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Codee, err Fossil
It seems to me that you have it all figured out. Don't listen to ND unless you want a Laurel & Hardy routine.
Since you entered into a lease/option, this is in fact a sales contract, in which all terms are predetermined. If you decide to exercise your option the 20k is applied to the purchase price and you are bound to the terms thereof.
If you decline the option the contract has ended and he is obliged to return the deposit. The deposit is secured by the property, unless you are a moron, which I doubt.
In the interim, between now and then the landlord has further encumbered the property. As long as the lender issues the new mortgage subject to the existing contract, no breach has occurred, since your security interest is still maintained. No lender is going to issue a mortgage without title insurance though. So if the landlord has committed fraud by his nondisclosure, all parties are indemnified and he is left holding the bag.
As I said, it seems to me that you've got it all figured out.
gldskr
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