i finally understand the basics of this concept but where i am confused is the part where the memorandum of the option should be recorded. the investor should record that they have an option but what about the new tenant buyer?
Hello Kimesha,
To answer your question, THEY COULD… I think thats what your trying to get. Could the T/B Record the contract? sure why not? Its not going to hurt anything. What that does is protects them from YOU selling the house from under them… If I were a T/B who just signed a L/O contract, I would record it. Just for that purpose!!!
Hope that helps!!!
Good Luck and enjoy!!!
MONEY!!!
if both are recorded it avoids seasoning issues for you selling it and to your tenant/buyer. The tenant/Buyer may be able to qualify under a refinance/equity type loan with the help of a mortgage broker to take the option.
KEC
i’m sorry guys but i thought that once an option was recorded the first time that the title was cloude and it could’nt be recorded again for that same property? somebdy correct me if i’m misinformed
I do not allow my tenant buyers to record their option on my properties. I, of course, always record my option if I am buying through a L/O. I have it stated in my contract that they cannot record their option. I’ve only had 1 tenant buyer asked me why they could not record it. My answer is simple. I do not want their recording to hinder my closing with another tenant buyer should the first one move out. I don’t want anyone “forgetting” to remove their cloud on my property. This is just another way of protecting myself. You never know what some people can do just to be mean, if their dream of owning the home doesn’t work out.
Another reason for not recording an option is the possible legal implication. Recordered option, rent credits, maintenance resposibility could spell equitable interest. They claim equitable interest in their bankruptcy, divorce or other proceedings and you title and property is tied up.
I vote for that the option is void if recorded and it says so in my option.
I’m not sure if a T/B could even record a memo until they have decided to exercise the option to purchase. After all, with properly constructed contracts, they are only tenants (by the legal definition) until they notify you they want to exercise the option. Tenants do not enjoy the liberty of recording a memo on their rental property.
Additionally, in Indiana (I’m not sure about other states,) once a memo is recorded, the recorder must sign a quit claim to remove it. This could be sticky if your T/B is less than ethical in their dealings with you. (I know we all hope for better than that, but we play this game in the real world.)
This entire topic is yet another reason to make sure your lease and option to purchase are written up as separate contracts.