Lease option process question - Posted by allen

Re: Lease option process question - Posted by Tim (CT)

Posted by Tim (CT) on March 26, 2002 at 06:41:10:

That’s an interesting thought. It could certainly work but you’re giving up 20% of your option consideration. Is it worth it? Maybe. Depends on the individual.

Re: JohnBoy is right on this one. - Posted by Johhny

Posted by Johhny on March 26, 2002 at 16:37:47:

Are you saying I could have won my case? I had 2 years of rent credits and 5k deposit and I was evicted in about 20 days for non payment? Despite the fact that I had rent credits and a deposit and had paid good for 18 months

Im gonna have to agree with Mike on this one. - Posted by Johnny

Posted by Johnny on March 26, 2002 at 11:55:47:

I’m gonna have to agree with Mike on this issue, I intimatley aware of how the courts view this. I live In Colorado, and last year I was buying a house on a lease option agreement. I even had a $100.00 per month rent credit I put a deposit of 5% down, It was all listed in the the agreement as non-refundeable. Well I lost my job and was trying to keep up on the payments, but I couldn’t. I got evicted and when I went to court with my attorney the judge wouldn’t even consider my agreement as a purchase contract, he said I was renting with the option and regardless of how much money I put down and how much in rent credit I had accumulated If I didnt make the payment I could be evicted like any other tenant. (My attorney told me that I would have had to have like 20 to 30% down before the judge would have considered it a purchase outside of what the contract said.)

Re: Lease option process question - Posted by JohnBoy

Posted by JohnBoy on March 26, 2002 at 06:57:41:

Using only $100 of it is all that should be necessary as a security deposit. Remember, if done properly the lease and the options are separate contracts. The $100 security in the lease agreement shows a security deposit was given. The option agreement is separate and that is where it shows any option money was paid. Two separate contracts and two complete separate transactions that have nothing to do with each other. The only thing in common is that it happens to be the same person that has two separate contracts with you on the same property. One being a lease and one being an option. That should clear up any possible confusion about what the option money was for.

The way Mike is explaining how he does his deals has a lot of risk involved. As far as his claim of some states require rent credits for a L/O to be valid as a L/O is plain bogus! Actually, it’s the opposite! The more rent credits you give the more chance of having the L/O reclassified as a sale.

See my response to his post above.

Re: JohnBoy is right on this one. - Posted by JohnBoy

Posted by JohnBoy on March 26, 2002 at 17:38:04:

Again, you’re missing the point. I’m not saying you WOULD get the property reclassified as a sale because of giving rent credits. I’m saying that IF you give rent credits then that COULD increase the risk of having the L/O classified as sale. The more rent credits you give the MORE of a CHANCE of having that happen. If you give NO credits then there is basically no chance of that happening at all.

It’s like your attorney said to you, IF, you had about 20% - 30% in equity built up then MAYBE you could of had that reclassified as a sale or at least get the judge to force the seller into foreclosing on the property VS. just being able to evict you.

That’s the same problem with selling on contract for deed. In some states you can just evict if the buyer defaults where in some states you have to foreclose. But a contract for deed IS a sale and in some states even though it’s a sale you can do a simple eviction to get the buyer out if they default. So in my state even if a L/O was reclassified as a sale then I would still only need to evict as long as the contract was for less than 5 years AND the buyer has less than 20% equity in the property. BOTH must apply.

As far as the actual option money that was money paid just for getting the option whether you paid or not and whether you exercised the option or not, that money is non-refundable. The only “possible” issue would be in the amount of rent credits that were giving. If it was a lot then the chances of having it ruled as a sale or forcing the seller into having to foreclose increases.

So in your case you didn’t have enough in rent credits to justify classifying it as a sale. At $100 per month that’s only $1800 and add in the option money thats a total credit of $6800 paid in over 18 months towards the purchase price. So unless the property you had was worth less than $34,000 you didn’t have anywhere near 20% or more in equity. On a $100k property your potential equity was only 6.8% of the property’s value! On a $100k you would need to show you had at least $20k or more in equity.

Are you getting the picture on this yet?

Im gonna have to agree with Mike on this one. - Posted by JohnBoy

Posted by JohnBoy on March 26, 2002 at 12:05:25:

That’s not the same thing we’re talking about. Mike is talking something different. You are describing what I’m talking about. Minimal rent credits with properly structured contracts.

Do you think if you didn’t have the $100 per month rent credit then that would of made a difference in your case??? NO! It would not have. The Judge already told you that you would have had to have at least 20% - 30% in equity built up. That means the MORE rent credits you have the more chances of building up more equity to where it would have made a difference.

Mike is saying by giving NO rent credits at all would make the L/O considered a sale. That’s the opposite of what I’m saying and it’s the opposite of what the Judge had told you. The MORE rent credit involved, the MORE potential equity you gain, the MORE chances of having your L/O considered a sale.

The LESS rent credits or NO rent credits at all, the LESS chance of equity build up, the greater chance of the L/O NOT being considered a sale!

Re: Agreed (nt) - Posted by Tim (CT)

Posted by Tim (CT) on March 26, 2002 at 07:18:41:

nt

Im gonna have to agree with Mike on this one. - Posted by Johnny

Posted by Johnny on March 26, 2002 at 15:54:05:

No what Mike Was saying was that by not having the rent credits in the contract the judge gave his tenant an additional 30 days to go ahead and buy the property according to the agreement (As a straight REPC)sale and not an option to buy), becuase it would have been as though a client was waiting to finance the property, and was renting back until the financing came through. Whereas if he had just given rent credits then the Judge would have ruled it as a straight option, and that they had breached the terms of it to qualify to buy it. I’m probably explaining it badly I know.

Re: Im gonna have to agree with Mike on this one. - Posted by Johnny

Posted by Johnny on March 26, 2002 at 15:41:46:

I don’t think you understodd what Mike was saying I emailed him and we have talked and I agree with him 100% I think there is just a misunderstanding of what is being said is all. Because both your guys point is valid.