If you have a house, unused vacation home or rental property, you can use it to generate a good income for yourself besides a substantial savings on taxes. It is better in such cases to take the lease option route instead of selling it. Leasing the property is much more financially profitable than selling it outright. 

Advantages Of A Lease Option

• You secure the selling price while not having to pay any commission or advertisement charges on the property.
• You get an upfront option of part payment of up to twenty percent of the cost of the house.
• You receive monthly lease payment option.
• The maintenance and the repair costs of the leased property are borne by the leaser.
• You pay no capital tax till the property is sold off.

Ways To Protect Your Lease Options 
It is always better to protect your property lease option at the very outset of signing the deal. Some useful tips are:

Record The Lease Option:
It is always better to give public notice of your interest to the world by signing the lease option between the seller and the leaser in front of the public notary. This makes the document legal. After the signing of the lease option, notify the public real estate records office. Your copy of the record of the lease option with the public real estate records gives the document legality. If for any reason your lease option was not notarized, then make an affidavit called a ¡°memorandum of option,¡± sign it along with the seller, and file it in the real estate records office of the property zone. Filing of record of a lease option does not create a lien; it only creates a ¡°cloud¡± on the title.

Escrow The Deed
As soon as the lease option is signed, an escrow should be created up front in which a title company or a real estate attorney holds an executed deed. If for any reason, on completion of lease option time, your seller has died or disappeared, there will be a massive problem of getting the lease option deed signed. Once the documents have been filed with an escrow and you are ready to fulfill the lease option agreements, you can simply tender the requisite money to the escrow agent and collect the lease option deed on your name.

Record A Mortgage
A mortgage can be recorded to secure performance of any agreement, even a purchase option. It is recorded to secure payments on a promissory note. Once the lease option is recorded, the buyer becomes a lien holder, assuming the same position as a secured lender. Now if the seller refuses to sell his property or goes back on his word after signing the lease option deed, the leaser can foreclose. In this event, the seller takes refuge under the court to protect his interests rather than the leaser.

Tenant Buyer Who Defaults On A Lease Option Can Be Evicted By The Court Of Law
At times it can be ¡°re-characterized¡± as an installment land contract by some benevolent judge. Then you cannot evict the tenant leaser but have to foreclose the leaser. It is always better to avoid the equitable mortgage.

Tips To Avoid Equitable Mortgage On Lease Option

1.Take a security deposit. Make the lease option look like a landlord/tenant relationship document. Take a non-refundable security deposit from the leaser to have some monetary safety.
Keep your lease option short. It is always better to give a short term¡ªup to one year only to fulfill the lease option plans. If the tenant insists on more than one year to execute the deed, then give him one year and two days to renew the lease option. 

2. Draw up a brand new lease option agreement with every renewal. With every renewal of the lease option, raise the purchase price if you are giving the cumulative rent credit.
Pay the taxes and insurance. If the tenant pays the taxes and house insurance on the property, then it will look like a foreclosure sale. So pay all the house taxes and insurance during the lease option period of your property.

3. Do not give large rent credits. A large rent credit during the lease option period gives the tenant more equity. This gives an impression that the leaser has a large equitable mortgage in the property. This can subvert the judgment of the court in his favor if there is some legal wrangle later.

4. Use separate agreements. To be extra careful with your property, draw up separate agreements of the same without referring to the other document. Till the leaser is a tenant, make a separate lease for tenant. Also, draw the lease option document of the same, without referring to the tenant lease document. This gives safety to your property till it is foreclosed.

5.Watch your language. Use the correct terminology while drawing up the lease option to avoid ambiguity on foreclosure.

Leasing your property may well be a better option than renting or selling it outright. Besides generating a steady income, you stand to gain substantially by way of tax savings. Do make sure that you protect your lease option till foreclosure.

 

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