That would be one of the reasons that you don’t use a lease option, you use a lease and an option. Two separate documents and two separate payments. Never combine the option fee with rent or deposits.
The option would need to spell out that the terms of the option require that the rent be paid on time each and every month. If it isn’t then the option expires and all their rights to the property expire with it.
Tim
From: CREI-Alliance@
Sent: Thursday, January 03, 2008 9:09 AM
To: CREI-Alliance@
Subject: Re: [CREI-Alliance] How to Control A Property and NOT Own It!
For years here in FL, a judge will many many times rule that a lease option DOES give the optionee a legal and equitable interest and you must foreclose them not just evict to get them out.
It shouldn't be that way, but it has happened so often I don't use a L/O anymore.
You need to learn how judges rule in your state before doing one just to be sure.
Last thing you want is to do a simple L/O and then have to incur the time and expense of a foreclosure.
To me placing it in a LT, then selling the shares under UCC financing laws works much better.
----- Original Message -----
From: john reed
Sent: Wednesday, January 02, 2008 7:29 PM
Subject: Re: [CREI-Alliance] How to Control A Property and NOT Own It!
And I reiterate, a Lease Option does NOT convey equity and does not do it on purpose! That purpose is necessary as the existing mortgage (if made after 1983 best as I can recall) expressly forbids the conveyance of equity and if you try to write something that does convey equity, then the mortgage will be considered "called". Meaning it must immediately be paid off in full... and of course the other side of that is that you can't transfer what you don't have the right to transfer, making the LO that attempts to transfer equity a useless document in the first place. John R.
Richard <micasapdx@yahoo.com> wrote:My understanding is that when acquiring property, one should use a single agreement that describes both the lease and the option. And with tat, "equitable interest" [not legal title] is granted to the buyer. My question is then, what do you record at the county in order to protect your interest? I'm told that simply recording a 'memorandum of agreement" is enough to cloud the title, and ensure your position.
I've read when selling on L/O, use 2 separate agreements, where the lease agreement does not ever refer to the option agreement. This supposedly does not convey "equitable interest" to your buyer. Please comment.
Also please comment on some postings that indicate, and possibly some other states, have abolished the use of L/O's. Texas
Regards,
Richard
----- Original Message ----
From: john reed <yotraj@yahoo.com>
To: CREI-Alliance@yahoogroups. com
Sent: Wednesday, January 2, 2008 8:13:01 AM
Subject: Re: [CREI-Alliance] How to Control A Property and NOT Own It!If I might add my 2 cents here... as I recall, after the Savings & Loan Crisis of the early 80's, the VA changed their Lending criteria to no longer accept Mortgage's written on Individuals
who already had 5 or more mortgages... . thus limiting their exposure to the Individuals that had stockpiled mortgages by acquiring them through assumption. They changed their lending criteria so that no "equity" could be passed through assumption to Buyers with 5 or more Mortgages. Within a couple of years the Banks & Mortgage Co.s followed suit. This meant, to the Invester, that a "Land Contract", which is a Document that passes equity, could no longer be used on previously mortgaged properties (pre 1983 I think). So the Lease Purchase was invented. With the Lease Purchase, the Borrower has "no equity" in the property until the last paymet is made or the Lease has been satisfied, then they have ALL equity. This is good and this is Bad. It still let's a seller dispose of his property, but he still retains the debt which is supposedly serviced by the Buyer, it also makes the Seller responsible for the Insurance on the Property (which can be adressed withing the Lease Purchase). For the Invester, it allows him to use someone else's Credit to control a property, and this is a good thing for him, but what it does not do for him is allow him to use his own creditworthiness to borrow against the property until he has paid it off in full. I should add here, that since each State has it's own specific and Unique Laws concerning Leases and Contracts that the Docuent used should be researched to prove it's Legality before attempting to use it. I know in this state () the Courts retain the right to thow out any document for "any and/or no reason". And I have seen Lease Purchased with so called "Weasel Clauses" in them that are quite hilarious (and ultimately unenforceable) but would end up getting the entire Lease thrown out of a Court. Ohio
Just my 2 cents. John R.
invest.creative@ gmail.com wrote:Patrick,
While I have done deals using only assignments and sub-to, the concept of lease options are intriguing. But I have heard other opinions that lease options are only useful when other methods won't work (such as a seller who is uncomfortable signing over their title but keeping the mortgage in their name). What is your opinion? Do you go into a deal intending to do a lease option or are lease options usually a back-up Plan B?
Caleb
Sent via BlackBerry from T-Mobile
-----Original Message-----
From: "Patrick M. Cripe"
Date: Tue, 01 Jan 2008 21:33:21
To:CREI-Alliance@ yahoogroups. com
Subject: [CREI-Alliance] How to Control A Property and NOT Own It!
There are many ways to "CONTROL" property without ownership. The ways depend on your strategy for creative real estate investing.
Why are you investing? What are your goals? What do you "HOPE" to accomplish investing in real estate? What is your exit strategy? How long will you hold it? Are you only flipping it? Are you assigning it? Are you going to rehabilitate it? How much knowledge do you have (financial intelligence) ?
These are a host of questions you need to answer. Many more will come to mind if I posit the subject.
I am asked to help all of the time with people wanting to get started. Many have the knowledge but lack the ability to overcome "FEAR". Fear of starting, making mistakes, learning, losing money, looking stupid, being different, being out of control, losing their comfort zone, MAKING money, succeeding, being rich, embarrassment, and the list can go on and on.
TAKE A LONG, LONG, LONG HARD LOOK AT YOURSELF.... ......DISCOVER "YOUR" FEAR!!!!
Overcome your fear. I had 1/10 the knowledge and mentoring and coaches that many of you have. I did not have this or any web site. I did not have a mentor that understood creative real estate investing. I did not have a great deal of knowledge other than reading and understanding Carlton Sheets course.
What I did have was:
1. CONFIDENCE in myself
2. A Very, Very, Very, strong "WHY".
3. I had BELIEF in what I was doing.
4. I had DETERMINATION to succeed.
5. I had DRIVE.
6. I had ENTHUSIASM in what I was doing.
7. I had HIGH self esteem.
8. I NEVER, NEVER, NEVER gave up or took no for an answer.
9. I ALWAYS seek answers to my QUESTIONS.
10. But most of all...I HAD A PLAN.
Notice I did not have a lot of education. Only the understanding of the Carlton Sheets course. All the knowledge and experience came AFTER my first deal. I did what I thought was right and learned on the way. I had an excellent escape clause and understood its significance and importance in real estate investing. I knew if I made a mistake that I could back out of a deal if I had to. Seeing that...I thought there was no way I could lose. I know better now. But only because I know this to be true. Before I did not know how to lose....SO I DID NOT LOSE. This was MY reality that I made for myself.
Lease options are one of the best ways to control property without ownership. You have an agreement (option) with the seller to purchase the property at a given price, in a given amount of time. You also must put up an option consideration to make the agreement legal and binding. That consideration can be anything of value. In some states that consideration can be as little as one dollar. This consideration represents the amount of money you stand to lose if this agreement is not executed according to its terms. As you can see, if you put up one dollar for consideration and the deal did not materialize, you stand to lose only one dollar. Hardly a significant hit on the wallet. However, that one dollar allows you to CONTROL the property according to the provisions set forth in the option agreement.
A properly constructed lease option agreement to the seller affords the Investor the control of the property without ownership of the property. In a lease option agreement you usually have three options with your seller. You can buy the property from the seller at the agreed upon price and terms, you can sell the property to someone again at the agreed upon price and terms, or you can give the property back to the seller and you will lose your option consideration you put on the agreement. If this was one dollar, you would lose that one dollar. If the amount was significantly higher, you would lose a significant amount of more money.
However, if this significant amount of money was NOT your money, the deal was not your fault for falling apart (ultimately the termination of an option agreement by the buyer or you makes it your FAULT. You could have renegotiated or had a better exit strategy to make sure the deal did not fall away from you) and you had to give the property back, it is possible that you would still not lose any money. The reason being is you had a properly constructed agreement and you had an excellent exit strategy that allowed for the provision of returning the property, with lets say a two thousand dollar option consideration, and losing the two thousand dollars that was not your money.
Lease options afford the Investor high quality control of the property without ownership. The reasons for using lease options are many; asset protection, no money, no credit, no partners or other investors to sell to, no job, no real estate experience, bad credit, animosity (only you and the seller knows about the deal), enforcement of a "due on sale" clause in the mortgage documents on the property, and the reasons can go on. The reasons WHY lease options are used are unimportant relative to the transaction. Just know this: Even people with excellent credit, lots of cash, excellent business partners, and investors on their team, a great working knowledge of creative real estate investing, still use lease options for their ease of execution and the rapid closing that can take place.
I recently purchased a property on a lease option with a consideration of five dollars (the seller did not like the idea of one dollar to execute the agreement). I turned around and sold the property on a lease option. I agreed to give the seller fifteen hundred dollars for the first months rent in three days, which I did. I charged my tenant six thousand seven hundred and fifty dollars to move into the property. That sixty thousand seven hundred and fifty dollars represented; seventeen fifty deposit and seventeen fifty first months rent with thirty two fifty being option consideration. I turned around within three days like agreed upon and gave the seller one thousand five hundred dollars for the first months rent. This left me with five thousand two hundred and fifty dollars, to which I put in the "Hip National Bank". All of this occurred with a 6 hour time frame.
So, I was able to control a property, sell the property on a lease option, and put over five thousand dollars in my pocket within 6 hours. I am not tooting my own horn here. I am just trying to show you how flexible, fast, and rewarding this type of real estate investing is. By the way, the above example is called "A Sandwich Lease Option". I bought on an option and sold on an option. In a sense, I was nothing more than a middle man that put buyer and seller together to which I got paid for. Also, in the above example, I received two hundred and fifty dollars every month until the tenant buyer closed out his option agreement with me to which I would close my option agreement with the seller.
These types of conceptual real estate techniques are done daily, perhaps thousands of times a day. With the above example, I could have had a "rolling lease option" if the seller had other property to sell, I could have optioned the mineral rights, water rights, air rights, improvement rights, I could have added other concepts to enhance the performance of the agreement according to the participators involved. In short, lease options are in my opinion the ground work for "Creative Real Estate Investment Practioners" .
I believed.... I did...I succeeded :o)
Patrick M. Cripe
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