Lease/Purchase: " A Stupid Idea"

By
Real Estate Agent with Keller Williams Dallas Premier TX #0552717

Brian Watts, attorney at Hexter Fair Title Company, spoke to the agents in the Dallas North office of Keller Williams this morning.  His topic was Lease/Purchase, Leases and Negotiating Contract Extensions.  According to Brian, lease purchase is "a stupid idea" and recommended that we steer our buyers and sellers away from this.

Brian outlined the 3 methods of lease/purchase:

  • contract for deed - the buyer takes possession and makes payments to the seller and when the final payment is made, the buyer gets the deed.  It's kind of like seller financing, but without the approval of the seller's lender (because the seller's lender would NOT approve).
  • lease purchase - two contracts, one for the initial lease and another for the purchase, usually a year down the road.  This is essentially one contract on two forms because one wouldn't stand without the other.
  • executory contract for the sale of real property - an executory contract is one that has yet to be completed.  In 2005 the statute under the property code was amended and many restrictions were added.  The statute applies when the deed is delivered more than 180 days after the contract is executed, so a One to Four Family Resale Contract doesn't fall into this category because the deed must transfer within 180 days.

He also shared some tips about contract extensions (extending the closing date).  If you use the TREC form, don't just put in the new closing date.  Include "time is of the essence" language and use the extension as an opportunity to make the buyer commit:

  • Make the buyer waive all contingencies
  • Use "time is of the essence" to terminate immediately if the closing date is not met
  • Get the buyer to make a financial commitment by 1) releasing the earnest money immediately, 2) asking for additional earnest money, or 3) asking the buyer for an extension fee. All to be applied as credits towards the sales price at closing.

Finally, Brian reviewed the new Notice of Buyer's Termination of Contract form (TREC #38-2).  The buyer unilaterally terminates with this form.  There are check boxes for the reasons for termination:

  • Within the option period
  • Buyer cannot obtain Financing Approval
  • Property doesn't satisy the lender's underwriting requirements
  • Buyer elects to terminate subject to mandatory membership in HOA
  • Buyer elects to terminate relating to the delivery of the seller's disclosure notice
  • Other (title commitment, survey, etc.)

There is also a new Short Sale Addendum, but due to lack of time, it was only mentioned.

It's always a treat to hear from David Fair or Brian Watts, those at the helm of Hexter Fair Title Company!

Posted by

Lorrie Semler, e-PRO, GRI, SRES, CPRES
Addison Resident/Addison Expert                                                      Subscribe Button
Real Service. Real Results. Real Estate.
Keller Williams Dallas Premier
972-416-3417

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Rainmaker
244,353
Mike Wong
Keller Williams Realty Southwest - Sugar Land, TX
Realtor, GRI, Project Manager

Im pretty sure contract for deed is a prohibited practice here in Texas. Ive encountered it multiple times in commercial real estate with landlords selling thier properties to thier tenants with owner financing. Pretty risky situation for an agent to be involved in.

I always refer them to an attorney to write up thier contracts. Then refer them to a title company to record thier transaction for them. My involvement is strictly referring them to the proper places to get help.

Jul 14, 2008 09:44 PM #1
Rainmaker
768,454
Lorrie Semler, REALTOR® in the Dallas area. Call/text 972-416-3417
Keller Williams Dallas Premier - Addison, TX
Real Service. Real Results. Real Estate

Mike, since Brian Watts is a real estate attorney, I think he would have mentioned if contract for deed is a prohibited practice in Texas.  He didn't.  He only said it's one part of a stupid idea.

Jul 14, 2008 09:47 PM #2
Rainmaker
640,298
Marchel Peterson
Results Realty - Spring, TX
Spring TX Real Estate E-Pro

LORRIE, I have heard the only way to do a lease/option is to have an attorney involved.  When I tell that to my clients they usually decide that is not such a good idea after all.  I have had a few that leased and asked for first right of refusal to buy when their year lease is over but none of that lease/option stuff.

Jul 14, 2008 09:52 PM #3
Rainmaker
768,454
Lorrie Semler, REALTOR® in the Dallas area. Call/text 972-416-3417
Keller Williams Dallas Premier - Addison, TX
Real Service. Real Results. Real Estate

Exactly, Marchel.  As agents, we can't write the offer for the contract for deed.  It's got to be done by an attorney. And if a seller accepts a contract for deed offer, there are all kinds of special hoops for the seller to jump through, also requiring an attorney.  There's a special disclosure notice, a special reporting (accounting) notice, etc.  The buyer can be up to 30 days late on payments.  I'd tell a seller to run, not walk away.

Jul 14, 2008 09:56 PM #4
Rainmaker
238,110
Angelia Garcia
Pure Realtors - Dallas, TX

Lorrie,

thanks for the info. I will save it for future reference.

Jul 14, 2008 10:23 PM #5
Ambassador
759,078
Steve Shatsky
Berkshire Hathaway Home Services - PenFed Realty Texas - Dallas, TX
Dallas Real Estate & Short Sale Specialist (214)21

Lorrie... is there an updated version of the short sale addenedum, or is this the one that came out about a year ago (TAR-1918)?

Jul 14, 2008 11:19 PM #6
Rainmaker
768,454
Lorrie Semler, REALTOR® in the Dallas area. Call/text 972-416-3417
Keller Williams Dallas Premier - Addison, TX
Real Service. Real Results. Real Estate

Steve:  TAR-1918, dated 8-16-07.

Jul 15, 2008 08:09 AM #7
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Rainmaker
768,454

Lorrie Semler, REALTOR® in the Dallas area. Call/text 972-416-3417

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