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I had an interesting question come up in a discussion with another investor.
I am putting together a deal that includes a recorded option to purchase property at any time over the next 2 years at a pre-determined price. My question is, what if the Optionor/Seller fails to perform when it comes time for me to exercise my option?
Does this become a civil court matter because this is a contract dispute or with a recorded Option as a Security Instrument, do I have the ability to initiate a foreclosure procedure?
Thanks in advance for any help,
I myself, utilize the option, especially now as an owner of my properties. Because the rentals have gave me a lot of gray hair, they paid for themselves and ultimately now,
I have written an installment contract for option, this is an instrument that I use and have used for years, dispensing and giving to others. The right to purchase, the agreement never recorded in the reason is simple. I never want to have to go through foreclosure.
The option is a unilateral contract, and if they underperform and do not deliver, as the purchaser I simply execute the occupancy agreement through Municipal Court and they are removed from the property.
In your situation. I think what you want to do, I might be wrong, but you want to secure your interest in the option at a high strike price for your benefit, and execute a deed of trust and record that.
I am not sure I would have an attorney assist.
One of my properties I have sold on option four times three of those executed and we rolled the option into a buyer seller agreement, and those three failed ultimately.
The fourth one. Unfortunately passed away, and so now having that property back, I will do you the same thing once again.
Options are the real way to go!
Jack Baby was the king of options and when she discovered options. He himself turned in his real estate license, he needed not for somebody else, but instead structure is on transaction for his benefit?
One night at one of the classes, I during that class asking some very difficult questions and he looked me up and came to my room and said you know I wanted to answer your question, but it would turn the room upside down and on the whole thing off of kilter!
Jack and I went to dinner and is it you got one hell of a good idea.
So what I do is sell properties that I own, they are all owned free and clear good clean clear title and each is an individual separate trust. This is simply to protect me and those properties as well as other items that I have..
In the contract for option agreement. It states that it is a unilateral contract. This is truly what an option here, are not affected the same as a sales contract are carried financing.
With an option, you write the rules, and between yourself and your optionee/buyer, you together can construct a transaction that is beneficial to both parties
With the options we hold, we secure them to the target property via a Security Deed (Deed of Trust). Deeds of Trust are used in NON-judicial foreclosure states, while Mortgages are used in judicial foreclosure states.
Deeds of Trust and Mortgages secure promises…any kind of promise. An option is a promise. A promissory note is a promise. A purchase and sale agreement is a promise.
Think of a note given to Bank of America that’s secured to a property via a Deed of Trust or Mortgage. If the borrower fails to pay, the lender first calls the promise due. In the case of a note, the full amount owed to the lender. If the borrower fails to pay the amount owed, because the secured collateral is what stands behind the promise, the lender is left with no other choice but to foreclose…meaning the lender (promisee) acquires title to property that was the collateral for the promise, which in this case is a loan of money.
Take it one step further. Make the promise a purchase option. Same applies. If the optionor (giver of the option) fails to give title as promised, the optionee (getter of the option) has the right to call the option due. If title is still not given, the optionee has the right to foreclosure and take title to the property.
Hope this helps.
This is a great explanation Bill – exactly what I was looking for. Thank you.
Execute all of your documents beforehand and put them into escrow.
In most states, a closing can be escrowed. The question is, for how long?
In Georgia, my long-time real estate attorney, Lee Perkins, following Georgia law, refuses to do a long-term escrow closing. He said it’s a “stale deed.”.
Because Jack regularly mentioned “closing in escrow” when he taught, Lee had to spend about an hour with me explain why Jack’s advice would not work in Georgia. Once explained, I understood, and quit trying to do long-term escrow closings.
What do we do instead? The seller puts his/her home into a Title Holding Trust (Land Trust). A trustee who we both trust is selected. The seller, who is the beneficiary, gives the trustee an irrevocable letter of direction. The direction directs the trustee to, ONCE I PERFORM AND DO WHAT I PROMISED, transfer beneficial interest from the seller to me. I then direct the trustee to transfer the title to the property (the deed) to me (or whichever entity we’re using to take title.)
We’re able to accomplish the same thing as does a long-term escrow closing, but do it with fresh signatures.
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