Sketchy Seller, Lease Option Safe?

I want to buy this home worth about $40k. There’s a loan on it for around $40k and guy pays around $450/mo. We’ve been talking about me paying around $500/mo to him (and I could rent it for $700 or so). He’s really sketchy and I don’t trust him, however. He lie to me about what he pays, what it’s worth, etc (yet I can find all that out through public record, which I did, and he was like, “Yeah, I told you that because I want to make some money too.”

If I buy it sub-to, I’m safe, but he won’t do that because he doesn’t know that I’ll make the payments (understandable as he doesn’t know me). If I do a land contract/installment sale, I’m safe as well because my name’s on record. That violates his loan’s due on sale cause, I believe, but I don’t think he knows that (which would be good. I’d be sure to put such wording the contract, however, and mention it to him. He’s the type of guy who’s a know-it-all and it wouldn’t even register with him).

So, I want to buy this house, take care of it, rent it out, etc. That’s what I already do with a few homes. The problem is, however, if I do a LEASE OPTION, I get control and everything, HOWEVER, what if HE stops paying on the mortgage? What if he gets a judgement against him and that goes against the property as he’s still the owner of record? Sub-to or LC/installment would have me on record and 100% safe from whatever he may or may not do.

Thanks for the help, guys! I haven’t been on since before I had 0 houses, now I have 3! :biggrin

Why would you do a deal with a liar? If it starts out this way, it’s just gonna get worse.

The seller evidently has enough sophistication to know to pad his payments and his equity, but he is not an accountable professional.

I would pass, and I would NOT get into a lease/option arrangement with someone who demonstrates this level of “trickiness.”

If you insist, then you need a separate lease and a separate option agreement, and then record your ‘Notice of Lease’ and ‘Notice of Option’ against the property. Likely the seller won’t want to do this deal, if you tell him that you want to record your agreements.

Nonetheless, amateurs are unpredictable, you MUST protect yourself from them by recording your agreements.

Professional investors won’t let you record a lien in a L/O, or Land Contract (installment sale) agreement, but they’ll also have something to lose if they try to screw with you.

Hope that helps.


Did you actually ask the seller to do a sub2 deal?

Did you call it a “sub2” deal?

Why wouldn’t the seller trust you with a sub2 deal?

Haven’t you shown him the deals you’ve done, and offered him testimonials and references regarding your character?

How about showing a financial statement listing the houses you already own?

How about your professional relationships in the community?

Are there professionals you’ve dealt with that would vouch for your reliability and trustworthiness?

You need these things in your tool belt so that you can negotiate profitable deals.

Notwithstanding, how you frame both your offers and yourself makes all the difference in how effective you are in closing on creatively financed deals.


Thanks for the reply. No, I would prefer not to do the deal with him, but unfortunately I’ve been having trouble finding not only decent houses, but motivated sellers. I live in a very segregated city where 40% of the homes are in an unsafe neighborhood and 40% are too expensive. I want the median because the higher homes don’t rent for much more yet I have to pay a lot more. And the nice ones for sale actually attract cash buyers & not a bum like me looking to only put a small amount down. So, I’m dealing with this guy :frowning:

You said, “Professional investors won’t let you record a lien in a L/O, or Land Contract (installment sale) agreement, but they’ll also have something to lose if they try to screw with you.” Can you explain more? I don’t quite understand the wording.

And, if I record a lease and then record the option to buy, if this guy gets a judgement against him, you’re saying it won’t attach to the house? I’m not concerned about DOS clauses (nor will he be, but I’m honest so I’ll tell him), but just out of curiosity, does that affect it?

Thanks again!

Oh, BTW, at first he actually did suggest not recording anything. I was like, “Uhhh, no.”

Well, this of course is a generalization… because not all professionals insist on ‘not’ recording anything. It’s just that a recordation of a lien now clouds the seller’s title, and without the tenant/buyer’s cooperation, after a default/abandonment of the lease/option, the professional has to go to court to remove the lien.

That doesn’t mean a professional seller can’t hold a tenant/buyer’s notarized ‘release of lien’ and record it when appropriate (after a default/abandonment of the l/o).

Meanwhile, the professionals depend on their reputation as a major selling and negotiation leverage in closing on deals. If they get a reputation for cheating people, the world becomes VERY small, if not less profitable for them.

On the other hand, the one-off amateurs will cheat, steal and connive, and do it all with barely one wit of concern over their reputation.

If you record a notice of agreement, it becomes senior to any subsequent liens or judgments (except IRS liens, or property tax liens). The seller must satisfy the judgment and deliver the property to you, if you decide to exercise your option. Meantime, it stops the seller from encumbering the property during your option period.

The DOSC does not become an option simply because a notice of agreement/option/lease has been recorded.

Why would you discuss/mention the DOSC option? This is really not a good negotiating gambit.

This is irrelevant, unless you’re a credit risk, and/or the seller thinks you are.

Otherwise, it’s like going on a date and asking the girl, “Can you see the yellow, pussy infection in my mouth? I’m sure it’s really nothing to worry about, but I just thought you should know about it, before we kiss.”

Well, your ‘date’ is now ‘over,’ whether you realize it, or not.

I think I’m confusing your definition of “professional.” Are you talking about professional scammers?

So, if the OPTION is recorded, when it’s time for me to exercise my option, what happens if there’s a lien against the property based on something he’s done? I…go to court and get it removed from the house and attached to him?

I like how I can do a land contract, record it, have it in MY name, not have any liens go against it, and pretty much be safe. Yes, I shouldn’t tell him about the DOSC. I just feel like I should disclose it, even if he is sketchy. Hmm

Well, I’m going to go ahead and do this deal. He knows that if we record the LAND CONTRACT (better for me than lease option) that the back might get mad, but he doesn’t seem to care. If they do find out and call it due, then I lose it. But, if I RECORD THE OPTION, couldn’t they find out and call that a sale as well? Would a recorded option be better than a recorded land contract for me?

I’m going to go to the lawyer to write this one up and pay for title insurance because I don’t trust him. After that, shouldn’t I be safe? And if he stops paying on his mortgage, won’t I be contacted and have the right to protect my interest?