Questions on Lease Options - Posted by James

Posted by Innovator on March 16, 2006 at 02:44:11:

Yes, I can absolutely tell you how to do this better, but that’s my big secret. If I told you I would have to kill you. And, I don’t want to just give away my secret on an open board. If you want to meet privately, I’d be glad to tell you, without killing you of course.

Questions on Lease Options - Posted by James

Posted by James on March 16, 2006 at 24:11:37:

Here is my laundry list of questions I have to find answered on the articles I ahve read so far or claims made by some others on the subject.

  1. A claim on a website says that his Lease 2 purchase contract has been designed to not trigger the DOS. All I ahve read is that any lease longer than 3 years or with an option to buy triggers a due on sale clause. Comments?

“Unlike most Lease 2 Purchase contracts available on the market today, my Landlord/Seller Contract has been carefully designed to NOT trigger a Due-On-Sale Clause.” (

  1. How do your protect yourself from an equitable interest claim from a tenant/buyer?

Any thoughts and insight is greatly appreciated.


Re: Questions on Lease Options - Posted by some answers

Posted by some answers on March 16, 2006 at 14:14:09:

Triggering the DOS could be the least of your problems using a L/O with problem “tenants”.

The whole idea with L/Os is to make a profit up front with an option fee, a profit every month with a higher rent rate, and finanally a profit when the tenant is able to cash you out. That sounds great until a problem arises. Then all you want to do is just kick out your problem “tenants” but a court sees all these “profit centers” of yours as “equitable interest” for the tenant and thus believes a L/O is really a sale. (as do the banks) So you really can’t treat your “tenants” as just “tenants” per your lease with them because they are also considered buyers…and that’s the rub. If you think regular tenants can be trouble just try some trouble with a “tenant” who is actually considered to be an “owner/buyer” per the courts. If you’d like some enlightening reading on the subject buy JT Reed’s book at Lease options may not be totally impossible but they do come with some potentially big problems and imo should not be used by beginners or the underfunded.

Re: Questions on Lease Options - Posted by Chris in FL

Posted by Chris in FL on March 16, 2006 at 13:18:54:

James, I will answer publicly, and I won’t kill you… Are you using lease/option to buy, or sell (because one of your questions pertains to buying, and the other to selling)?
Lease 2 purchase (meaning you are buying) - if you want to record it, thus making your interest in the property known, there is a chance the bank will decide to pursue DOS (reality is, the chances are probably slim they would call sellers note due). If you do something to mislead the bank (to avoid DOS), there is a good chance you are party to mortgage fraud. Beware.
Your next question was how to protect yourself from an equitable interest claim from a tenant/buyer. This indicates you are selling using a lease/option. Several factors, but this is a start… 1-Use a contract for option, not an actual option. 2-Your lease should never mention your contract for option. 3-Term should be less than three years. 4-Unlike when buying, when you sell you probably don’t want the contract recorded. 5-If tenant/buyer builds a certain amount of equity, they have an equitable interest regardless (and should have). 6-Lease/option rules, regulations, and treatment in court (should that be necessary) depend on local rules & regulations. More and more, states and localities are starting to crack down on investor’s using lease/options to sell because so many unethical investors have taken advantage of tenant/buyers. If you don’t know your stuff, you probably better get with someone that does before proceeding, or you might get in trouble. Good luck.