Avoiding The "Equitable Mortgage"

General Real Estate Investing
1

Tenant/buyers who default on a lease/option do not always go away quietly. Sometimes, they fight the eviction and go into court kicking and screaming, “I HAVE AN EQUITABLE INTEREST IN THE PROPERTY.” What they are arguing is that the lease/option is not a landlord/tenant relationship, but rather a seller/buyer relationship. If the Judge agrees, your lease/option is “re-characterized” as an installment land contract. This may require you to foreclose the tenant, not just evict him.

I’ve read to avoid this use separate agreements. Give your tenant a lease and a separate option agreement. Make certain the lease does not refer to the option.
I have not been able to find a pure Option Agreement that doesn’t convey which real property is the subject of that certain Residential Lease.

Anyone have some recommendations on this? I am not savey enough to attempt rewording a L/O agreement to a pure Option and how can the Option agreement be protected if the Lease Agreement (Tenant/Buyer) failes to meet the lease requirment. Simply put, if my tenant buyer drops the ball on their lease how do I make the Option Agreement null and void?

2

JoDa,

You might get Alex Gurevich’s book [/u]Supercharge Your Cash Flow.[u] It has examples of the forms you are looking for.

Wilson

3

I don’t really feel qualified to give a reply, as I’m not a seasoned investor, but I’m in the midst of doing my first lease option. And I can tell you this, my attorney looked over my forms, and on my “Option to Purchase” form he had me add “Option can only be exercised if buyers are not in default of the lease.”
I hope this helps some!!!

4

Why would you give a Tenant/Buyer any reason to think they have Equitable Title. What tenant knows how to spell it.

Don’t give an option up front. That gives the equitable title issue a place to fester.

Have a Contract for Option. It does NOT give equitable title. Its a contract. Not a right to title. ie Option. If they don’t perform on the contract, you don’t give them the option later.

If you are getting your Options on the Internet, you are asking for trouble. Have one drawn up for you that does exactly what you want. Don’t use someone elses form just because its cheap or convenient.

Do things on purpose.