Note With Option To Buy

[Britt Griscom]

I'm looking into lending a condo owner about 22k at about 10%. The note would be backed up by his condo, which I haven't been able to see the inside of because it is currently in litigation. The person living in it bought the condo about 10 years ago from my seller on a REC and prematurely stopped paying last year. The escrow company returned the deed to my seller but the previous buyer hasn't vacated the unit.

Fixed up, the condo is probably worth about 42k. I anticipate about 7k in repairs, so in its current state, and without seeing the inside, I would estimate its value to be about 35k. I want to buy the condo and would like to have the option to buy it at about 30k. Can this option be structured into the note agreement? Can you point me to descriptions of similar offers?

More generally, would you do a deal like this, with a property that is in litigation, even though according to the court records, the seller has clear title? If so, how would you structure the deal?

[Dion DePaoli]

To be a bit more explicit to the question.  NO do not try and put options in your notes to purchase real property.  You are mixing roles.  "Once a Mortgagee, Always a Mortgagee" is the idea that comes into play there amongst a couple others.

The detail missing here is what is the balance of the payoff?  

Why not just buy it from the guy, since that is end goal, and you evict the occupant?  Perhaps enjoy a little bit of a discount due to that time and expense.  

Jumping in to lend him money in order to buy it later is to a large degree just making a simple idea over complicated.  Either buy it or don't.  Do not try to confuse your role or your desire.