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Regarding my lease option contract with landlord/buyer?
A realtor told me that the landlord/seller is in violation by selling the house to me as a lease option while still holding a mortgage on the property. I also found out that the county assessor considers this property owner occupied - meaning by him - when I am the one actually living there. Is our agreement legal or is he in violation? If this causes him to "toss me out" as you said, then I'd better be getting my option money back. I'm not the one violating anything.
Public Comments
- he is probably in violation, but It would seem the quickest fix (should you push the issue) would be to toss you out of the house. Are you sure you want to bring this up?
- That's not illegal, but a risk for you. If, during the lease period, he doesn't make the mortgage payments, it could go into foreclosure. If/when you decide to exercise the option to purchase, you should hire a title insurance company to search the title and make sure the seller can convey "marketable and insurable" title. Your lease/purchase agreement should include the purchase price, what portion, if any, of the lease payments are credited towards the purchase price, and who pays closing costs; transfer tax, recording, title insurance, etc. It's the owner's responsibility to notify the county assessor it is no longer owner occupied. realtor.sailor
- The Realtor doesn't know what he/she is talking about. I'm a Realtor and a real estate investor. There's no problem for an owner to lease-option a property on which he/she still has a mortgage. Most lease-options are on properties with existing mortgages. It's possible the Realtor was saying that the lease-option would violate the lender's "due on sale clause." Maybe, but so what? I'm not a lawyer, so this isn't legal advice. However.... The existing mortgage likely has a "due on sale clause" giving the lender the right to call the mortgage if there's a transfer of equitable interest. First, it's debatable whether a lease-option represents a transfer of equitable interest. However, let's say it does. With all the foreclosures and short sales going on nowadays, how many lenders are really going to move to foreclose on a property on which the payments are being made in full and on time? Really, pretty few. Second, if the lender still objects, in most cases the lender will offer a variety of options, including a refinancing of the loan into your name. But even a few years ago, few lenders minded so long as the payments come in on time. In today's market...well, c'mon! As for the property being listed as owner-occupied, that's between your landlord/seller and the tax authorities. Yes, it should be listed as "absentee owner." Your lessor/seller probably is getting a tax break by listing the property as owner-occupied. If he's caught, the tax authority may require him to make up the difference between what he did pay and what he should have paid, along with penalties and interest. Very worst case scenario: If he fails to pay his property taxes, the county could place a lien on the property and, if he still refused to pay, sell it at tax auction. Odds of that are very slim, but it is a possibility. Is your agreement legal? That depends on what the agreement provides. It certainly remains legal even if there's a mortgage on the property. The mortgage doesn't affect the legality of your lease-option. Is he in violation of your agreement? Again, that depends on what he's committed to in your agreement. But nothing you've described above indicates a violation. Hopefully, you had a real estate lawyer review your documents. If not, that should be done now. But you haven't described anything here that indicates a problem. Hope that helps.
- realtor is correct. The last thing you want to do is let this option to last more than 24 months in any event. Also always pay by CHECK ONLY as you will need a paper trail of payments for an underwriter to see as rental history
