L/O pitfalls - Posted by Lori

Posted by Russ Sims on March 02, 2001 at 02:29:07:

A mortgage has no dollar amount attached to it: it’s simply a security intstrument. It basically says that if a seller or buyer doesn’t do a certain thing, they may lose their home. In the case of a home buyer, a mortgage (or deed of trust) secures their payment on a promissory note. In the case of a home seller who sells to you under a lease/option ( or straight option), the performance mortgage secures your exclusive right to buy the home. The seller must sell to you if you exercise your option. If the mortgage is recorded, it will be nearly impossible for the seller to sell to someone else during the option period.If seller refuses to sell to you period,I believe you could foreclose on them.Someone please correct me if I’m wrong…

I’m no bankruptcy expert, but I’ve had two deals get extremely complicated because the homeowner filed for backruptcy after I got the home under option. It’s a mess. My advice is to record your lease/options and performance mortgages. Then if the home owner files BK, try to work out your transaction with the bankruptcy attorney/court/trustee.

L/O pitfalls - Posted by Lori

Posted by Lori on March 01, 2001 at 11:13:29:

I’m starting to get the idea on this L/O stuff. Once you get a sandwich L/O how exactly do you do the performance mortgage? Is there a certain dollar amount? If i got a property for 85k and was selling l/o for 100k what would you guys record the performance mortgage as? Also what happens if the original seller filed bakruptcy? Any suggestions on things to keep e out of trouble would be greatly appreciated. Thanks in advance.


Re: L/O pitfalls - Posted by B.L.Renfrow

Posted by B.L.Renfrow on March 02, 2001 at 07:29:43:

I agree completely with Russ regarding bankruptcy. I just had a sandwich L/O deal come apart because the seller filed Chapter 7. I did that deal a couple years ago, before I knew anything about performance mortgages. If I were to do another sandwich L/O today, I would definitely record something.

In my case, I was extremely fortunate that my tenant-buyer’s lease and option expired at the same time the seller filed BK. The seller darn near tripped over himself rushing to deed the property back to the lender, which promptly eliminated my interest in the property, since my agreement was with the seller and nothing was recorded. If that had happened in the middle of my T/Ber’s lease term, it would have been a huge mess. As it turns out, the T/Ber is still upset because she wanted me to extend the term and I had told her I’d consider it, until the BK came along. And the private mortgage holder is accusing me of fraud because I sold an option on a property I didn’t own. Of course, he is incorrect, and I told him (and his broker) so, but I doubt I’ve heard the last of it.

Brian (NY)