Posted by JT-IN on July 14, 2007 at 20:11:00:
Anytime you hold or accept a deposit of that size, or moreover that percentage of the purchase price, the deal would be construed as you being a lender and you would most certainly have to foreclose rather evict… Regardless of legal format of the deal. Otherwise if you attempted to evict, the tenant would surely be entitle to a return of advance rent paid. That would be a case of unjust enrichment that would be easily proved, IMO.
So the format becomes moot in such a case. I would have no problem doing a LC with a buyer in that situation. However, with that % of down payment, you might be surprise at what a conventional lender might do toward making a new mtg. You are in the hard money category and as long as the property has adequate value, you might be surprised.
One other caution here, you hopefully owe no more on your mtg than the balance or payoff of the LC or L/O. Many states have limitations on Vendors accepting a down payment that exceeds the equity that they themselves have in the property. A default here can do serious harm to the Vendee (buyer), and many states have enacted such limits, so be careful here.