Warning for Lease Option Investors - Posted by Rob

Posted by David Alexander on May 28, 2000 at 16:53:10:

That was my point. Exactly as Piper said it above, cant see it helping the seasoning issue, only one of the owner getting judgements against himself and the property so you could foreclose them off.

David Alexander

Warning for Lease Option Investors - Posted by Rob

Posted by Rob on May 27, 2000 at 15:39:48:

I recently had taken a lease option on a property and sunlease optioned it to my tenant buyer. As is my practice, I made my tenant buyer go to a lender to make sure that he had a snowballs chance on getting the loan in the next 12 mos.

The 12 mos. rolled around and the tenant/buyer got prequalified for the loan. Note that the tenant buyer was a C buyer at this point. There was plenty of loan to value in the deal since I am in a nicely appreciating market.

We were set to close and when the lender got the appraisal back noting that I was not the recorded owner, they stopped the deal. I gladly showed them my recorded memorandum of option and the deed signed by the owner that was held in escrow and they still refused to do the deal.

I have done a few of these deals never having a problem with this. My attorney tells me that he has seen the same thing happen in a handfull of transactions with buyers who are sub-prime borrowers.

We all know that the lender had no basis for pulling this deal but the fact is that they did not loan the money.

The moral to this story in my mind is to get a performance mortgage recorded so that you show up as a lien holder.


Re: Warning for Lease Option Investors - Posted by JPiper

Posted by JPiper on May 28, 2000 at 12:51:46:

I agree with Craig below…I don’t see a performance mortgage helping with the “owner seasoning” issue. You would show up in a title report…but not as the owner.

Regardless…the preferred method for these types of deals in my opinion is to record a performance mortgage.


And How would a Performance mortgage… - Posted by David Alexander

Posted by David Alexander on May 28, 2000 at 11:40:28:

have helped? A perfromance recorded would have been from the original seller to you that you were going to perform on some purpose.

Since you do not own the property, You have the Right to buy with your option the performance would serve to make you perform on something and no longer would your option be an option. (an option is a right to buy not an obligation)

So if your saying that you may as well say Only buy houses where you can get the house deeded over to you, I’d agree, that has always been my policy so far.

I would say as the others look for another Mortgage broker or consider converting the L/O to a note and selling it.

David Alexander

Re: Warning for Lease Option Investors - Posted by Steve(NC)

Posted by Steve(NC) on May 28, 2000 at 10:03:02:

You guys go it…find someone who will do it. THey are out there. The performance mortgage is just something extra in case…I might start incorporating that into mine.

Thanks for the heads up…but there are MANY lenders in this world.

Steve (NC)

Re: Warning for Lease Option Investors - Posted by Bill-K.

Posted by Bill-K. on May 28, 2000 at 06:58:42:

What you are describing about subprime lenders is nothing new. Their deals in general are harder to close than A paper. Just find another investor or mtg broker if yours is just coming up with excuses. They are a dime a dozen.

Re: Warning for Lease Option Investors - Posted by Craig

Posted by Craig on May 27, 2000 at 15:57:58:

In most cases that won’t even help. The lenders refusal probably has more to do with you not being the owner of home for a particular amount of time. Some lenders have now instituted a blanket policy of not making a loan when the home seller has not been on the title for 6 months to a year. It’s an issue that has more to do with recent issues involving inflated appraisals, forged docs, and straw buyers in some flip deals. There are much better ways for those lenders to protect themselves and still do legit deals like yours, but what are you gonna do. Find another lender I suppose.

Clarification please - Posted by Terry (Houston)

Posted by Terry (Houston) on May 28, 2000 at 20:02:20:

I have always been a little lost on this. Is the performance mtg. in the amount of the transaction from the seller to the buyer and then recorded such as a deed? thanks in advance.
I know I need to go back to Bill’s course and figure it out but I am out of town and about to close a deal (L/O) to live in.

Re: And How would a Performance mortgage… - Posted by WilliamGA

Posted by WilliamGA on May 28, 2000 at 12:10:20:


Long time, no see. Hope you are doing well.

In this context, a performance mortgage is used to secure performance of the seller. If the seller were to refuse to sell the property as agreed, you could foreclose.

Your advantages are that as a secured lienholder (not simply an optionee) you have the right to redeem the property if other mortgages are in default or in foreclosure, you are in a better position should the owner get other liens or judgements, and you are in a better position than an unsecured lienholder should the seller file for BK protection.

I can see where this MAY help as far as the seasoning on title issue goes, then again, it may not. I have yet to close a deal on my sandwich L/O’s yet. They haven’t been in place long enough. I am still a newbie. LOL

Your friend,


Re: Warning for Lease Option Investors - Posted by DT (NY)

Posted by DT (NY) on May 29, 2000 at 03:28:27:

Craig is 100% correct its a title seasoning issue more than anything else…I go through it alot lately because I flip properties…I actually take short term title prior to the resale and still get the title seasoning issue with many lenders more so over the past year… FHA is running a program right now that will enable flips without title seaoning most brokers can find you a lender that will still allow quick flips and no title seasoning requirements, Speak to Ed Garcia and see if he can plug you in with some in your area he is an active Broker and from my understanding the new Lender Guru here on this board…
Good Luck