Disclosure Over Kill??? Is It Really Possible?!? - Posted by Gene S Hou,Tx.

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.


Disclosure Over Kill??? Is It Really Possible?!? - Posted by Gene S Hou,Tx.

Posted by Gene S Hou,Tx. on February 16, 2000 at 11:45:19:

Hello Everyone!

I am putting together my lease option tenant/buyer agreements using Bronchick’s forms which are great!
I am considering using the following disclosure forms as addendums to his Tenant Purchase Option Agreement.

  1. Notice to Purchaser of Real Property in Water District
  2. Property Subject to Mandatory Membership in Owner’s Assn
  3. Seller’s Disclosure Notice
  4. Lease/Option Disclosure (Bronchick’s)
  5. Tenat’s Purchase Option Addendum (additional misc disclosures)


My question is am I doing addendum/disclosure over kill here? Are there any I should eliminate? I have read in R E option contracts that not addressing all the issues & lack of definition (JPiper) actually works in my favor! Could it be that somehow I am activating the doctrine of equitable conversion by adding these addendums to Bronchick’s bare bones, one page option form? As always, thanks for your response!

Re: Disclosure Over Kill??? Is It Really Possible?!? - Posted by JPiper

Posted by JPiper on February 16, 2000 at 14:09:44:

Hi Gene:

Just thought I?d clarify one thing you mention. I?m a big fan of disclosure where it?s appropriate. However the issue of disclosure is different than the spelling out of each and every detail that might arise if the tenant exercises his option ie who pays each thing. I don?t spell those out in detail as I would in a purchase situation. In the end, what that means is when and if the tenant exercises, those details will be a matter of negotiation?.so to that extent I think that works in my favor.

As to your specific question, one disclosure I note you haven?t included is a lead-based paint disclosure. This one is federal law on any property built prior to 1978?.so keep that one in the back of your mind.

Another point I?d make is that in a lease/option, you are NOT selling the property?..you?re renting it and at the same time granting an option. Big difference. Therefore when I see a form like ?Notice to Purchaser of Real Property in Water District? I start to wonder what the purpose is?.and whether that form presented in a court could help to build the case for equitable title. Keep in mind I don?t have a clue what the nature of the form is?.but certainly it?s probably not a form that would be appropriate in the case of a renter.

?Property Subject to Mandatory Membership in Owner’s Assn??.again, this one is one that I?m not familiar with. However my temptation would be to pay association dues myself?.and price the lease accordingly. I would want of course to notify the tenant of any association rules they are required to adhere to?so if that?s the purpose of the form then I would use it. Otherwise, I?d be cautious with doing anything that a renter would not typically do for the reason stated above.

?Seller?s disclosure? I don?t make?.not required to rent. I do use statements concerning the condition of the property?.but not a full blown seller?s disclosure.

?Lease/option disclosure? I?m not familiar with.

Things that might be used in general in a disclosure would be things reaffirming the fact that option consideration is non-refundable, financing is not guaranteed and is the responsibility of the tenant/buyer, etc.

If I were you I would view anything that you have in writing with the issue of ?equitable title? at the forefront of my mind?.because it?s a possibility that some of these items might reappear in the event that your deal unravels, and you?re attempting to evict. Further, you don?t want to do things that the IRS could construe as ammunition to categorize your deal as an installment sale. The more your deal looks like a rental, the better?.always counterbalanced by the issue of marketing a lease/option as a means of acquiring the property.


Re: Disclosure Over Kill??? Is It Really Possible?!? - Posted by Jim Kennedy - Houston, TX

Posted by Jim Kennedy - Houston, TX on February 16, 2000 at 18:42:39:


The first three addenda on Gene?s list are standard forms promulgated by the Texas Real Estate Commission (TREC) and are routinely used by licensed agents. The standard TREC purchase contract starts out at eight pages long but generally ends up being 12 to 15 pages long once the agents add an addendum to cover every thing mentioned here AND any of the other 20 standard addenda available from TREC.

Best of Success!!

Jim Kennedy,
Houston, TX

Re: Disclosure Over Kill - Posted by JPiper

Posted by JPiper on February 16, 2000 at 18:51:18:

The question here however is whether these forms are necessary in a lease/option…which is not a sale. My guess is they’re not…but then again I’m not familiar with Texas law.


Re: Disclosure Over Kill (For JPiper ) - Posted by Gene S Hou Tex

Posted by Gene S Hou Tex on February 16, 2000 at 21:29:42:

There are not any 2 people’s opinion I’d respect more than yours & Bill Bronchicks. Please allow me to share with you his response to my exact same post on his “ask the wiz” board & if possible get your comment. Bill said, “No one was ever jailed for TOO much disclosure! You are doing the right thing. The disclosure forms have nothing to do with whether the tenant has an equitable interest. In any event, even if a judge calls your lease/option a land contract, the procedure for ousting a buyer is real easy in TX.”