Master lease + option protection

You must be logged in to reply to this topic.

Viewing 12 posts - 1 through 12 (of 12 total)
  • Posts
  • What, if any protections can we put in place when we do a master lease + option contract deal?

    What if the seller dies, disappears or becomes difficult once I am ready to execute the option contract? What items, clauses etc. can I implement to protect myself in the future when I am ready to exercise my option contract?


    Great question. Here’s what Kim and I do:

    When dealing with Master Leases and Options, especially if they are longer term (a year long or more), we secure the lease to the property via a Deed of Trust or Mortgage. We do the same with the Option. IMPORTANT: We are using one mortgage for the Master Lease and one mortgage for the Option.

    Expect pushback when you try to record a Deed of Trust or Mortgage securing a Lease or Option. Clerk of Courts probably has never seen this done before. That said, remember that Deeds of Trusts and Mortgages secure PROMISES, not just Promissory Notes.

    One last thing: Each state’s securing laws and documents are different and unique.

    Hope this helps.

    Bill Cook

    Bill. if you dont mind. im going to over share so you have all the info.

    master lease + option contract deal.

    – master lease for 1 year, auto renew for 2 additional years. (3 years total).
    – Option contract expires in 3 years, I can execute anytime within the 3 years.
    – warranty deed in escrow

    Additional information
    – seller has a mortgage on the property, since they are paying insurance and taxes during the master lease period, they want to continue with the morgage and will pay it off when I want to exercise the option. In our contract, I state that if any taxes, mortgages, liens etc are not paid off, then those amounts will be subtracted from the final payment in order for me to have ownership.

    I had a thought the other night. What if the seller dies, disappears or something crazy happens to them, how will I be able to close on the property when I want to execute the option? Im just trying to cover ALL potential hurdles and to protect myself.

    Is a deed of trust the same as a warranty deed?


    In lease, option and securing instruments, include “heirs and assigns.” The way you would do a note when lending.

    Also, check with you state about “Stale Deeds.” Because the Warranty Deed was signed, witnessed, notarized well BEFORE the transaction, it may be considered a stale deed in your state. It would be if the property were in Georgia. I did a good write up about stale deeds, including a letter from my attorney about such things, in my Power of Options on-line course.

    Bill Cook

    Thanks Bill. Ill bring this to my attorneys attention.

    Oh no!

    I brought that up with my lawyer and he replied with this ..

    Regarding the stale deed, I think that might present a big problem. Pennsylvania Statutes Title 21 Section 444 says the deed needs to be filed within 90 days of being executed. That means our plan to hold the warranty deed in escrow isn’t going to work unless you execute your option within the first 89 days. Does anyone in your group have suggestions of an alternative approach?

    If you can get the seller to deed the property into a grantors trust and then work with the beneficial interest in that trust you can get around the stale deed issue.

    Because I can’t hold a WD in escrow for long, my workaround is to have owner put property in a Title Holding Trust. The property owner is the beneficiary. The beneficiary gives an irrevocable letter of the direction to the trustee directing the trustee to deed the property from the trust to me via WD if I perform according to the trust.

    This way the trustee is at closing and putting fresh, wet, blue-ink signatures on all needed documents…including the Warranty Deed.

    Bill Cook

    Thanks everyone. I think asking the seller to go through all that is a big ask. Im already kinda walking on thin ice.

    I think my work around on this would be a standard lease to own contract. Getting the same end results as the master lease + option contract.

    Does anyone have any knowledge to share about exploring this direction?

    With the lease to own contract you have the same situation as original if the owner dies heirs do not obligate your sellers wishes. If you explain to the owners that they still own and control the property in the trust. You only get the property if everything is done by you as per agreed.

    Can this be done is there is a mortgage on the property already?

    Sorry for the late response. Many of us that do subject to purchases do this all the time. The property is deeded into a grantor trust by deed holder.

    Don Wede

Viewing 12 posts - 1 through 12 (of 12 total)

You must be logged in to reply to this topic.