Optionor Stops Paying Mortgage?
I am selling a property via lease option.
A potential buyer asked me a question today to which I did not feel I had a strong enough answer:
The buyer gives me $5,000 and $1,350/mo. What protection do they have that I will pay my underlying mortgage? My contract states "Should Optionor/Seller be delinquent on any payment due under any note and mortgage or should Optionor/Seller cause a notice of foreclosure to be filed, the Optionee/Buyer may at Buyer's discretion cure the default, and Optionee/Buyer shal receive full credit towards the purchase price...should Optionee/Buyer exercise this Option.
Is that all the protection they have? They get a credit for paying the mortgage dollar for dollar (not that this is bad)? What if they do not become aware of this until I am six months in arrears and they don't have the cash laying around to catch me up?
This would never happen, but these are legitimate questions they are asking and I feel that they deserve legitimate answers.
Any way I can make them feel better about this? I have only done 1 other lease option (initiated in February) so I don't have a slew of references I can provide.
JohnCl
There are a couple of things that you might do..
1. you run your payments through and escrow/loan servicing company and put them on your "to be notified" list. Which means that if payments are in arrears that they will be notified by the loan servicing company.
2. you should have some $$ in an escrow account in case the payment comes late etc. If you agree to put in a couple of months worth of payments that might make him feel better..
3. You record a memorandum of a option agreement etc. that puts them on "equitable title".
4.
[addsig]
There are a variety of mechanisms for making sure that people are paying bills they are supposed to pay.
You can send your tenant/buyer a copy of the reciept from your mortgage payment each month.
You can let them pay the mortgage directly. Just make sure you get notice of the late payment if they don't pay.
You can hire a loan servicing company to take care of it.
I'm sure you can think of a few more.
Great advice. Thank You. In order, I will offer the following:
1) Copies of receipts
2) Loan Servicing Company
3) Escrow 2 months payments
4) Record Option Agreement
I will try to satisfy him at each of these levels. I really don't want to record anything if at all possible since I am the seller, right?
JohnCl
You probably do not want to record anything, especially if you got it sub-to. If the buyer is soooo not trusting of you to begin with, find someone else.
It sounds like he is the one in charge. YOU should always be the one in charge. I try to find a tenant/buyer that I am helping and would not otherwise be able to buy a home. I want someone who is grateful and thankful, not someone who is questioning me whether I am going to make the mortgage payment or not.
That may sound harsh, but if the buyer can buy a house WITHOUT a lease option, then why are they coming to you???
I would explain that I am an investor and that I am only going to make money if we can complete the transaction to the end. I would not make more work for myself by sending them statements or other things like that. I would for the seller, though, if they required it to do a sub-to.
[ Edited by rickpozos on Date 07/18/2004 ]
rickpozos,
Makes sense, in theory. The simple fact is that there are a lot more houses for sale than there are people to buy them (regardless of terms).
Either way, the guy wants some security that his 5-10k will be safe and will not be at the whims of someone he has known for less than one hour. Just means he has common sense and survival skills. Also, he is starting a family and needs to be very careful in his steps.
It has never been my practice to make money in real estate by kicking people when they are down, nor will it ever be.
JohnCl
If you have good credit, offer to show him your credit report. Explain to him you have no intention of ruining your good credit.