Lock in Your Position When Buying Lease OptionsBy Peter Conti |
If you are buying on a lease option, how do you protect yourself from the buyer backing out of the deal down the road? There are three ways for you to lock in your position: Or, if you're lazy, record your option itself down at the county recorders/land records office. This will put a cloud on the title, which makes it hard for the seller to sell or refinance. Notice I said "hard," not impossible. You still need to take steps two and three below. I have been guilty on deals of skipping steps two and three. It only cost me approximately $500,000! But you do what you want. As for me, I will always do steps two and three now. A mortgage/deed of trust is a security instrument that obligates one party on another agreement (usually a promissory note to a bank) or if second party defaults, first party gets to foreclose on the property. You can use a modified version of this form to secure your option. We've been doing this for years and it's worked well. While it's a gray zone whether or not you'll be able to foreclose on the seller should they not perform (different attorneys and judges in different states tell me different things), it is a great idea to do because it is a much stronger way to lock in your option. This means, the seller signs the Purchase Contract, the deed, the escrow/closing agent instructions, etc. We use fresh documents at closing if possible, but I would rather be on title with stale documents and have to clear up some title problems than to have it be the other way around. |