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The Dangers of buying via Lease-Option - http://www.dealmakerscafe.com Forums

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Lynn
Moderator

"The Dangers of buying via Lease-Option" , Tue 10 Apr 20:57

The Perils and Dangers of buying via Lease-Option

There has been several posts lately regarding problems with buying via lease-option. In the beginning we did a lot of lease-options ourselves. We have gotten away from buying via lease-options, but if the circumstances were right we would do it again. Most of our creative transactions are subject-to or CFD.

I believe that Lease-Option should be a last resort offer. You should only deal with credit conscious people when considering a lease-purchase. You will know who they are because they will be current on their mortgage and they will be very concerned about their payments being made. They will probably be people who are moving up to a more expensive home, and you should stick to people who are staying in the same area. However, NONE of these things will totally protect your from future problems.

Simultaneous Closings
The issue with lease-option simultaneous closings is the same as any other double closing. Some lenders have seasoning requirements that can spoil the deal. Read the Archives regarding simultaneous closings.

What about getting the seller involved in the closing?
I’ve never had a problem like this. Most sellers are anxious to close out the deal. As far as finding them, I know where all of my landlord/sellers are. This would be a good reason to have all of the proper documents in escrow.

If you are doing a simultaneous closing then your seller will have no idea what you are making. If your tenant/buyer is closing directly with your seller then there are still ways to protect your interest. The original seller may not like it that you are making $XXXXX dollars off the deal, but if you have done everything right (including your performance mortgage) than you are protected. I have closed like this before with no snags. If the seller is being an ass then you could definitely cause him some heartache. Be aware though that these problems may spook your buyer and cause you to lose the deal.

Closing Costs
If you do a double closing, you will have to pay double the closing costs. Who pays what will depend on how you negotiated your contracts.

If you do everything right from the beginning you will have MUCH fewer problems. Read my old post concerning protecting your interest on a lease-option http://dealmakerscafe.com/forums/Forum1/messages/10251.shtml

If you are sloppy up front you can expect it to bite you later!

Your best bet is to buy subject-to, but if you choose lease-option then be sure to properly protect yourself. Also keep a good relationship with the seller. We still communicate with our sellers with Christmas cards etc. 99% of our sellers love us. I have to think that this will come in handy somewhere down the line.

Don’t think that buying subject-to is without its risks! Anytime you are paying on a loan that isn’t yours then there is room for trouble. Jackie had the lady who was getting escrow refunds, and I currently have one where the crazy seller has, for some reason, told the mortgage company about the sale and also gave them notice not to release any information to us. And of course there is still the real risk of a note being called due.

The Bottom Line

Regardless of how you are buying. Make sure that you know what you are doing and be sure to Dot your “I’s” and Cross you “T’s”

Happy Investing!
Lynn

Knowledge is important but all the knowledge in the world is worthless without action! How many offers did "you" make today?

Replies:

Jackie

"Re(1):The Dangers of buying via Lease-Option" , Tue 10 Apr 21:24

Lynn,

Thanks for clarifying my posts below.

When I noticed that Tarun had not even verified the mortgage until 3 weeks after signing the l/o docs -- I knew that there was the potential that there might be other things that he, and others, were not doing to protect themselves.

These are legal transactions and needed to be treated with the upmost care and precision.

The purpose of my post was not to scare anyone away from doing lease options, but to make sure that you get a proper education on how to protect your position in the deal and make everyone aware of potential problems when your buyer wants to exercise their option. (stuff Ron LeGrand does not talk about)

Although, I personally would not recommend doing a lease option because with just a few changed words you could get the deed or a contract for deed which would give you a much better position in the deal. But to each his own.

IMHO - It is better to get the deed. But event then, there are many things that you need to do to protect yourself. Some courses just don't go into enough detail about it. It is the kind of stuff you will learn when you let an attorney or title company handle your closings -- and from studying LOTS of courses.

And then, like Lynn pointed out, no matter what you do some drug addict crazy seller can still try to screw things up for you.

Jackie

DISCIPLE

"Re(2):The Dangers of buying via Lease-Option" , Tue 10 Apr 22:39

Jackie,

What does Lynn mean by saying that you had a seller receiving escrow refunds? Was there an overpayment in the escrow and the lender mailed a check to the seller?

Carlos... (I will fulfill my destiny)

Jackie

"Re(3):The Dangers of buying via Lease-Option" , Tue 10 Apr 22:52

Carlos,

One of my sellers is a drug addict - when she got low on drug money she came up with the brilliant idea to call the mortgage company and see what money was in "her" escrow account. She then told them that the house was selling in a few months and she didn't want them to pay the taxes or insurance becasue it was being paid at closing. Please send her the entire balance of the escrow account now -- and the mortgage company did it.

Leaving me almost $5000 short

The only way I found out was a delinquent tax bill.

Jackie

DISCIPLE

"Re(4):The Dangers of buying via Lease-Option" , Tue 10 Apr 23:14

WOW!!!

How do you protect against that?

Carlos...

DISCIPLE

"Re(2):The Dangers of buying via Lease-Option" , Tue 10 Apr 22:01

Jackie,

On this subject of protection, can you elaborate just a little on what you have learned from letting attorneys handle your closings? I was thinking that everybody here did their own.

Carlos... (I will fulfill my destiny)

Jackie

"Re(3):The Dangers of buying via Lease-Option" , Tue 10 Apr 22:56

I rarely do my own closings - just too risky IMHO

There may be special clauses that are required in the Warranty Deed in your state - differes from state. So the one in the course may not be adequate.

If you think the CYA stuff in the courses is strong - you should see what my title company does....

And mostly, it gives the sellers and buyers a much better feeling to "go to closing" at a title company or attorney's office. Much less chance they will come back later and say you didn't explain something to them.

Jackie

DISCIPLE

"Re(4):The Dangers of buying via Lease-Option" , Tue 10 Apr 23:17

WOW!!! Awesome stuff...

Thanks a million,

Carlos...

Jackie

"Re(4):The Dangers of buying via Lease-Option" , Tue 10 Apr 22:58

selling with a contract for deed has VERY different laws from state to state.

Jackie

Lynn
Moderator

"Re(2):The Dangers of buying via Lease-Option" , Tue 10 Apr 21:54

Thank you Jackie for bringing those problems to light. It's posts like yours that gets everyones attention and makes them think!

You are absolutely right about the inadequacy of many courses!!

Lynn

Knowledge is important but all the knowledge in the world is worthless without action! How many offers did "you" make today?

Ben
Moderator

"Great Post....Question?" , Tue 10 Apr 21:11

Lynn,

Because of you and Dealmaker, I have control now when purchasing. I still will use a l/o if it calls for it but I love the subject to's.

My question is about your problem with the seller telling the mtg. co. not to speak to you. What can you do?

I haven't had this problem but would like to know how you are handling it.

Thank you.

Ben
Moderator
www.dealmakerscafe.com
Where the average real estate investor becomes a Dealmaker!!

Lynn
Moderator

"Re(1):Great Post....Question?" , Tue 10 Apr 21:19

It's really not a problem, just an annoyance. The seller will not talk to me, and I don't have a clue what she is up to. She is REALLY a goofy lady

she has a screw loose.

No problem because I already have a connection at the mortgage company talking to me anyway

TIP: When you get someone at a big mortgage company that will actually "talk" to you then keep their name and number for future reference.

Lynn

Knowledge is important but all the knowledge in the world is worthless without action! How many offers did "you" make today?

Terry (Houston)

"Another tip" , Tue 10 Apr 22:16

Keep the name and number of people at the attorney's office you find that preforeclosure's are being sent to.

I am getting on a first name basis with some people at an office in Dallas and as time progresses I hope to be able to spread a lot of back payments out over time. This being with the help of our friends.

Terry

...There is no chance no destiny no fate
that can circumvent or hinder or control
the firm resolve of a determined soul...

Ella Wheeler Wilcox

Terry (Houston)

Lynn
Moderator

"and........." , Tue 10 Apr 21:11

Having a good mortgage broker who understands what you are doing will help you a lot!

Someone posted a concern about being sued by their tenant-buyer if a problem pops up with a double closing. Although I refer my tenant-buyers to my mortgage broker, I don't require that they use him. It is the tenant/buyers ultimate responsibility to obtain financing, NOT YOURS!

Lynn

Knowledge is important but all the knowledge in the world is worthless without action! How many offers did "you" make today?