Posted by JPiper on February 16, 2000 at 22:28:28:
Bill is the lawyer?I?m not. That said however, I would respectfully disagree with the idea that disclosure forms have nothing to do with equitable title. My experience is that when the lawyers contemplate a lawsuit, they look at all the paperwork?.and they use what?s to their advantage. I think if a disclosure form states something regarding a ?sale??that will be used against you. My idea is that NOTHING in the paperwork should give the idea that the transaction is a sale?..and afterall, it isn?t.
Don?t construe my statements as being anti-disclosure?..but I do think that the disclosure issue needs to put in a frame of reference. When a buyer BUYS a house, they put some money down, and then they obligate themselves to a significant amount of money in the form of a mortgage. That?s a large financial undertaking for most people. If that buyer were disadvantaged in some way through lack of disclosure?the penalties to you could be significant?.and therefore bending over backwards to disclose becomes imperative.
On the other hand, a lease/option ?buyer? has no such significant financial obligation. In fact, at most they have a one year lease and the upfront consideration. They are a renter, with the right (but not the obligation) to buy if they should ever have the wherewithal to do so. Disclosure? They?re going to know all about that house long before they ever contemplate actually exercising an option. Should a major issue come up in the interim, the tenant/buyer will undoubtedly 1) call you 2) walk 3) quit paying. Whether you disclosed or didn?t disclose, the chances are they?ll do one of those three. Worst case scenario is that they may want their option money back?..in other words, you?re in yet another negotiation situation. There is a significant difference between this and what could happen in an outright sale.
My thought in my state is that I would rather risk the TB wanting his money back (with an opportunity on my part to prevail in a negotiation), than to risk a protracted judicial foreclosure in my state. The latter is going to always be more costly than the former in my state. Perhaps as Bill says it?s different in your state?and if so, then that?s something to consider. As I understand it Texas has a ?land contract? law?.but whether a lease/option equitable title dispute fits within that law is something to consider and perhaps check out. I don?t know the answer to that one.
Frankly, I think if I were going to make a formal written disclosure I would be more interested in disclosing issues relative to the availability of financing, the likelihood of getting it, the possibility that available financing might not be sufficient to exercise, the possibility that the buyer may have to come up with more cash?.etc etc etc.
I would also have to say that I have never had an equitable title situation occur?.and my guess is that you may never either.
I note that Bronchick did not mention IRS issues. Naturally it may be possible that the IRS would never see disclosure paperwork.
Finally, as alluded to above, what my experience has been is that if a significant problem comes up, the tenant is apt to walk and leave you with the problem. Their thought isn?t one of ?Oh my gosh, this is MY house, and this problem wasn?t disclosed???and their thought isn?t ?Gee I have a big problem here, where do I get the money to correct it?. Their thought is going to be ?I wonder if I can get that moving van backed up and get my stuff out at midnight? or ?I?m going to stop paying and demand my money back and use this issue as my reason.?
My suggestion would be that you should comply with Texas law?whatever that may be. I?m at a disadvantage there.