More on the Goof Ball Judge Decision aginst the L. Optionor - Posted by Bill Gatten
Posted by Bill Gatten on June 07, 1999 at 15:45:22:
The following is a revised version of a post I made last week after having spoken with a reluctant Lease Optionor about a horror story regarding a thwarted PACTrust? that ended up becoming a Lease Option.
In a nutshell, what happened was that the option period was by-passed by nearly 3 months, but the Optionor is none-the-less being forced to sell at the original option price, even though the property has gone up over $54,000. They are also being directed by the court to refund all moneys having been taken for insurance and property over the option term and to pay reasonable attorneys fees to the plaintiffs.
Since my original post, I have researched the data through the defendant in the case, one of the brokers involved and an attorney friend of mine who happens to know someone involved in the case (knows the uncle of the cousin of the plaintiff’s next-door neighbor’s former boyfriend).
He deal as told to me:
12/1/97 - Party A accepted a PACTrust? Purchase Offer from Party B which was to commence on, or about 12/18, and which was to include payments for PITI+HOA and Trustee Fee. Property worth $195,000 Mutually Accepted Value was $181,000. Broker informed seller that Party B had filed a BK in the past and that a home they had owned had been deeded to a relative and was not a part of the BK
12/18/98 - A new agreement, a Lease Option, drawn up in lieu of the PACTrust? and initially rejected by Seller.
1/98 Party B convinced Party A that a PACTrust? would be too costly, and that a lease Option would be better. Party A consented, indicating that the Lease Option would become effective only if there was a full Escrow, and only upon the opening of such Escrow? the Escrow was never opened. It was clearly understood by all parties that a balloon payment on the property was coming due in full on 08/01/99.
1/98 - The first payment and option fee several weeks late. Insurance not paid and HOA not paid for 2 more months.
2/98 - Option Agreement (from 12/18/97 to 12/18/98) finally executed by Optionor, but never by Optionees.
A year goes by?
12-18-98 - Option Agreement terminates.
2/99 - Property had gone up from $181,000 to approximately $23,5000 (good upswing in Ca. Market). Over the term of the Option Agreement, payments were invariably 1 to 2 months late (to the detriment of Optionor’s credit record) and paid only after begging by the Optionor. Likewise, HOA Due were always 2-3 months late, and the hazard insurance carrier threatened cancellation for non-payment on one occasion. On various occasions, Party A paid the HOA dues to avert a lien being placed on the property by the HOA?an act which would bite them later.
2/99 - Party B was notified of the planned sale of the property by Party A, who, feeling sorry for them and their financial condition, offered to return Party B’s option fee (about $3,500). Party B then realized the value of the house and sought out an attorney (a partner in the law firm of Tyler and Dorsa, Temecula, Ca) who I’m told, sued for the Party B’s right to exercise the Lease Purchase Option, even though the option date had passed. Party B reportedly thought they had obtained a financing commitment at 85% LTV just prior to, or just after approaching the law firm; but were subsequently turned-down by the lender when it was discovered that a house they had formerly owned had been foreclosed upon. It was also discovered by at that time that Party B was in the midst of an “eviction” and UDT Action: it is rumored that to hide the property from their BK they had moved a relative into it, whom their lender thought was the borrower? (this info is not confirmed, however).
Next, Party B made a Purchase Offer to Party A for a sum, which would have given Party A about $10,000 cash. That offer was rejected and followed with a counter offer for an amount that was $10,000 under market. Party B rejected the counter.
The suit that then ensued was based upon: “The detrimental reliance of Party B upon an oral modification of the original Lease Option (purportedly an oral Agreement to Extend?which Party A insists was never proffered, but which the Realtor for Party B insisted at the hearing had been made).” Interestingly, the Lease Option contract contained an estopple strictly forbidding any reliance upon ANY oral modifications to the Agreement (but that didn’t matter to our “pioneer law maker, semi-retired” judge/arbitrator).
Now, Party A, in order to avoid the minimum of a one year delay that a court hearing would no doubt entail, agreed after the failure of their UDT, to Arbitration. The arbitration hearing was overseen by one Judge Kenneth Ziebarth Ret. (retired, but still sitting on the bench in San Juan Capistrano) and concluded by “J.A.M.A. Endispute” at the rate of $240 per hour (including the Judge’s research).
5/4/99 Judgement rendered in favor of Party B. The judge’s statement was that “Even in view of the caveat prohibiting reliance upon oral modifications, there must have been acceptance. Why on Earth else would Party B not have exercised an Option that would clearly give them $54,000 in equity in a property in which they had been diligently making payments on for over a year?” The order was for Party A to sell to Party B at the price of $181,000 (the original Option Price); and to give Party B 60 days in which to arrange for financing. And since the Option itself did not contain a provision for HOA dues and insurance, Party A is now also to refund all such sums paid by Party B. The fact that Party B was not responsible for the HOA dues was, of course, evidenced by Party A’s having paid them on several occasions. They are also directed to pay court costs and all of plaintiff’s reasonable attorney’s fees (so I am told).
It appears that a Hard Money lender has now agreed to loan 75% on the property, without any consideration for credit, credit history or the former BK and eviction record. It is apparent to all concerned, however, that once the sale does take place, Party B will be forced to default and lose the property to the hard money lender. They are believed to be virtually “stone broke,” without enough even for Closing Costs, and have never, it is said, had enough money to even cover their lease obligations on a timely basis, much less the new mortgage payments which will be considerably higher.
Closing Costs? No problemo. Party B has indicated that they plan to cover their Closing Costs with the settlement money from Party A. And Party A has a taped recorded message from Party B indicating that if Party B’s payment record is revealed to the new prospective lender, that they (Party B) will tie up the property beyond the call date of the existing loan, and notify the lender that the house is not owner-occupied (a provision of reinstatement of the 5 year call date).
How do you spell, “This deal sucks?”
Bill
In answer to those who asked the question last time: Mrs. A tells us that she and Mr. A would give ANYTHING now to have had the foresight to have insisted on the original PACTrust? offer as originally proposed. It would have made Party B easy to evict and no more than a tenant in the property without claim to equity, options or ownership rights per-se (even though all the “benefits” of ownership remain fully in tact for the resident beneficiary).