When Can The Lease Option Be Put Into A Trust?

There is nothing like real life examples and learning from other real estate investors.  Lease-Options are common in today's market and I recently was contacted by Craig W. with this very question regarding his real estate business partner, lease options, trusts and mortgage note recordings.  I wanted to share our exchange so that you can learn more real estate investing tips when it comes to dealing with Land Trusts or Real Estate Trusts.

Land Trust Discussion Questions – Part 1

Craig W, asked the following: “When doing  a Lease Option when is this converted into a Land Trust? Reason why I am asking, doesn't the Lease Option open the doors for a lawsuit to any party involved in the contract? Therefore wouldn't one want to but this into a trust ASAP?

My partner prefers doing a land trust from the start because the less legal risk involved vs a Lease Option risk. On the other hand I have a very hard time selling the idea of the Land Trust because they give up the name on the deed.  The two edge sword.

My Land Trust Expert Reply

I understand your frustration. It does take some educating to get the seller to comply. Start by telling the seller:

• “Look, Bob, I don't know you and you don't know me so, to protect both of our interests let's put the property into a land trust (with you as beneficiary) and then structure our option agreement around the land trust.”

Whether you use a land trust or not, be sure to record your option and a mortgage to protect your option interest for a real belt and suspenders approach to options.

Land Trust & Mortgage Recording Questions – Part 2

Craig responded with : “I understand your recording the option but please explain the the Mortgage end of the statement above. My partner always makes sure a separate bank account is used for each property to protect any due on sale clause. Is this what your referring to?”

My Land Trust Expert Reply

The mortgage gives you more security. For example, an option can be destroyed by bankruptcy of the current owner (even though you have recorded your option). The mortgage would be additional security for your option and you should record it for what you estimate the value of the option is to you!