Lease/Option buy out .....

Fossil Rock · #1 05-22-2007, 07:45 PM

I have a situation where I have a lease/option to purchase the house I'm living in now. I have approx 10 months left on the contract before I have to purchase or move out.

I put a $20K deposit down and have been making monthly rent payments since (typical).

Well, I get an email from him recently basically saying the house is going into foreclosure or 'short sale' (never heard that term before), and wants me to purchase the house now.

This is where it gets sticky. I pulled up my property in the public records and found out that he just refinanced it at the end of March.

This clearly violated our contract where it states;

"The Landlord/Seller shall not lease to any other third party, nor to assign, sell, option, transfer, pledge, or otherwise to convey any or all rights or interests had by Landlord/Seller in the Property or in this Lease/Option, nor to further encumber the Property nor allow the same to occur. Violation of this paragraph shall be considered a material breach of this Lease/Option. The Landlord/ Seller further agrees to keep all mortgages, liens, taxes, or other encumbrances on the Property, current and in good standing, Tenant/Buyer shall have the right to make payment on same in the event that Landlord/Seller becomes delinquent or otherwise defaults on such payments, and Tenant/Buyer may at its option either reduce its monthly rent in the amount of the payments, or subtract the amount of the payments from the balance due Landlord/Seller at closing of the sale of the Property."

NOTE: The new mortgage is for more than the purchase balance, approx $50K more than the previous mortgage - thus further encumbrance.

So, my question is how would one proceed in this situation? I'm thinking if he is in financial troubles he isn't going to forthcoming with my deposit, which he should do now that he has breached the contract.

The foreclosure (if it happens) will put me in the street. It looks like a lose/lose situation for me.

But, if I were to conditionally except his offer.... conditions being;

(a) he return my deposit (which is expected) plus some consideration for the hassle of having to move unexpectedly and

(b) let me stay in the house rent free until I get moved.

or

He agrees that the purchase of the property is paid in full and transfer clear title (deed) to me.

Wording it will need to be done carefully as to ensure that he has to relinquish one or the other to me and it will be completely enforceable.

So, if he doesn't return my deposit then I own the property free and clear.

Please let me know of any logic errors and/or potential problems that may arise.

Thanks,

D.

P.S. If anyone has a different perspective or a better method I'd be happy to hear it.

charlesa6 · #2 05-22-2007, 08:29 PM

[quote=Fossil Rock]

Quote:

But, if I were to conditionally except his offer.... conditions being;

(a) he return my deposit (which is expected) plus some consideration for the hassle of having to move unexpectedly and

(b) let me stay in the house rent free until I get moved.

or

He agrees that the purchase of the property is paid in full and transfer clear title (deed) to me.

If he agrees to (a) and (b) or the last paragraph that's a good offer. If you take any legal action you might collect more because he breach of the contract.

Fossil Rock · #3 05-22-2007, 08:34 PM

Any suggestions where I should begin?

What course/method should I take?

Should I use an attorney?

He isn't aware that I know he has breached the contract yet.

D.

charlesa6 · #4 05-22-2007, 08:44 PM

[quote=Fossil Rock]Any suggestions where I should begin?

Quote:

What course/method should I take?

Amend your offer if he agrees to it then you can cut him a slack if you want to.

Quote:

Should I use an attorney?

Sure, is going to pay for that too.

Quote:

He isn't aware that I know he has breached the contract yet.

That's why you need to talk to him and work things out before any litigation.

Notorial dissent · #5 05-22-2007, 11:37 PM

I am very much afraid your options are

Cry

Cry

Cry

and get ready to move.

If he has put another mortgage on the property in just the time you have been there, and hasn’t paid it, what makes you think you are going to get your down payment back if he couldn’t pay the mortgage?

The second will take precedent of everything but the first, and they will be foreclosing if the second is. If you really want the property and it is worth more than the outstanding loans, you might consider getting a mortgage to buy up the paper, but this could get even messier since you don’t know what else he has waiting in the bushes.

Legally, I am afraid you are running a poor fourth.

Fossil Rock · #6 05-23-2007, 12:19 AM

Residential Tenancies Law's: By law he is required to deposit my down payment (deposit) into a separate account or post a surety bond. He didn't notify me, as he should have, within 30 days of what he did with it. If he did then he has my money, if he didn't he's in even more trouble.

I've been pouring over the statutes for hours. I'm trying to figure out how best to get out of this mess. The first thing I thought of was purchasing the property with a promissory note. Now I'm thinking of doing a private settlement agreement, something like the original post. I'm also wondering if I can combine the 2 to come up with a way to work this out.

Something like this:

Since he has breached the contract, he must return my deposit. If he can't do that then he can except my promissory note for the balance as payment in full. If he doesn't cooperate he then agrees that the purchase has been completed and has 10 days to transfer the clear and free deed to me.

Wording is not exact, but you should be able to understand the point I'm trying to make.

The fact he has 'knowingly' breached the contract means I can sue or at least threaten him with suit. I can also contact the new mortgage company and inform them of our contract and make them a co-defendant in the suit and nullify their mortgage. Who knows what they'll do, but they may contact him and ask him why he didn't disclose our contract. I would be satisfied if it rattled their cage enough to get my deposit back and move on.

I hate living like this, but when someone messes with me I mess back. I've got to much at risk to just walk away empty handed.

If you have ideas as how to make this or something similar work, please let me know.

gldskr · #7 05-23-2007, 03:45 AM

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

Notorial dissent · #8 05-23-2007, 05:52 PM

Fossil,

I’m not arguing with you about the law, in fact, I agree with you and with your interpretation of it.

However, listen to what I am saying here. Your seller BREACHED his agreement with you, took out an additional mortgage without telling you, and who knows what else. If they are foreclosing on the second, what makes you think the first won’t be or isn’t far behind?

What makes you think, that if he lied to you to begin with, took out an additional mortgage on the property, and then defaulted on that, that he either put the money in a separate account or posted a bond. If he didn’t have money to pay the mortgages, does this not tell you a few things??????

If the property is in foreclosure, whoever holds the notes to the first and the second have priority over anything else, and to put it bluntly your contract don’t mean squat in this situation. Your seller cannot deed or sell you something he does not have clear title to, and if it is in foreclosure he doesn’t have clear title to transfer.

What I am trying to tell you here is that your deposit has probably gone south to pay the rest of your landlord’s debts, and that he can’t sell you something that he is going to lose to foreclosure.

I agree, he lied to you, has probably cheated you, you have grounds to sue him for breach of contract and probably fraud, and if he had anything left it might be worth doing, but the question is does he have anything left to sue for??

gldskr, unless Fossil can get a mortgage that will cover whatever the outstanding mortgages are, and that is assuming the property is worth that, then he is in a bad place. In this instance, I am betting that the landlord has already spent the deposit, has probably defaulted on the first, and may have other liabilities hanging out there. Fossil’s contract means diddly unless he can either pay off the other mortgages, or the lenders would rather let someone take it over rather than have to foreclose, worth a try, you never know. If I were buying the property I would want a good title search and really good title insurance before I put a dime down.

gldskr · #9 05-23-2007, 07:32 PM

ND

Why do you keep calling Codee Fossil?

Quote:

Originally Posted by ND

gldskr, unless Fossil can get a mortgage that will cover whatever the outstanding mortgages are, and that is assuming the property is worth that, then he is in a bad place. In this instance, I am betting that the landlord has already spent the deposit, has probably defaulted on the first, and may have other liabilities hanging out there. Fossil’s contract means diddly unless he can either pay off the other mortgages, or the lenders would rather let someone take it over rather than have to foreclose, worth a try, you never know. If I were buying the property I would want a good title search and really good title insurance before I put a dime down.

Apparently you don't understand how contracts work. A mortgage is a contract. Just because it says "mortgage" doesn't magically give it superior standing. The lease option is subordinate to the first mortgage only. Although the details of the contract have not been provided I can only assume that he determined the equity to be sufficient to secure his deposit. Only a moron would put down 20K otherwise.

It is the second mortgagee who the fraud was commited against. He is the one who is SOL and will have to sue the seller. The title company is liable only for encumbrances of record. So if the lease/option was recorded the title company would know about it and the second mortgagee would be aware of their third place standing. They make the mortgage subject to the lease/option. If the lease /option was not recorded, it still has superior standing over the second, but the title company is indemnified from its effect.

Codee's 20k is still secure.

BTW, what is good title insurance, aren't they all the same?

gldskr

Fossil Rock · #10 05-24-2007, 12:59 AM

Quote:

Originally Posted by gldskr

Why do you keep calling Codee Fossil?

Why are you referring to me as Codee ?

Ok, a little clarification is required here.

The owner did not get a second mortgage, he refinanced for a higher amount, about $50,000 more (he skimmed $50k of equity out).

A title search would not have turned up my contract, I did not record it. But it is(was) in fact valid before he refinanced.

Quote:

Originally Posted by gldskr

I can only assume that he determined the equity to be sufficient to secure his deposit. Only a moron would put down 20K otherwise.

When I signed the contract the real-estate market was high, shortly there after it started dropping. I got into the contract as an investment, thus I was in a very good position to begin with but have lost or am losing ground now that the market is falling.

The reason for my 'private settlement agreement' is to make a new contract thus nullifying any prior contract and making it work in my favor.

If I am in first place in regards to the new mortgage, where does that leave me? I'm not in a position to get a mortgage at this time. I would like to tie up the property until I have my money back or compensated to my satisfaction.