Posted by: Matt B ®
12/15/2005, 11:55:00
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Unfortunately, this is a risk that can't really be fully avoided in a lease option. You can record a memo of option or even a performance mortgage against the property in order to secure your interest in the property, but because a bankruptcy affects the MORTGAGE and not the title, it can still be an issue. The only way to TRY to deal with this is simply trying to ensure that your seller is in a stable financial position. That said, if they do indeed declare bankruptcy, you must get your lawyer involved. There are many different ways it could go. Your lawyer is going to have to help you deal with the legal issues that arise from this. If the seller does not appear to be in a VERY stable financial position, you should switch over to a different type of a deal. I typically go subject to (which gives you ownership) or simply paying a very discounted cash price. A problem still may arise with the subject to because the mortgage still stays in the seller's name. You would simply need to present the bankruptcy court with evidence that the seller does not own the property any more that the debt is secured to, which may simply make it excluded from the bankruptcy. However, again, you would need to get your lawyer invovled. Matt Bowman
Related link: www.REItoolbox.com
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