an "option" to buy the property they leased doesn't have any validity as to what the "lease" says about repairs, maintenance and loss caused by the "tenant", being the "tenant's" responsibility!
A "lease option" does not state anything about the "tenant" being responsible for paying property taxes and insurance. In a "lease option" the "tenant" pays only "RENT", period!
Good faith improvements made by the "tenant" - ie., improvements made on the good faith belief that he is the owner of the property??? What exactly does that mean? If a "tenant" elects to make improvements and claims to have done so in good faith with the belief that he is the owner, that makes it so? Does that mean if I in good faith went around giving toys to some children in good faith with the belief I was Santa Clause mean I am Santa Claus??? Baloney! Believing you're the "owner" and actually "being the owner" is two separate issues! Under a "lease" agreement you are NOT the owner, regardless of what you do or believe! Under most lease agreements, ANY improvements made by the "tenant" on the property MUST be approved in writing by the "landlord" prior to making any. Failure to comply would be a breach of lease and the "tenant" could be evicted from the premises. Getting written permission from the "landlord" does not constitute any good faith and belief on the tenant's behalf of being the owner. The "lease" should clearly state any improvements made by the tenant must be approved in writing by the landlord and any improvements approved in writing by the landlord shall become the property of the landlord's. That would give notice to the tenant informing them that any improvements made by them will not belong to them, taking away any doubts as to who the owner of the property is!
As far as "monthly payments" which exceed the property's fair market rent value.....WHAT "monthly payments"??? There are no monthly payments in a lease option. Only "monthly RENT" is paid. As the "landlord" of any property you own, it's the landlord's right to charge whatever amount they so choose to charge as "RENT" for their property, period! (with the exception of being in a rent control district that may only allow a landlord to charge so much for rent). If the landlord succeeds in getting a much higher rent then that is what the market bares and would be considered fair market rent value. If the "tenant" thinks the rent is to high, they don't have to sign a "lease" and agree to pay that much!
Whether a property's mortgage is higher than what rents in the area are going for or not has nothing to do with anything! If anything, by being able to get a higher rent because of giving a tenant an option would only be considered additional consideration for getting the "option" to buy. It has nothing to do with whether a "lease option" is a "lease option" or a "sale"! The way the "lease" is structured and wording dictates whether it's a "lease agreement" or a "sale agreement"!
Next the author says:
"""A genuine option to buy within three or more years typically does not have a set price. Uncertainty as to what the property's inflated and appreciated value will be in a number of years is a risk of ownership, a risk (or benefit) the fixed dollar price shifts to the purported tenant/optionee. If the price is set as a dollar figure, the setting is one indication that the property has been sold."""
Any "lease option" that exceeds a 3 year term is asking for problems. Any LONG term "lease option" runs the risk of being classified as a sale. You should keep any "lease option" agreement for less than 3 years. I prefer to keep them down to 1 - 2 years max! Then if need be, I can always agree to renew the "lease option" by giving the "tenant" a new contract that starts over or find another "tenant" to "lease option" the property to!
Next the author says:
"""Courts look to the economic substance of a transaction over the legal form in which it is drafted - especially when calling an agreement by the wrong name misrepresents the party's rights and obligations actually existing under the agreement. [City of L.A., CA v. Tilem (1983) 142 CA3d 694]"""
If it looks like a duck, walks like a duck and quacks like a duck.....it's a duck!
A properly structured and worded "lease option" would not create a problem here!
Next the author says:
"""If the buyer in possession is building an equity, the lease option is a land sale contract in everything but name. Any option money paid in is really a payment on the price, with the rents to be considered as interest and principal under a disguised mortgage. [Oesterreich, SUPRA]"""
In a "lease option" the "tenant" does not build any equity, with the exception of any property appreciation during the term of the "lease option". In order for the "tenant" to realize any equity by appreciation, the "tenant" must first exercise the "option" to gain any of the equity! Any option money paid is NOT really a payment on the price. It's merely consideration for getting the "option" to buy the property. The author is contradicting himself here by saying this.
Above the author stated: "option money is simply the consideration paid to keep the option open."
Now he back pedals by saying any option money paid in is really a payment on the price. Sheesh! I wish he would make up his mind already! LOL
Where does he get this "with rents to be considered as interest and principle under a disguised mortgage" crap from? My guess is this is coming from someone that had structured a "lease option" improperly that had something to do with a long term lease option and the purchase price being reduced drastically over a number of many years!
Any properly structured and worded "lease option" agreement for a 1 - 3 year term, that allows for a small rent credit to be applied towards the purchase price, "IF" and "ONLY IF", the option is exercised would not constitute a disguised "sale" nor would it be considered as interest and principle being paid under a disguised mortgage!
Now look at the editor's note:
"""Editor's Note - There is no legislation providing for the re-characterization of a bogus lease option as a masked land sale contract. However, statutes relating to similar lease-back arrangements involving equity purchasers have codified."""
Isn't this a hoot! NO legislation providing for the re-characterization of a bogus lease option as a marked land sale contract! Yet, all the author has done in this article is toot his own horn on how lease options are bogus! What a joke!
Next he adds in, "However, statutes relating to simular lease-back arrangements involving equity purchasers have codified."
HUH? How is a lease-back to seller in distress anything simular to doing lease options in general??? This relates to investors bailing out sellers in distress by paying off the loan, or bringing the loan current and getting the seller to deed over the property, then the investor letting the distressed seller remain in the property by giving them a lease option allowing them to have an option of buying the property back at a future date for a much higher price. Some courts have ruled this practice to be nothing more but a glorified high interest loan made by the investor. This has nothing to do with lease options in general.
The author goes on to say:
"""For example, an investor acting as an equity purchaser buys a property and leases it back to the seller with an option to buy. The transaction is not a genuine lease option: it is a real estate loan. The lender, who characterizes himself as an investor/buyer, in this case holds the grant deed to the property as security for repayment of principal and interest, rather than using a trust deed to document the transaction. [CC§1695.12]"""
See my response above.
Next the author says:
"""When a lease option is a masked land sale contract, the tenant with a purchase option becomes a buyer with equitable ownership of the property - equitable because he is in possession of the property and makes the payments, which applies in part against the purchase price, but has not yet received the deed. [Mc Clellan v Lewis (1917) 35 CA64]"""
IF, the lease option is ruled as being a masked land sale contract! what the author doesn't tell you is, IF! Instead he says, "When", which would imply it "will" happen if it went to court. Not true! It all depends on how the lease option is structured and worded as to whether a court would rule the lease option as a masked land sale contract or not. The author doesn't tell you that though! Instead he cites a case without telling about any of the details as to WHY the lease option in this case was masked as a land sale contract. I'll wager that this case involved an improperly structured and worded contract with all the makings of a sale as to WHY it was ruled as a masked land sale contract!
Next the author says:
"""The landlord in fact becomes the carry-back seller in law - a secured with different rights than an owner - even though me may retain the title. [LA Invest. Co. v Wilson (1919) 181 C 616]"""
Again, more than likely a case involving a lease option agreement that was structured and worded wrong and included wording that is found in a sale agreement and not a properly structured and worded lease option agreement!
THE BUYER DEFAULTS
"""When a land sale contract is masked in the form of a lease option, most of the resulting problems occur when the tenant/buyer defaults in payments and refuses to vacate and sign a release (deed in lieu of foreclosure).""
Sure, "IF" it's in fact a land sale contract that is masked in the form to look like a lease option! If it's a properly structured and worded lease option agreement then there is nothing to worry about with having the lease option ruled as a masked land sale contract!
The author claims:
"""Evicting a non-paying tenant is relatively quick and inexpensive compared to a foreclosure. The distinction becomes a most prominent reality when a purported landlord finds himself reclassified as a carry-back seller, and has no tenant to evict. His tenant is, in law, the equitable owner of the property."""
Again, IF you structure your contract to look like a duck, walk like a duck, and quack like a duck.....your going to have a duck!
"""The landlord/seller will incur great expense in time and money in order to rid himself of a defaulting lease option tenant who claims to be a buyer with equitable ownership rights. The cumbersome process of a judicial foreclosure will be required to eliminate the tenant/buyer, since there is no trust deed power of sale clause."""
Depends! If the lease option agreement has been properly structured and worded, then a simple eviction process is all that will be required, regardless of what the "tenant" may claim! Even if the lease option was improperly structured and worded, it doesn't automatically mean a foreclosure will be required. It will depend on the laws in your state pertaining to land contract agreements. In some States an eviction still may be all that is required. To avoid this all together, use properly structured and worded lease option agreements!
"""If the seller refuses to allow a redemption payoff, the buyer in possession is entitled to a specific performance action against the seller. This is true of real leases with purchase options as well, since the tenant need only exercise the option to create and enforceable purchase agreement."""
Here the author first talks about "sellers" and buyers". In a lease option agreement we have "landlords" and "tenants".
The author states, "This is true of real leases with purchase options as well, since the tenant need only exercise the option to create and enforceable purchase agreement."
Sure, the tenant need only exercise the option to create an enforceable purchase agreement, but SO??? If the tenant can exercise the option and buy the property, then GREAT! PAY ME!!! Only one question though? IF the tenant has defaulted because of non-payment of rents....HOW ARE THEY GOING TO EXERCISE THEIR OPTION WHEN THEY HAVE NO MONEY AND BEHIND ON THE RENT???? But if they can, great! Just pay me off and we'll all walk away happy!!!
"""At the very least, the lease option buyer is entitled to a refund of ALL AMOUNTS HE HAS ADVANCED TOWARD THE PURCHASE PRICE. The seller may not keep the buyer's money on default, since foreclosure of an equitable ownership is not permitted. [Peterson, Supra]"""
In a "lease option" the "tenant" has NOT advanced anything towards the purchase price, unless the there were specifically additional payments made by the "tenant" in addition to the "rent" being paid that was specifically to be paid towards the purchase price! ALL the "rents" paid were paid "rent", period! The "tenant" is NOT entitled to a refund of any "rents" paid! Any rent credits would NOT be refundable since the credits were not yet given or applied before exercising the option! The "landlord" would NOT be keeping any of the "tenant's" money on default, since any "rent" that was paid is the "landlord's" money, and NOT the "tenant's" money! Any "option consideration" paid is NOT the "tenant's" money, it's the "landlord's" money for SELLING the "tenant" an "option" to buy the property. Option money is NON-REFUNDABLE!!!!
"""Forfeiture is not an issue when a genuine purchase option is attached to a lease. Any payment the tenant makes is not part of the price. It is either rent, or it is non-refundable option money: consideration paid the seller for keeping the property off the market and the option to purchase open. Only when credit is given toward the price to be paid upon the exercise of the option does the purported tenant obtain an interest in the property."""
WRONG! First of all, any credits offered are NOT given until the option is exercised, period! Now if credits were given and realized before the option is exercised, then perhaps. But NO credits are given or realized until the tenant first exercises the option! Remember, credits are offered to be given, not just given during the lease or option period, but merely OFFERED to be given, "IF" and "ONLY IF" the option is exercised! In order to be given the credit the option must first be exercised!
TAX ASPECTS
"""Tax-wise, lease options are often re-characterized as disguised carry-back financing or land sale contracts."""
Often??? Out of the THOUSANDS of lease options being done every year, how many have been re-characterized as disguised carry back financing or land sale contracts? Any of the ones that have been related to long term contracts and/or drastic principle reductions against the purchase price that occur over the term of the contract, perhaps! This is NOT the case in any lease option agreement that is over a 1 - 3 year period!
"""Strong income tax incentives exist for sellers to conceal property sales behind bogus lease options. Under a true option agreement, any option money received by the seller is not reportable as profit or income until, respectively, the option is exercised or expires, or the property is sold subject to the option."""
The fact that any option consideration doesn't have to be reported until the option is exercised or expires has NOTHING to do with a lease option being a concealed sale!
"""Thus, if the seller can convince the IRS that the principal and the interest payments he receives are really option money, he will pay no taxes on the "option money" until the buyer exercises the purchase option, or allows the option to expire."""
There are NO principle and interest payments in a lease option agreement, period! Option consideration is NOT a principle and interest payment. Option consideration is exactly what it's called......OPTION CONSIDERATION!
"""The seller, disguised as a landlord, will also deduct as an owner's tax benefits the property's annual depreciation - until re-characterized by the IRS."""
The "landlord/owner" of the property is entitled to deduct as an owner, tax benefits against the property! The author tries to make someone reading this to assume that if they do lease options, they WILL be recharactorized by the IRS as being a seller under a disguised sale agreement. Not true! A properly constructed and worded lease option agreement is NOT a disguised sale!
"""However, tax courts look to a number of factors, including the buyer's equity, who bears the risk of loss, who pays property taxes, the relationship of rent to market value, and the price paid upon exercise compared to the property's value at the time of exercise, to determine whether a purported lease option is really a sale."""
When using a properly structured and worded lease option, there is NO buyer's equity, the landlord always bears the risk of loss, the landlord pays the property taxes, the price in relation to the property's value is usually within 10% of market value, and the lease option IS a lease option and not a sale!
"""If the lease option is found to be a sale in fact, the transaction will have been improperly reported. The seller will have to report the option credits toward price as payments on the principal ( allocated to profit and basis) and the balance of the rents as interest, and pay interest penalties or worse."""
IF the lease option is found to be a sale! Again, use properly structured and worded contracts, keep them down to a term of 3 years or less, and the lease option won't be found to be a disguised sale!
"""Similarly, and for consistent reporting, the buyer may not deduct the payments as rent. [MW Gear Co. v. Commissioner (1971) 446 F2d 841]"""
A "tenant" is not allowed to deduct "rent". Never has been!
CONCLUSION
"""Sellers often seek to combine the advantages of leases with sale transactions by structuring their sales as lease options. However, the purchase/lease/option hybrid financing does not exist. A transaction is either a lease or a sale: not both"""
Solution! Don't be a seller trying to disguise a sale as a lease option! Instead, if you do lease options, be a "landlord" that use's properly structured and worded contracts and keep the term down to 3 years or less! .
A transaction is either a lease or a sale, not both. Gee.....where have I heard that before???
"""In a genuine lease with an option to purchase, neither any portion of the rent nor any option money paid applies toward the purchase price upon exercise of the option."""
WRONG! The fact that a lease option offers any rent credits or offers for the option consideration to be applied towards the purchase price, "IF" and "ONLY IF", the option is exercised has NO bearing as to whether a lease option is genuine or not! This is plain BS!
When you offer rent credits and offer the option money to be applied towards the purchase price, "IF" and "ONLY IF" the option is exercised, and your "tenant" has exercised the option at which time the "tenant" receives the credit and after closing on the sale of the property, is that not a genuine lease option deal that successfully closed already??? Was there any recharactorizations of the lease option being called a sale by the IRS? Has any of these properly structured and worded lease option agreements that offered rents credits and offered the option money to be applied to the purchase price, ever been over turned by any court and reclassified as a sale??? I sure haven't heard of any and with all the thousands of lease options being done year after year, where are these cases reclassifying them as sales???
"""If money paid by the tenant for rents or option consideration is applied toward the price, the transaction is not a genuine lease with a purchase, but is a disguised carry-back sale - a land sale contract."""
WRONG AGAIN! There is NO rent money or option money applied to the purchase price during the term of the lease option. The credits do NOT apply until after the fact! Which means the credits are only an "offering" as an incentive for the "tenant" to exercise the option, at which time any credits shall be given and realized by the "tenant" at the time of closing on the sale of the property, which takes place AFTER exercising the opti
trlowder,
Being a laymen and not an attorney, I only comment on what have I seen happen in court concerning option agreements.
I do not use them as I use a different method of selling, but the times I have been in court doing an eviction and the Lease/Option came up, the Judge ruled that an Option created a equitable interest in the property because it was an option to purchase.
I did not see the paperwork involved in the transactions, but you can word it anyway you care to, if it violates the state statutes that protect the consumer then the Judge is going to rule in the consumers, in this case the Optionee's favor.
It is like saying in your contract that if the other person loses you get attorney's fees, if you were suing a major corporation you might get attorney's fee's, but Joe Turnip, try to get blood out of him.
Let's remember we are dealing with the average Joe, so all those CYA additions to the contract and 50 cents will get you a cup of coffee anywhere.
This is real life, as I have seen it.
John $Cash$ Locke
Shawn,
I remember not to long ago being on a flaming thread, with opposing views on Lease/Option purchasing. Bill Bronchick had his view that it was legal and I had the opposing view as to the legalities in some states.
Two people from different states were convicted of Brokering Without a License using the Lease/Option method of investing. This was pointed out that it can and does happen. All the circumstances were probably not known, but it did happen.
Here is what it boils down to, you need an attorney's opinion in the state you live in as to how a Lease/Option purchasing or selling should be worded for the investors protection. I would not go by a GSA ruling as to whether it will hold up in an individual investors state.
So my advice is to seek competent professional help when dealing with any contract to make sure it is state specific to where you live and invest. Generic forms and contracts can be a son of a gun if the investor is wrong.
John $Cash$ Locke
HAVE A LAWYER LOOK IT OVER FIRST.....TRUST ME!
mjensen,
Glad to meet you.
Looks like you have been there and done that...Great Advice.
John $Cash$ Locke
With deference to the Guru...the lease option that I have used contains the following clauses:
24. Grant of Option to Purchase. For and in consideration of the sum of Ten and no/100 Dollars ($10.00) and other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, Lessor does hereby grant, bargain and sell to Lessee the exclusive right and option for and during the Option Period (as defined herein below) to purchase the Property in accordance with the terms and provisions herein contained.
25. Exercise of Option. Provided that Lessee is not in default in this Lease, the option to purchase herein granted may be executed by Lessee at any time within the Option Period by written notice from Lessee to Lessor given in strict accordance with the provisions of Paragraph 42 herein below. For purposes of this Agreement, the Option Period shall mean that period of time from July 1, 2003, to and ending at 5:00 p.m. CST, January 1, 2004.
The grant of the option creates an equitable interest that is conditioned upon not being in default. Like you said, different states have different rules...check your statutes. My .02
Quote:
I would also add that it is prohibited for the tenant/optionee to record the option or any memorandum thereof and if recorded it will render the option nell and void.
All this helps protect you as the optionor.
My goodness, I feel sorry for the families you lease option your houses out to. You don't think that kills the spirit of the game. Sound like you will sell it right up under their noses. Well I guess we all have are way of doing things. [ Edited by Homemagnet on Date 09/17/2003 ]
Quote:
Quote -Optionee sign a statement that he/she agrees that the option is not an agreement for deed or any form of owner-financing, not does it create an equitable interest of any sort.
$.- What is the option for if not to purchase the property?
Quote - I would also add that it is prohibited for the tenant/optionee to record the option or any memorandum thereof and if recorded it will render the option nell and void.
$ - Why would you prohibit this from happening? Does the tenant have an option to purchase or don't they?
The reason I ask these questions I am wondering how a Judge would rule on this. Because if your tenant/optionee (your words) records the Option forget about the option being null and void you have a cloud on the title, which you may have to explain in court.
John $Cash$ Locke
Silence!!!!!!!!!!!Let the teacher speak. Way to go John you tell em.
jhgraves,
Glad to meet you.
I have met and talked with many REI attorneys including Bill Bronchik, Esq. who I highly regard as an investor and attorney. We discussed the two people who were convicted of Brokering With Out a License using the Lease/Option method of investing.
It boiled down to they were not in compliance with their paperwork, or as I remember the converation they might have been involved in criminal activities which had nothing to do with Lease/option investing, but you might as well blame it on this method of intesting for what happened.
I would think that any course writter albeit an attorney or not would recommend the investor have their paperwork reviewed by a professional. State stautes change when the state legislature meets, so everyone would be well advised to keep up to date.
John $Cash$ Locke
PS: homemagnet thank you.[ Edited by JohnLocke on Date 09/17/2003 ]
Mr. Locke,
I absolutely agree that all documents should be reviewed by an attorney, regularly, and that such expense should be figured in as a necessary cost of doing business. I appreciate you taking the time to post, I have learned a great deal from you. I have drafted L/O for clients consisting of one instrument and things seem to have gone well with them. In my mind, having considered all of the prominent posters and REI material writers whom I have a great deal of respect, for my purposes two seperate instruments presents more problems than it solves. As far as the changing laws, I don't think it is a bad idea for lay RE investors to stay abreast of changes, because there is always something changing, as you mention. I absolutely and wholeheartedly agree that all documents be reviewed by competent counsel and did not mean to imply otherwise. I know several people who have gone to attorneys after losing many thousands of dollars on a deal gone wrong b/c of paperwork, etc. only to find out it would cost them many thousands to litigate the issue and it all could have been avoided for less than $500. I very much appreciate all of your posts and have learned a lot in a short amount of time by reading your posts and archived posts. Thanks again.
jhgraves,
Thank you for you kind words.
I took your post in no other way than the good spirit and investing fellowship it was intended, that it was to help someone.
I knew a Madison Graves in Las Vegas any relation? Might as well ask it is a small world.
John $Cash$ Locke
Not that I know of...I wish I had relatives in Vegas, I'd probably wear out their couch!
homemagnet what is your opinion?
Quote:
On 2003-09-18 23:08, trlowder wrote:
homemagnet what is your opinion?
triowder, my opinion if you're referring to attorney's. I agree with the members who keep current with the laws as far as REI goes. I am still in the development stages of building up something great, but I do have a RE attorney who is a partner investor since May '03. He prepares complex doc's for me. When you are selecting a real estate attorney make sure he understands the mind of an investor.
-Keep the faith. Plan and execute.-
Here's a question... would it help, do you think, to include a paragraph that specifically states that no equitable interest accrues in the property unless and until the option is executed? (Of course, choose more legalese words than this...) Maybe even require the tenant to initial by the paragraph that they understand this condition?
Just a thought...
Hello All,
Thanks for all the information. I found a contract.
WHY cann't I use a agreement of sale with a closing date 1 year from Now? It is often standard for the contract not to be recordable. A non refundable deposit also often happens.
Why rent to own with a lease agreement and an option agreement?
Instead of a lease agreement and an agreement of sale?
Keep in mind I am Tthe SELLER.
Thanks Again
Matt_PA
MSecorsky: The problem is that equitable interests arise outside of contract. They are usually not interests that can be disclaimed or waived. There is also the issue of uneven bargaining power that arises when contracts are way too one-sided, this can lead to claims that the contract was unconscionable.
Some guru's recommend recording a memorandum of understanding.
Comments!
Jim Freeman
Hi John. Can you recomend a good pro to write a L/O for Arizona Maricopa county