What Forms Are Required

[Gene 0]

I agree with Kim.

 

It is very clear that you are assigning everything the way Michael has the CA Assignment written.

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Sold:

 

I was not disagreeing with Kim; I just do it somewhat different. Don’t let the paperwork structure your deal. Make the paperwork fit what needs to get done. I do however, use Michael’s paperwork.

 

Let me explain why I do it this way. In my first deal the owner insisted on getting some sort of security deposit. The amount was $500.00. After talking with Michael we decided that it would be best to just give this to the owner as an option consideration and be done with it. I don't think any owner would object to this. It might even get you a reference down the line. Now, when it came to the paperwork, the $500 is in the option agreement as follows.

 

3. OPTION CONSIDERATION: Tenant/Optionee will pay Seller/Optionor as nonrefundable option consideration $500.00_______________ for the above property and it will apply in full to the purchase price if the option is exercised. This option consideration is due on or before ___July 30, 2004_______. If the option to purchase is not exercised, for any reason, there will be no refund of any option consideration.

 

You will notice that the option consideration is a deduction to the purchase price.

 

Now look at the assignment agreement:

 

_________Gene__ (hereinafter, “Assignor”), the Buyer/Tenant under an Option To Purchase Agreement dated July 14th, 2004 (hereinafter, “Agreement”), by and between Assignor and _Motivated Seller_, (hereinafter, “Seller”), hereby assigns all right, title and interest in said agreement to ____Tammy Tennant Buyer_______________, (hereinafter, “Assignee”) and ___Manuel tenant buyer__________, (hereinafter, “Assignee”), for the sum and consideration of $2,500.00_______________ to be received by Assignor. Any assignment fee paid shall be considered option consideration and will be credited in full towards the purchase price of the subject property as specified in the attached Option to Purchase Agreement. This option consideration will be in addition to the option consideration outlined in paragraph 3 (Option Consideration) of the attached Option to Purchase Agreement. The property address is:

 

You will notice that the option consideration in this agreement is also a deduction to the purchase price.

 

$3000.00 is what the T/B agreed to give as an option consideration. If I would have put that amount in one assignment agreement, then the deduction from the purchase price would equal $3500. That is $500 more than the seller is expecting and would result in his net being reduced by that same amount. So I used the above assignment and one additional shown below.

 

__________Gene_ (hereinafter, “Assignor”), the Buyer/Tenant under a Residential Lease Agreement dated July 14th, 2004 (hereinafter, “Agreement”), by and between Assignor and _Motivated Seller_, (hereinafter, “Seller”), hereby assigns all right, title and interest in said agreement to __Tammie Tennant Buyer___________, (hereinafter, “Assignee”) and ___Manuel Tenant Buyer________, (hereinafter, “Assignee”), for the nonrefundable sum and consideration of $500.00____________ to be received by Assignor.

 

This gets me the other $500 that I now pay the seller to satisfy his option consideration outlined in the option to purchase agreement. I felt that it was much easier to explain what was going on to all parties concerned. I also hope that when the purchase happens this will be easy for the person who writes the agreement to purchase. I know there is more than one way to skin a cat. I believe that this is a good way to get the seller his money and not confuse what is and is not an option consideration.

 

Gene

[Craig 0]

[it really doesn't have to be a problem unless I make it a problem by not disclosing this to them upfront.

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I fully disclosed how I was being paid. The owner had no problem what so ever with this. After all this is a service to him.

 

Also another point. In NY, when I talked to the attorney about leasing with option contracts she keep asking me if I fully disclosed what I was doing with the client. It seems if you are trying to do a deal by not fully disclosing or hiding the intent it might be considered as a shady deal. Or misrepresenting the deal.

 

After reviewing other option contracts I liked Michaels because they are clear and right to the point. They don't contain lots of legal BS which you need a attorney to understand the contract.

Edited January 5, 2005 by Craig

[Sold ! 0]

The NET referred to in the Letter is that the purchase price IS the purchase price -- there isn't anything (Agent Commissions, Closing Costs) to be deducted from it.

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Huh?

 

Let's say:

Purchase price = $215K in 12 months.

 

You WOULD have to deduct rent credits and option consideration received from the TB from the $215K purchase price to get the NET to the seller.

 

Unless, of course, you are putting 'zero's' in the blanks for rent credit and option consideration and givng the seller the true net before you work you magic.

 

Which is it?

[Kimberly 0]

The Letter and Short Offer Form are designed for Sandwich Lease Options -- motivated sellers. Typically you aren't asking for Rent Credits, you're trying for their lowest price. Ideally, you aren't giving Option Consideration either. Now IF for whatever reason, you are going to be getting Rent Credits or providing any Option Money, you'd want to be sure it was very clear. In that case I'd add in another line to make it a little clearer. (You'd have the Option Price & a line showing NET to the seller.)

[Sold ! 0]

Gotcha.

 

I'm focusing on CA's. That's why the question.

 

Thanks,

[Brian - L.V. 0]

The Letter and Short Offer Form are designed for Sandwich Lease Options -- motivated sellers. Typically you aren't asking for Rent Credits, you're trying for their lowest price. Ideally, you aren't giving Option Consideration either. Now IF for whatever reason, you are going to be getting Rent Credits or providing any Option Money, you'd want to be sure it was very clear. In that case I'd add in another line to make it a little clearer. (You'd have the Option Price & a line showing NET to the seller.)

 

Thanks Kimberly. That makes complete sense now. Generally I'm leaning towards CA's since I'm new, but I've found a few really motivated sellers that I'd like to SLO their property.

 

With a SLO, I should be trying to get a 2 year (at least 18 month) option in case the first t/b doesn't buy, correct? If someone says no to your offer (SLO), do you have a good way to transition into doing a CA? Thanks!

[Kimberly 0]

With a SLO, I should be trying to get a 2 year (at least 18 month) option in case the first t/b doesn't buy, correct? If someone says no to your offer (SLO), do you have a good way to transition into doing a CA? Thanks!

Try for 3+ years. 18 months is way to short.

 

A seller willing to do a SLO is motivated, they've gotta sell for whatever reason. A seller willing to do a CA doesn't have to be as motivated. On a SLO you're looking for a good deal NOT top of the market price (unless your market has really good appreciation). Get a feel for your sellers motivation, then decide if a SLO or CA is best.

[Brian - L.V. 0]

Another paperwork question: In the residential lease with option to purchase agreement (slo), there a space for the seller to disclose the lienholder and amount. Why would we need to know the amount? I also get them to sign the release of information form so I can verify that the payments are being kept current, correct?

 

With a slo, we'd sign a lease w/purchase option(2), memo of option(1), and the release of information forms(1), correct? Am I missing anything, contracts/amounts?

[MichaelC 160]

Another paperwork question: In the residential lease with option to purchase agreement (slo), there a space for the seller to disclose the lienholder and amount. Why would we need to know the amount? I also get them to sign the release of information form so I can verify that the payments are being kept current, correct?

That is there to help protect you. The more specifics we have in writing, the better off we are. I want in writing the homeowner to say that he has a first mortgage of $150K. Let's assume our t/b exercises their option to purchase, and it turns out the crafty owner actually had a first of $185K and a second of $25K. Well, when the lawsuits start flying around, I want to cover my backside as best I can. Not to scare you, but it's just one more safety net in place in the event we need it. And, yes, the Release of Info form allows you to verify these things, too.

With a slo, we'd sign a lease w/purchase option(2), memo of option(1), and the release of information forms(1), correct?

Correct.

And other thing from an earlier post in this thread, Brian. The Short Offer Form is used by me only for making offers for a sandwich lease, as Kim mentioned. I just want to be sure you're clear on this. If I'm structuring a CA, I'm a lot more informal in my approach.

[Akinwale 0]

Another paperwork question: In the residential lease with option to purchase agreement (slo), there a space for the seller to disclose the lienholder and amount. Why would we need to know the amount? I also get them to sign the release of information form so I can verify that the payments are being kept current, correct?

That is there to help protect you. The more specifics we have in writing, the better off we are. I want in writing the homeowner to say that he has a first mortgage of $150K. Let's assume our t/b exercises their option to purchase, and it turns out the crafty owner actually had a first of $185K and a second of $25K. Well, when the lawsuits start flying around, I want to cover my backside as best I can. Not to scare you, but it's just one more safety net in place in the event we need it. And, yes, the Release of Info form allows you to verify these things, too.

With a slo, we'd sign a lease w/purchase option(2), memo of option(1), and the release of information forms(1), correct?

Correct.

And other thing from an earlier post in this thread, Brian. The Short Offer Form is used by me only for making offers for a sandwich lease, as Kim mentioned. I just want to be sure you're clear on this. If I'm structuring a CA, I'm a lot more informal in my approach.

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Not to sound dumbfounded...But before we enter into a SLA with a homeowner, we should verify all this info prior to signing any agreements. (verify first mortgage balance, second.., are payments being kept up, etc.)???

 

Or do we sign the agreements (lease/option), get the authorization agreement signed, check out the info, and if there is something that raises a red flag, just use our cancellation clause to get out of the deal...???

 

Thanks,

 

AKin

[Akinwale 0]

Tony,

Good point.  Here's the issue.  This needs to be changed to be geared towards MC's contracts.  I think I'm making this harder for everyone because of the way I do CAs.  This contract would be null and void the second the assignment contract was signed with my technique.  It would be replaced by a new option tp purchase that lacked this verbiage.

 

So, let's word it for MC's contracts shall we?  I'll give you the first shot.

I'll do my best to contribute from there.

Adam

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CHARGE THE OWNERS - I like the cancellation clause the Kim uses. I also use something like this in all my contracts. I dont even give the owner an option. I will take $2500 anyday if the owner wants to find someone on their own.

 

Akin

[MichaelC 160]

Not to sound dumbfounded...But before we enter into a SLA with a homeowner, we should verify all this info prior to signing any agreements. (verify first mortgage balance, second.., are payments being kept up, etc.)???

 

Or do we sign the agreements (lease/option), get the authorization agreement signed, check out the info, and if there is something that raises a red flag, just use our cancellation clause to get out of the deal...???

 

Thanks,

 

AKin

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There are two schools of thought on this. Get the property under control first, then finalize those pesky details you mentioned. If it turns out there is an issue or two you won't or can't deal with, we always have an out or two to fall back on.

Or, do all of your due diligence first, then sign on the dotted line after all seems fine. Of course, until the deal is signed, it ain't a deal, and someone could come along and make their move on it. Use your good judgement, Akin.