Posted by William Bronchick on October 08, 2003 at 09:04:58:
I don’t think it would ever get that far… the title company would likely just pay you a few bucks to go away.
Lease options…never again… - Posted by Scott T.
Posted by Scott T. on October 06, 2003 at 13:18:30:
Hello Everyone,
First, let me start with this: I am not posting this to bring anyone down. Here is my story and it applies to me and me only. I did a sandwich lease option with a seller-did the purchase agreement, recorded the memorandum of option, recorded the performanace mortgage, all the things that Finkel and Conti preach…had me a tb’er ready to give me option money and move in, but…guess what??? The seller decided to sell to another buyer right out from under me. I know, I know, get an attorney and sue for specific performance, breach of contract, ect…well the house is already sold and closed to another buyer and according to my attorney, I have a few options…and here they are: 1. Sue for specific performance and realistically get nothing-but< oh I forgot, I will have to pay my attorney-great odds there huh??? 2. Take the seller to court for breach of contract…hey, I may even be able to make them rescind the sell because I have a contract with the seller earlier right??? Unfortunately, here is the cold hard facts about doing sandwich lease options…they suck!!! If you do not control the deed, you control nothing. I have heard the gurus on this board preach many times to "sell on lease option, but never buy on lease option. They are absolutely correct…if you buy on a laese option, now again, this is just my opinion, you really are setting yourself up for a potentially disastrous situation where you have no control of the property (realistically) and yet you could be sued from your potential tb’er. The many situations I have heard about in court recently, with respect to REI’s, is that the seller usually wins his case or the investor just says “the heck with it” and the whole deal is dropped…but lets figure what the investor has to lose in the above equation; well the investor has probably not given the seller any money (thats a good thing), but the investor has spent money on the title search, money on placing an ad to aquire a tb’er and consideration to the seller. ($20) Now the seller tells the investor to go jump in a lake and the investor is out that money as well as time. I guess lease options are just not for me. Let me hear your responses…am I doing something wrong…because if I am, I am doing exactly what Conti and Finkel preach in there course.
Regards,
Scott T.
Yep … - Posted by Redline
Posted by Redline on October 07, 2003 at 23:35:12:
Johnboy’s comments below are right on the nose here, IMO and for what it’s worth this is EXACTLY the kind of thing I have been preaching to everyone and anyone both here and at my local REIA. I think sandwich L/O’s are garbage and a really, really, BAD idea for all but the saviest and deep pocketed of investors.
What happened to you was the best case scenario. What would’ve been worse was 12 mos later you’re ready to sell to your T/B and now your “seller” won’t give you the deed. Hello attorney’s fees and lawsuits.
If it’s a deal, get the deed. End of story.
Good luck and keep us posted.
RL
Re: Lease options…never again… - Posted by JohnBoy
Posted by JohnBoy on October 07, 2003 at 13:05:23:
Just curious?
Has the new buyer moved into the property yet or is it vacant?
If it is vacant I would hurry and take possession and change the locks! When the new buyer shows up, act surprised! Who the heck are you??? I have a legal binding lease and option on this property with the owner! I have legal docs recorded in the county court that protects my interest in this property. If the owner recently sold this property to you then that sale is subject to my contract I have with the former owner, meaning you, Mr. New Owner, are bound to honor my existing contract until it expires and sell me this property at the agreed option price I have, should I decide to exercise my option and buy the property!
Now the new buyer will have to go to court to get this mess straightened out and sue the former owner for fraud! Unless the former owner disclosed this to the buyer and the buyer agreed to buy the property subject to honoring your contract you had with the seller.
I would run this by a COMPETENT attorney before acting on it.
Re: Lease options…never again… - Posted by JohnBoy
Posted by JohnBoy on October 07, 2003 at 12:02:55:
It sounds like you left out one major step here. You are suppose to have the seller sign over the deed to be held in escrow with written instructions.
The memorandum is weak. But the performance mortgage is in fact a lien on the property. With that you can foreclose on the property. No need to mess with suing for specific performance. Just file a foreclosure suit.
Most likely they used a title company to close. If the title company closed around your lien they are liable. File a claim against them. Did you list a dollar amount in the performance mortgage? This should have been an amount based on the difference of what the property is worth and what your option price is. This is the amount of your damages to settle your lien.
It also sounds like you need a new attorney because this one doesn’t seem to understand what a performance mortgage is, which is a lien against the property just like any mortgage is a lien.
Ask your attorney, so what if the seller had a first and a second mortgage. They closed and only paid off the first leaving the second mortgage in place without paying that off? Would the second have to sue for specific performance, or would they be able to foreclose on their lien since it was never satisfied and released? Your performance mortgage is no different in this case.
I would have your attorney send notice to the seller and the new buyer calling your lien due immediately and threatening to foreclose on the property. This should stir things up between everyone involved, including the title company they used, if one was involved.
You may get paid… - Posted by William Bronchick
Posted by William Bronchick on October 06, 2003 at 17:11:54:
If you recorded the mortgage, you have a lien on the property. They can’t sell without dealing with the lien. You may get a call from the title company asking you for a release, at which time you ask the seller for “payoff money.” That’s the whole point of filing the mortgage.
This kind of thing rarely happens, by the way. I’ve only had one seller reneg on me and we had recorded a memorandum. The title company called us months later when he tried to resell and we made them pay us $500.
Re: Lease options…never again… - Posted by Jim FL
Posted by Jim FL on October 06, 2003 at 14:27:14:
Scott,
I agree, lease options do have potential for problems, hence the reason I don’t buy that way any more either.
There still might be a way to get something.
You said there was a performance mortgage recorded?
Why di the seller close around it?
Did they use a title company?
Was the transaction insured?
If so, then there is the place to go with your claim.
Once the title company sees that you had a lein on the title, and they closed around it, without you releasing it, they should offer a settlement.
Failing that, foreclose on the performance mortgage if need be, or if you choose.
I have walked away from deals where sellers kicked up their heals, or violated agreements.
Why?
Not because I wanted to, but because as you indicated, the time and money to get the deal pushed through, was just not worth it.
In the same time, effort and money spent to get just one deal completed with your scenario, I could easily go out and buy a few other houses.
I also think it might be time to see a new lawyer…one who is actually on your side.
Nothing you can do? Did they really tell you that?
Take the seller to court for breach of contract?
A foreclosure for the performance mortgage after a claim to the title insurance company is how I’d handle it, if so inclined to fight the seller.
Talk to some other attny’s.
Take along your paperwork, all of it, and see what they say.
A free consult should be available if you call around enough to local attny’s.
Good luck, and you are right, taking OWNERSHIP is much better,
Jim FL
Re: Lease options…never again… - Posted by Ron (MD)
Posted by Ron (MD) on October 06, 2003 at 13:55:40:
Scott,
The good news is that your problem arose before your T/B was living in the house…then you would have had to deal with a REAL unhappy T/B and the potential legal problems resulting from that.
My question relates to the title…how did the seller transfer clear title to his new buyer? Didn’t your recorded memorandum of option and performance mtg. cloud the title?
Ron Guy
hypothetical/p-mortgage - Posted by Hank FL
Posted by Hank FL on October 07, 2003 at 18:51:02:
Let’s say an investor uses a performance mortgage and doesn’t specify a dollar amount in the document.
Now a title company somehow closes with no regard to this mortgage.
I’m assuming the investor would go after the title compnay ?
If so, for how much. Since this hypothetical performance mortgage didn’t have a # on it, would it be the amount the investor would have made ?
And if that’s the case, one could make quite a bit of money on a L/O (if that was the intent) over the years. It might take 2 or 3 or more T/Bers to finally close 7 years later. That’s a healthy bit of cash flow, amortization, depreciation, ect.
Could one sue the title company and/or seller for all that potentially missed money if one could demonstrate to a court that this larger number (larger than the equity at the time of the closing in question) is valid ?
Re: You may get paid… - Posted by Stewart
Posted by Stewart on October 07, 2003 at 24:04:23:
I thought I read somewhere about putting the deed into escrow to help in situations like this (plus where the seller may pass away etc.) I thought that ensures compliance with the terms. Of course if deal goes south before documents go to escrow that is another story.
How can one close around a mortgage ? - Posted by Hank FL
Posted by Hank FL on October 06, 2003 at 15:20:42:
I’ve spoken to guys (or at least one guy that got scr_wed by a seller) that tell me a memorandum of option isn’t as strong as they say in the courses.
But a mortgage ? There must be more to this story.
I’d also like to make another related point.
I understand what guys like Bronchick mean when they say to move on and just do more deals - don’t get mired in B.S.
I remember a house I signed up (40k equity - 15k repairs and other costs) went south because the sellers listed with a realtor a couple’a days after I GOT THE DEED. Don’t ask me if I recorded it in a timely manner. I still could have busted chops on that one despite my stupidity and regret I didn’t. Live and learn.
I don’t remember if I read this in one of Trump’s books but the idea is this.
If someone scr_ws you, then you have to nail their b@lls to the wall for the world to see, so as to build a reputation as a person that will not take sh_t. Do this even if the legal bills and other costs are more than the profit the deal would have brought you - w/in reason of course, and only if you’re going to win.
In our world of SFH REI this philosophy won’t help us with sellers, because they won’t hear about this toughness, but investors in the community will know - I’d make sure of it.
You’d most likely rarely have a misunderstanding with many local investors in the future. For instance, this guy Jack that inflicts himself on us by way of this board would not be messing with Hank’s bandit signs if he knew I’d be getting my pound of flesh, one way or another.
One successfull b@ll nailing is all it would take. A good investment, no?
Hank
P.S. A shaved head & a motorcycle might help in this regard as well.
Re: hypothetical/p-mortgage - Posted by Bill Bronchick
Posted by Bill Bronchick on October 07, 2003 at 18:54:44:
Well, the dollar amt should be a stated amt, such as a the difference between the seller’s loan balance and your option price. Or, it could be the difference between the future anticipated value less the option price. People do it different ways…
You would not sue the title company if they missed the lien. You would make a claim against the new homeowners and the title company would indemnify them.
Re: hypothetical/p-mortgage - Posted by Hank FL
Posted by Hank FL on October 07, 2003 at 22:33:24:
>>Or, it could be the difference between the future anticipated value less the option price. People do it different ways…<<
That’s the idea I was getting at. If one could demonsrate to a court that the house would be gathering appreciation, amortization, cash flow, and depreciation for an X # of years before the house would be sold. Perhaps that # would be a signifigant (BIG)one.
I wonder if a judge would buy that ?
Just thinking out loud here.