Posted by Steve Schmidt on July 25, 1997 at 13:04:49:
Originally submitted by Steve Schmidt in 1996
MUST READ -- BEFORE you get into a Lease Option!
Wished more Readers would take the time to help others learn from their mistakes. Thanks Steve!
Submitted by Steve Schmidt
Hello fellow investors.
This is a true story that happened to me. A friend of mine read this and told me that you may find the information helpful. If it
can help any of you to stay out of trouble, well here goes.
Sit back and relax. This story took over a year to unwind.
It was someone my wife knew. A manager at the other pizza place, not a friend. They came to her several times to sell her their
house. They wanted to go to Arizona. She wanted to go look at it and then she told me the price. $74,000. It was an $80-90k
neighborhood. Now I too wanted to look at it. They wanted $6,000 down and assume FHA. $2,000 up front and $4,000 in
the form of a note (2nd mtg.) We looked and the place was a dump. It needed carpets, paint and landscaping. No serious
damage though, so we went for it.
Well we did a lease option: $1,000 option money 100% applied to price (1st mistake) and moved in to fix the place up (2nd
mistake). We had to do a lease option because we were broke. We had a lease option on another home that we had been
living in for about 9 months. A beautiful 3000 sqft., not quite custom, but nice. We could keep either one and didn't have
enough money to repair the dump to sell it, so we flipped the 3000 sqft.(double closing).
Readers digest version:
We moved into the dump. We started repairs, slowly, as I said, we were broke. When the option was about to expire I got a
30 day extension. We tried for another 30 day extension a month later, but the seller said no. I told her OK, we'd close on
Sept. 9th (as per our extension agreement). A couple of days before I called the title company to find out how much I needed
to bring to the closing. They said they had never received the papers from the seller, but if they got them right away we could
still close on the 9th. I called the seller and had the papers sent. A couple of days later the title co. called me and said that even
though they received the papers from the seller, they couldn't get the assumption papers by the 9th and we'd have to extend. I
called the seller and we set a date, verbally, for a week later (third and worst mistake).
That's when the shit hit the fan. The seller decided they were going to sell to a real-estate broker. The broker's RE company
held a second on the property and he picked up on the delay of closing.
Somehow, I wonder how, the seller found out that I had foreclosures on my credit file. She had no intention of selling to me
after that. Even if I got her all cash at closing for her equity.
Side Note: We had worked for well over a year. We had VISA and a couple of other accounts. A mtg. co. was going to give
us a loan on our other house. Our credit was looking great. There is hope for people with foreclosures.
We went to a lawyer and recorded our contract against the property as we were instructed. The broker bought the house
anyway. The title company issued a policy subject to our recorded contract (now a lien). Our first lawyer couldn't help us as the
RE co. was Re-Max and they did a lot business with them.
We found another lawyer and farted around for about a year before they gave up. We ended up signing the property over to
the other side. We were out of money. Funny how the lawyer was excited about our chances at the beginning.
Our lawyers reasoning was: Right after the closing date I talked with the seller to try and save the deal. I said we can work this
out. We talked about other ways to do it. She said "write it up 3 or 4 different ways and send it to me. I'll have someone that
knows more than I do look at it". I agreed. That meant we didn't have a contract any longer, at least that's what the lawyer tried
to tell us. B u l l s h i t. But now I'll never know what the judge would have said.
These are a few of the rules that I have adopted for future use.
1.) Show up at all closing dates, whether the seller will or not. Seems the title co. did get and have all the paperwork on the
original closing date. Everyone wanted to know why I didn't show up. It doesn't make a damn difference that the seller didn't
show up. Titles companies should go right along with lawyers. They'll tell the truth that fits the set of facts they want to use at the
time. They told my first lawyer a completely different story than they told my second lawyer. Seems Re-Max does a lot of
business with title companies also.;-)
2.) Lease options are OK, but if push comes to shove you may still have to go to court to get the property in your name.
3.) Next time instead of moving into the dump, I'll flip the dump and use the money as a down on the nice house. I could have
brought in an elephant and got something for the dump, it was CHEAP. We didn't have the down on the nice house, that's part
of the reason we sold it. To this day, every time we drive by the nice house my wife still affectionately refers to it as her house.
4.) If anyone says we can't close on this date for any reason, file suit that day. In order to stand on specific performance, you
have to push HARD. I dealt my wife and four kids into a rental house. Next time I will be the one holding the bat beating the
hell out of them. Or at least I'll have the option to.
The only good note: That broker paid his lawyer at least $10,000 in our fight. Our lawyer willingly wrote off $12,000 in legal
fees. They were afraid of getting fined by the court for their screw ups (sanctions.)
But: Considering that the broker sold the property for $119,500 (paid $74,000) within a month, that's not much. :=(
It's funny, I have no problem finding great deals. I just have to get better at holding on to them.
Point of interest: I have all the paperwork from my lawyer (very large box). Many, many good notes. "Peter is getting tired of
Although I had no idea at the time, when we listed and sold the 3000 sqft. nice house, this broker was trying to stop the sale.
The people we bought it off were in contact with him and I guess he wanted the commission to re-sell it for them. I had other
plans for it. Maybe that's another good point?
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