Lease Option (Lender Objections) - Posted by Len

Posted by Houserookie on January 31, 2001 at 02:47:53:

Title Seasoning is a non issue. Use and have the lenders come shopping for you.

As for L/O, if your going to do it, let the buyer get their own financing.

The option fees can be profitable from one tenant to the next. If you are not going to L/O, flip it from the start.

Lease Option (Lender Objections) - Posted by Len

Posted by Len on January 31, 2001 at 24:44:10:

How do we overcome the hurdle of the lender and the chain of title issue that has recently plagued the Real Estate Investors community?

I have plenty of sellers that would be in favor of Lease Optioning to me but I have that fear of dealing with the lender at the time my tenant / buyer decides to exercise and I am possibly not able to deliver title because of these lenders and their rules.

How is this roadblock challenged? … And has it been a successful challenge?

Thank You


Re: Lease Option (Lender Objections) - Posted by Jim IL

Posted by Jim IL on January 31, 2001 at 19:07:51:

This issue has been talked about quite a bit here.
Frankly, this is not a major concern of mine, and I do quite a few L/O’s.
IF a lender has a problem with title seasoning, or lack thereof, then find another lender.
I have only had this issue arrise once, and due to the GREAT terms my buyer was getting, we decided to go ahead and use this lender.
I just had my lawyer draw up new agreements.
He drew up an agreement between my seller and my buyer, and inlcuded in it that the seller was to pay me a “Fee” for my profit.
The “Fee” was listed on the HUD-1 statement, and just called a “Fee to J. Mitchell”.
Since we used a title company that my lawyer worked with often, he was able to get it all done.
In fact, on this deal, my seller was out of state, and to save him airfare, we had him give me a POA to sign all the docs for him.
My lawyer then just fed-exed the final signed copies and check to my seller.
My buyer walked away owning the home, and I left closing with my check in hand.
If this issue arrises, make some calls to other lenders, and/or some local RE attorney to see if they can handle it for you.

And, since then, I have begun to record performance mortgages and memo’s on my deals so that I am in the chain of title.

I certainly would not stop doing good deals because of one “possible scenario”.
Remember, we are doing “Creative Real Estate”, therefore we need to be creative to get things done.

Think outside the box!
I love it when people say, “You can’t do this!”, and then proving them wrong, and getting paid at the same time.

This is my kinda game.

Take care,
Jim IL

Re: Lease Option (Lender Objections) - Posted by Bud Branstetter

Posted by Bud Branstetter on January 31, 2001 at 09:55:32:

One possible solution would be to establish a value on the performamce mortgage. Therefore to release it it would have a payoff amount. The original owners would have to sign off on the closing. I haven’t done this but it’s a thought.

While it is not totally a non issue there are enough lenders out there that don’t have a problem with it.

How I deal with it is not to do a L/O to begin with. I am using the PACtrust concept. Title transfers to a trustee who is instructed to sell a a future date. The occupant either buys or it is sold and the money divided. If the beneficiaries agree the terms can be changed. It can be extended, you can kick the occupant out while preserving their investment, you can sell with owner financing and sell a note to get the original owner their cash or do anything you can reach an alternate agreement on.

Re: Lease Option (Lender Objections) - Posted by Lezlie(TN)

Posted by Lezlie(TN) on January 31, 2001 at 05:48:43:

I think the answers to your post have not addressed the issue you are concerned with. I too have stopped doing lease options because it just gets to difficult with providing a title commitment to my buyers lender without my name in the chain of title. The lender wants you in the chain of title. If there is anyone out there who has a lender that does not require this, please let me know. It really doesn’t matter if I help the person get a loan or if they get it themselves. The lender wants to see you in the chain of title when the title committment is issued. The option does remain to put the seller and the buyer together and you get the difference. If it’s not on the HUD sheet at the closing you would have to take it under the table, and this is fraud as far as I understand. Also, if the seller sees what you are selling foryour sales price to your buyer, sometimes he/she will get upset and this can cause problems. I’d appreciate it if some of you avid lease optioners out there would give some advice on this issue. Thanks.

Re: Lease Option (Lender Objections) - Posted by Brandi_TX

Posted by Brandi_TX on January 31, 2001 at 02:41:37:

For starters, your deal with your buyer is not a guarantee that they will be able to finance by the end of the lease. (Regardless of the lender.) They should know UP FRONT that it is their responsibility to obtain financing before the lease is up.

Granted, it is in your best interest to help them make that happen, but if it doesn’t, you are not at fault. If they have not exercised FOR ANY REASON by the end of the lease, then they are SOL. Not exactly a nice attitude to have - but you get my point.

Secondly, there are many lenders out there, some care about title seasoning, some don’t. I do not foresee a time when ALL lenders will unite to universally turn away perfectly good loans.

Aside from shopping for a compatible lender, you could arrange for the original seller to sell directly to your buyer. Understand this leaves room for people trying to cut you out of the deal if you are not careful.

Bottom line - worry about it when it comes. Just as you have solutions for other people’s problems in the here and now, there will be solutions to your problems in the future. Just CYA in the mean time and make sure you are always on the right side of the law.