Sm. sec. dep; bankrupt owner

[tanyikaj 0]

I have a few questions on doing lease options that I'm a little unclear on:

1.) What happens to my t/b if my owner goes into bankruptcy?

2.) Am I legally covered (in MD) if I only take say, $100 for security deposit vs. a full months rent for security? Might a judge still see that I'm dealing with a tenant vs. a buyer with such a small security deposit?

Thanks!

[MichaelC 160]

We just had a similar question regarding a homeowner filing BK while you are in a sandwich lease. For starters, you can read this.

There are steps we can take to minimize this possibility. Start with verification that all existing loans are current. Make payments directly. Don't give that control to the homeowner. Doing this will reduce the likelihood greatly that a BK will rear its ugly head. Should one still occur, you have several options. Bring the loan current yourself and have in your agreement that in so doing you shall be credited on a two for one or three for one basis. I do.

Or, exercise your option early if you can qualify and be done with the homeowner.

Also, offer a discount to your t/b and try to get them to exercise their option early.

With cool heads prevailing and some cooperation from all corners, a workable solution can be had.

As for collecting a small deposit, I don't bother myself. I understand the reasoning behind such a move. That tenants pay deposits; owners don't. Therefore, if the tenant/buyer needs to be evicted, their claim that they have an option and are therefore actually owners rather than tenants is weakened by their having paid you that security deposit.

As I say, I understand the reason for doing so. But, I haven't seen the need to do so. And should this come up in court, and you have a liberal judge who views the tenants as victims of some fat cat investor, do you really think that $100 is going to make a difference?

Again, do the deal right, have some strong paperwork on your side, and this issue should be an uncommon occurence in your career.