L/O on foreclosing properties

I have 2 questions:

  1. If you set up a lease option agreement w/ an owner on a foreclosed property (or property going into foreclosure) and then over period of the contract, the owner runs into financial problems on another front; can any liens be put on the property if the option has been offically recorded… In summary, could i be liable for any liens upon exercising my option ? (assuming I bring all bills current prior to developing the contract)

  2. What is the downside risks associated with lease options?

Thanks a lot for all your input… This website has really helped me out and is one of the best REI sites on the net! Thanks again!

Howdy RCL:

The title to property of any type of agreement that does not transfer title could be affected by the financial conditions of the seller. You would have an agreement with the seller that they would be responsible but that would be worthless in a BK courtroom, or you would get a judgement and still be unable to collect and have spent thousands on an attorney.

This is one of the big downsides to L/O. Another is the short notice it takes to cancel the deal. With a deed it takes months to declare default and then to actually foreclose giving you more time to cure the default or find a buyer, etc. With the L/O you would have a lot shorter time.

You would not actually be liable for liens against the property but you may have to pay them if you want to exercise the option and buy the property. You would get credit off the sellers equity but if they have no equity then the money would come from you. You would have the option to walk away without liability. You could hardly be in breach of contract if their financial difficulties caused the breach in the first place.

Another problem is if the seller decides to change their mind and not sell you the property. Then you end up in court again trying to get the deed. Thousands more in attorney fees.

L/O can be a good deal but some of the above could cause problems. Some gurus do not explain all the in their books and classes and TV ads. They promise fame and fortune and big cars and etc. with little risk and or work. It ain’t easy but it can be done and with L/O there is less of an investment to control the deal.

Hope this sheds some light on your questions.

Do not lease option this property. Do sub 2 or just buy it normally.