Real estate investor forums

Getting Started Forum

Advice and "How-to's" of the first steps to take in growing your successful real estate business.


1 2 Next>>

 
Spybreak
Rank 1
View all Posts

Topic: Lease options on TEXAS
Started: 3/05/08 Current Grade: A
Posts: 10 Topic Type:
I heard that TX laws makes lease options unattractive to RE investors. Anybody want to shed some light on this issue? With 4 months left in Active Duty till I go back home in TX and I was kinda disappointed when I heard about the laws. Thanks in advance!
Search Search this Topic Subscription Subscribe to this Topic Drop to First Unread Drop to First Unread
Bookmark Topic Bookmark Topic Show Printable Version Show Printable Version Email this Page Email this Page

CREInvestor
Rank 2
View all Posts

# 1
Default
Posted: 03-05-2008   Current Grade: A
You may have heard about the last legislative session in Austin - "you can't do lease options anymore." Only thing is, it's not true.

House Bill 1823 of the 79th Legislative Session became law on September 1, 2005. The law goes too far.

A property owner and buyer are still free to execute lease options. The burden is high on the seller, and the cost of a mistake even higher. As a buyer of your own home, it is now the single best way to get a house cheaply and legally.

BRIEF LEGISLATIVE BACKGROUND (Another Part of Series will be moe in depth)

In April of 2005, the alarm bells sounded about a bill that would kill lease options in the state of Texas. The real estate investment community united - in hysterics. Angry phone calls, threatening faxes and emails, public discussion disparaging respected lawmakers.

The soft voices of reason were dismissed by a process most Houston Real Estate Investors know little about.

The law passed and was signed by the Governor. But what does the law say?

THE LAW SAYS...

Attorney, former Director of Houston Association of Realtors (HAR) and former President of The Realty Investment Club of Houston (RICH), James Robert Smith has spent days analyzing the law and case history. From his summary (attached) presented statewide to investors, Houston Real News believes the following…

In simple terms, a lease with an option buy, or anything that looks like one maybe classified as an executory contract (like a Contract for Deed). Lease Options fit into 3 categories:


1) Less than 180 days - not an executory contract


2) 180 days or greater up to 3 years - executory contract


3) 3 years or greater - from bad to worse


As the length of the contract extends, the onus on the Seller/Landlord increases substantially.

For example, the Lease Option of duration shorter than 180 days has no new or imposing regulation. The Texas Real Estate Commission (TREC) promulgated forms actually allow a short-term lease (90 days) and an option to purchase being used in conjunction. But don't think TREC encourages Lease Options.

According to TREC General Counsel Loretta DeHay, TREC does not want its licensees engaging in the "Unauthorized Practice of Law." Extending a short-term lease beyond 90 days is just that.

As far as creating relevant forms in the future, Ms. DeHay did not go so far as to say that the TREC Broker/Lawyer Committee refused to consider it. "I do not anticipate TREC creating any forms for Lease Options, Contracts for Deed or any Executory Contract. They are too complicated to standardize," Ms. DeHay told HoustonRealNews.

So if your Lease Option has been executed on or after September 1, 2005 and does not "provide for the delivery of a deed from the seller to the purchaser within 180 days ", a Seller/Landlord may face severe penalties.

The most overreaching aspects of the law that HoustonRealNews readers may want to consider are:


Requirements for giving adequate notice before taking action on a late paying Tenant/Buyer(Section 5.063)

Maintaining clear title except for Purchase Money First Mortgages. Disclosure of liens must be made prior to signing and the Buyer/Tenant must be given access to Seller/Landlord's financial institution and account information. (Section 5.085)

If 3 years or greater, the Lease Option requirements are even more onerous - further disclosures, and, shockingly, a Buyer/Tenant has the right to deduct amounts he pays a Seller/Landlord at his discretionary reading of the contract and the Property Code (Section 5.084).

PROSECUTED BY THE DISTRICT ATTORNEY

Curious about penalties? If you used a rehab loan and then refinanced it so that you could Lease Option it to a tenant for a couple of years until the tenant can purchase the home, you are not going to be happy. Even if you pay your refinance note on time, or early, even if the balance is less than what the Tenant/Buyer owes you, you have violated Section 5.085 of the Texas Property Code.

Your prize? Your Tenant/Buyer may be entitled to every dollar he ever paid, including rent and you are in violation of the Texas Business and Commerce Code Section 17.46.

For us laymen, that means that you could be prosecuted by the District Attorney.
Reply With Quote Reply
Spybreak
Rank 1
View all Posts

# 2
Default
Posted: 03-06-2008   Current Grade: A
Thanks for the quick reply. So does it make Subject to deals unattractive to investors at the same time? I'm not really sure how it relates with lease options so bear with me. Thanks again.
Reply With Quote Reply
Encompass Strategies LLC
Rank 1
View all Posts

# 3
Default Say What?
Posted: 03-06-2008   Current Grade: F
Please forgive my inability to digest Legalese, but could you explain that in plain English?

It sounds like you're saying that lease options longer than 180 days are basically illegal in Texas. The whole point of doing a lease option on a residential property is to give the buyer/tenant time to repair their credit! They can't do that in 180 days!
Reply With Quote Reply
JTaylor Investments
Rank 2
View all Posts

# 4
Default
Posted: 03-06-2008   Current Grade: A
hm, im actually doing a lease with option right now in san antonio. im planning for about 3 years til it is actually gone.
Reply With Quote Reply
Spybreak
Rank 1
View all Posts

# 5
Default
Posted: 03-06-2008   Current Grade: A
Basing from the post is isn't illegal to do lease options for more than 180 days but rather it is more trouble than it's worth specifically regarding all the disclosures that you have to do.


EDIT: Thru the power of Google I found a forum where they discuss lease options for TX
http://www.lease2purchase.com/wwwboa...read.php?t=177

Good read so far.
Reply With Quote Reply
CREWEALTH_COM
Rank 1
View all Posts

# 6
Default
Posted: 03-07-2008   Current Grade: A
Lease options are NOT an attractive thing to do in Texas anymore.

If you buy a house with a lease option and it has a mortgage on the property, you can move in - or you can sandwich to someone else - provided that they get the deed within 6 months.

If they back out, you have to give them their option consideration back. No more non-refundable option cosideration.

Most will not be able to get a loan within 6 months.
Half will move out at the end of the 6 months.

However, you can lease option to someone for longer than 6 months IF the property is FREE AND CLEAR ( no mortgage on the property) -- good luck finding one of those who will do a lease option.

The real kicker -- there's a $250 FINE for violating the rules. And Texas attorney's are aggressively looking for violators.

So, subject to deals and/ore seller financing are really a better way to go.

Jackie Lange
www.CREWealth.com
Reply With Quote Reply
JTaylor Investments
Rank 2
View all Posts

# 7
Default
Posted: 03-07-2008   Current Grade: ?
ok maybe i missed something here. are you guys mainly talking about sandwich lease options? im buying my houses with my credit, hard money, or my credit investors money the lease option to someone else.

CREWEALTH, you said seller financing would be a better way to go... whats the difference? i thought doing a lease option was seller financing?
Reply With Quote Reply
ecosentry
Rank 4
View all Posts

# 8
Default Lease Options
Posted: 03-07-2008   Current Grade: A
I was aware that lease options are difficult in Texas. We had our share of abuse with investors kicking optioners out by not informing the court that they was an option to purchase involved. The folks were evicted as tenants even though they had sustantial downpayments involved.
Judges hate it when people lose their homes. The backlash to this is our present law.
Lease options place high risk of loss on the investor. You can easily be charged with deceptive trade practices and get triple damages.
The option holder can refuse to pay rent for any reasonable excuse.
A seller is really sticking their neck out to do a lease option on a property less than one acre and residential in use.
You would probably be less at risk to do nothing down owner carry.
Executory contracts is the term used and it will bite you hard. Fancy contracts and attempts to circumvent the law will guarantee you a severe penalty.

I would not do one now for any reason.
Close family members are exempt from the law but you already know you are going to get screwed!
Reply With Quote Reply
CREWEALTH_COM
Rank 1
View all Posts

# 9
Default
Posted: 03-09-2008   Current Grade: A
JT

Big difference between a lease option and seller financing.

With seller financing, the buyer actually gets the deed to the house.

With a lease option, the tenant buyer has a lease with an option to buy at some point in the future for a pre agreed to price.

Equally importantly, unless you bought the house, you can't sell with seller financing.

Jackie Lange
www.CREWealth.com
Reply With Quote Reply

Reply
1 2 Next>>

Topic Tools Search this Topic
Search this Topic:

Advanced Search
Display Modes


Back To Top
Back To Forums Home

Forum Leaders

JohnCorey
JohnCorey
12563 Points
Financexaminer
Financexaminer
10781 Points
Jeff_Tumbarello
Jeff_Tumbarello
5442 Points
stevebuyshouses
stevebuyshouses
4879 Points
Brian Lucier
Brian Lucier
3151 Points
cperkcpa
cperkcpa
3141 Points
RyanDehler
RyanDehler
3140 Points
ecosentry
ecosentry
2149 Points
IPersevere
IPersevere
2017 Points
investor411
investor411
1939 Points
Your Ad Here