Thread: Lease Option

The potential buyer "try" the house for 12 months (or whenever), paying a rent/lease and decide after 12 months (or whenever) if he want to buy. He might say no for sny reason...

Thank you for your answer. In your opinion what is better to rent or lease option. What would make us more money?

Assuming your are a seller, I'll rent. It's a buyer's market. I'll rent until the market change and sell when it's a seller's market....Unless you need money soon, then lease option is better. But then, owner financing might be an option as well...

Originally Posted by dana2100

What is a lease option?

A Lease option is a Lease, which is a rental agreement and a Option to buy the real estate at a set price.

I've used this structure to sell to my houses to 1st time buyers who can not otherwise qualify. It is totally legal and use very often.

People who have been in a lease option for a while can "refinance" and pay off the lease option. Remember to save your canceled payment checks as they will be needed.

My advice :

For Landlord/Seller: Do not let the tenant/option holder record the lease option because if they stop making payments, it will cost you a lot of money in legal fees to clear your title. If your dealing with someone with limited English make sure to record the transaction, so he can say to a judge that he did not know what he was doing. ( this has happened to me)

For Buyer/renter/optionee: Get the lease and the option notarized at your local bank and run down to your county recorder's office and have it recorded in the deed of the property. This will prevent the seller from adding more debt or selling the property from under you.

I hope this helps.

Thanks for adding in the info about getting it recorded in the deed of the property. We got burned in a lease purchase situation. We had signed and had an agreement notarized, and thought that was all we had to do. As a matter of fact, the attorney we consulted with never mentioned anything about having to do anything else. We didn't have him handle it because we felt like it would be a waste of money since he told us how to do it ourselves...maybe the reason he did not tell us about recording was because we had not hired him on...
But anyway, we think the seller refinanced or something because there is almost 10 thousand dollars difference in the payoff amount now. She insists that the bank is basically screwing her over, which makes absolutely no sense.
The couple of attorneys we talked to said we could pay them to take her to court with no guarantee that we would win and that it could take up to a year...their fees ranging 1500 to 4000 dollars plus court costs, with a possibility that she would have to reimburse all of that in the end...we just were not willing to go through all of that.
So, now after all of this drama, we are in a rush to try and buy another place before she has new tenants moving here in July. I just hope they understand all the measures they need to take so they don't wind up in our predicament.
Sorry for such a long post, bottom line, thanks for providing that information...it really is essential for a lease option.
And from my personal experience, I would never enter into another lease option agreement.

Was it your intention to purchase the property? I'm a bit confused, I thought whatever was agreed upon is final.

HW

Yeah, I thought it was final, too. We had our notarized agreement and i thought that was enough. But apparently in order to enforce that agreement, we have to go through all the expense and hassle of filing a suit against her, which is ridiculous.
I guess lease option is a good idea for many people, if done right, but buyers need to understand that things like this can happen, and like we learned, just because someone signs their name to something, doesn't mean that it is going to go smoothly. Some people have no intention of honoring the agreements they make, and they know that they can get away with it if the buyers are not willing to do the extra work to make them honor that agreement.
I personally feel like we could be successful at taking her to court over this, and the judge might order her to cover all the attorney fees and court costs, but I don't want to spend a year fighting it and I don't want to take a chance paying for the costs up front for the attorney. I would rather just let her have the place. It has been a hard lesson learned. At least we know now that we should have had the agreement on record at the courthouse, so she could not have added to the lein on the property.

After reading, I am sort of confused...

Okay, so you entered into a LEASE OPTION with a seller, I am getting that. Then you mention something about a $10K addition in the pay-off amount... That is where I get lost. All options that I have encountered have an OPTION PRICE, which is set at time of agreement. Now if you have an OPTION TO PURCHASE that doesn't have an option price, what do you have? So now if you do have an option price set, who cares what the payoff amount is, you have an agreement to buy at a set price, the seller would need to cover anything more.

Then there is a mention of notarizing the OPTION TO PURCHASE and then having it filed, to protect you from... what? All I can see that would be accomplished by filing the OPTION TO PURCHASE is that the seller could not try to sell the property from under you, but it wouldn't do anything for you in protecting you from having the seller refinance. The option is not a lien on the property, it is just an agreement between two parties that doesn't encumber the property. Again, I don't see why you would want to record the option, unless you felt that the seller was going to sell it to a different party.

Please help me understand, it seems to be very confusing.

Later.

The purchase price we talked about was $21,000. She only wanted to sell it for the payoff amount. The payoff was to be around $21 thousand in March of this year. So, when we did the contract, we put down that we would purchase it for the payoff amount, which was not to exceed $22,000, rather than just put that we would pay it off and not have an amount.

Anyway, after I found out that the payoff was over 30 grand, I talked to him again about what we needed to do. Of course, he wanted a big retainer before he would do anything. But he told us how it would work. We would have to file a suit against her. Because he said the bank is not going to release the lein on the property until it is paid off. So, someone is going to have to pay it off. And if she is ordered to sell us the property for the amount we agreed on, then you are right, she does have to cover the difference to get the amount paid off with the bank. But, that is where the trouble comes in. That is what we would have to be making her do, is pay that extra before we could take ownership of the place. He said it would take a few months to a year to do all this. We would be required to pay all the fees involved, and that if we won, they can order her to pay back what we had to pay, but that could be a year from now. We just don't have that much money to put up and hope it works out and we get it back...we just decided it would be better to suck it up and move on to something else where we know the property is ours, and use that money for that. The lawyer never told us to record it, I just saw on one of the previous posts, that you should do that. I am thinking that we should have, and she could not have added on to the mortgage, but I don't know...what you are saying and what that post said are different, so who knows. But we believe that is what she did, even though she didn't say that was the case. I don't think the bank is ripping her off or anything like that. She was really behind on the mortgage. Matter of fact, she had us pay the 3 months she was behind on it to catch it up before we could move in. She has been in debt the last year or so and been arrested a couple times for drugs in the last year, she supposedly got involved wiht a man overseas and he got into her checking account...just alot of drama, so I really think she refinanced or something at that time when she was really desparate. Now all of a sudden, she has a high dollar attorney representing her for her criminal charges.

I think we just got ourselves into something without doing enough research and thought that the agreement we had would ensure that we would buy the place for the amount we agreed to and that would be it. I guess it can ensure that, if we are willing to take it to court, but it just isn't worth it to me. We don't want to have this going on months from now when we could just go ahead on and get something else and get out of here. I figure the next family will have trouble with her, and eventually, word will get out about how she has done with the place, and when no one wants to buy it from her or rent from her, she won't be able to pay the note and it will go back to the bank.