Jump to content
The forums have been archived and are now read only. Years of great info saved for your reading pleasure. Thank you! Visit us on Facebook: https://www.facebook.com/NakedInvestor/ ×
The Naked Investor Forums
randian

Lease Options in Texas

Recommended Posts

I'm curious what other investors are doing for workarounds in their contracts. I have a few ideas, but I'm not sure they're workable.

 

1) Don't give the T/B an option, give them a Right of First Refusal. LeaseOptionKing likes this strategy. The issue I see is that the T/B doesn't actually have any enforceable right to buy, and failure to disclose that could be construed as a Deceptive Business Practice, which in Texas is a horrible set of laws you don't want to run afoul of. Naturally, disclosing that is hardly likely to get your T/B to say yes to the deal. Your ROFR could specify that the owner must sell on a date certain, thus allowing you to exercise the ROFR at that time, but other than not having control over the timing of acquisition there's no real difference between that and a proper option, and intelligent opposing counsel will claim exactly that.

 

2) Rather than giving the T/B an option to buy real estate up front, give them an option to acquire a 60- or 90-day option to purchase real estate upon payment of some nominal fee. Therefore at no time during the lease, except during the 60 or 90 days after the "option to acquire option" is exercised, does the T/B have an option to acquire real property, and the transaction does not technically qualify as an executory contract according to Texas Property Code 5.062(a)(2). Even then, since the period of the executory contract is less than 180 days the onerous disclosure requirements of the TPC are avoided. I say "technically", because a judge could decide that the right to acquire an option is the same as actually having one for purposes of this section of the TPC.

Share this post


Link to post
Share on other sites

randian, I'm not in TX so I don't face the obstacles that the Lonestar State has thrown at investors out there. That said, John Jackson is the guy I would ask regarding paperwork and TX law.

Share this post


Link to post
Share on other sites

I did a post on TX lo's back..probably October/Nov 2005. I think I broke the law down by section. I'm sure the administrator of this forum could dig it up.

LO's in TX are kind of like me.... The rumors regarding size and intensity are faaaar bigger than the real deal...

Share this post


Link to post
Share on other sites
I did a post on TX lo's back..probably October/Nov 2005. I think I broke the law down by section. I'm sure the administrator of this forum could dig it up.

LO's in TX are kind of like me.... The rumors regarding size and intensity are faaaar bigger than the real deal...

I believe I read it. Nothing specific on how to avoid your contract being characterized under TX law as non-executory. Having read the law, it's clear that neither separating the contracts nor signing them at different times are effective as avoidance mechanisms (TX Property Code 5.062(a)(2)). Neither is restricting the exercise period, according to one lawyer I read: signing an option today whose exercise period doesn't start for 6 months isn't effective at getting you under the 180 day "no hassle" window, because the law requires delivery of a deed 180 days after signing ("180 days after final execution", TX Property Code 5.062-c), not 180 days after the first day you are eligible to purchase.

 

No comments on my proposed workarounds?

Share this post


Link to post
Share on other sites

The ROFR has been discussed before, but as for me, I just play by the rules and have our docs state what is required.

Our TX docs are 22 pages long by the way.

No biggie, though.

Share this post


Link to post
Share on other sites

Also, I don't do LO's for more than 3 years, hence, only certain sections apply, and 5.062 regarding deeding your house over does not apply to a LO less than 3 years. only 5.063-5.065 5.073 except for 5.073(a) (2) and 5.083 and 5.085.

Very simple, very easy.

Voila!!

I'm sure this breakdown of TX Code makes for good nightcap reading!

HA!

Where's Darin when you need some long drawn out drivel?

WHEEEE!!!!!!

Share this post


Link to post
Share on other sites

Michael.....

 

John's point that I luxuriate in overburdening a Realtor's occasional "Lease Option in Texas" argument with ostentatious erudition is a founded statement.

 

^_^

 

Darin

Share this post


Link to post
Share on other sites
Michael.....

 

John's point that I luxuriate in overburdening a Realtor's occasional "Lease Option in Texas" argument with ostentatious erudition is a founded statement.

 

:D

 

Darin

Say what?? ^_^;)

Share this post


Link to post
Share on other sites
Our TX docs are 22 pages long by the way.

Wow! The required disclosures are 5x as long as the contract. How much of a hindrance to getting the seller's buyin is all that verbiage?

Share this post


Link to post
Share on other sites
Also, I don't do LO's for more than 3 years, hence, only certain sections apply, and 5.062 regarding deeding your house over does not apply to a LO less than 3 years. only 5.063-5.065 5.073 except for 5.073(a) (2) and 5.083 and 5.085.

It looks like the only thing that affects the contract itself are the required disclosures and covenants for 5.085, though I'm not sure how you get actual consent from the lienholder to verify the loan for, or accept payments directly from, the TB under 5.085-b-3-C-ii.

 

It's also not clear if you can lease/option a home that has been refinanced or has a home improvement loan on it, given the requirement in 5.085-b-3 that the loan was "placed on the property by the seller prior to the execution of the contract in exchange for a loan used only to purchase the property". Obviously, refinance or home improvement loans were not used "only to purchase the property". It looks like lease/optioning such a property would be a per se violation of Texas Deceptive Practices statute according to 5.085-c, which contains extremely stiff penalties (refund of all payments of any kind, anybody?).

Share this post


Link to post
Share on other sites
Also, I don't do LO's for more than 3 years, hence, only certain sections apply, and 5.062 regarding deeding your house over does not apply to a LO less than 3 years. only 5.063-5.065 5.073 except for 5.073(a) (2) and 5.083 and 5.085.

Very simple, very easy.

Voila!!

I'm sure this breakdown of TX Code makes for good nightcap reading!

HA!

Where's Darin when you need some long drawn out drivel?

WHEEEE!!!!!!

 

As Pilot indicates, an LO of 3 yrs or less will pass most of the test. However, I fail to see how it passes 5.085 and that is a big enough one to kill the deal.

 

BTW - Great site with tons of info - Thanks.

Share this post


Link to post
Share on other sites

That's an easy thing to overcome.

The seller supplies the loan info, submits an Auth to Release to the lienholder.

We have the applicable disclosures in our docs, and sellers don't mind, only because I tell them it's the law, not ME trying to be nosey, and they get it, BUT, you have to be able to explain the law and why it's in place.

Once you do that, they get it.

However, I will say this to all investors wanting to do LO's in TX...

DON'T DO THEM!!!!

They are ILLEGAL!!!!

(OK....OK...the truth is, they are legal, but as long as other investors wont' do them I get more business...)

It's almost like the greatest thing that has happened for me!

Well...off to my spa day and avocado and cucumber facial.....

Share this post


Link to post
Share on other sites

×
×
  • Create New...