Is Lease Option or Subject to possible in Texas?

Question

John Jackson · Answer

Sorry to correct  you Account Closed TX has specific laws about LO's, and they can be found in Title 2 CH 5 of the Texas Property Code. I wrote an entire booklet on the subject. You'd have to research me to find more info.  YES, you can do a lease option if the owner has a mortgage. The law even says so! Title 2 CH 5 Sec 5.085 is very clear that you can do this. We do 1 year lease options.

You don't however want to exceed 3 years, then it becomes a contract for deed.

Sub-2 is totally legal as well, but I don't recommend them if you are just getting started, as no you are on the hook for someone's mortgage payment.

John Jackson · Answer

@Mike M.  We only go 1 year on our LO's.  I agree, all attorney's are not created equal. I have actually had attorney's buy my TX LO CD back when I had everything on a CD.

@Greg Perkins  Yes, it makes a great opportunity if almost no other investor is doing them. Having a license can be a good or bad thing. TX has no promulgated contracts so as an agent you must use either promulgated contracts or contracts drafted by an attorney.  Ours were drafted by about 3 different attorneys, which is why they cost so much in the end.

With LO assignments we can work with leads that wholesalers can't, so we actually pay wholesalers for leads that don't have enough equity for them to work with.

Mike Castellow · Answer

@Greg Perkins As @John Jackson mentioned lease options are allowed with a contract up to 3 years, but there are other regulations you must adhere to. After 180 days the lease options are considered an executory contract and as such there are a lot of additional requirements for the seller to meet. There can be some severe financial penalties if you do not meet all requirements so I definitely agree with Account Closed

Jerel Ehlert · Answer

Texas LO have been discussed in depth, ad nauseum.  Summary: as LL/Seller to consumer - that is a no-go.  Legal, but practically it is impossible to comply.  Do a wrap.  As T/Buyer, you are not a consumer - game on.

Ronald Rohde · Answer

IMO, I tend to think the license will hurt you as buyers tend to trust the license holder more freely and TREC/courts place more of a duty  for licensed participants regardless of legal duties.

Greg Perkins · Answer

@John Jackson Thank you for the information.  In my previous life I worked in law enforcement and so obviously the law pertaining to these types of contracts and the legality of utilizing these options is important to me.  Thank you for citing Title and Chapter in the Property Code.  I think due to the extra work and education required to make these options work as an investment strategy most people defer to a real estate attorney opinion or simply just take the advice heard by other investors.  I don't have anything against attorney's but sometimes people forget that their opinions aren't always based on absolute legal requirements , I think the quote by Account Closed illustrates this clearly.

Two things have me intrigued by Lease Options.  1st, if 99% of investors are scared of or don't fully understand the law to correctly use this real estate model, it becomes a potential exploitable niche for someone to develop a sustainable business. 2nd, would having a Real Estate license (Texas) enhance or restrict your ability to capitalize on Lease Options as a real estate investing strategy?

Account Closed · Answer

Do as you must. My real estate attorney in Austin limits me to 6 months for a lease option if there is a mortgage on the property. Subject To is legal but not recommended for several reasons. Wraps are better. I think we basically agree, but I think you are pushing the envelope by going 3 years on a lease option.

"The good news is that there are enough loopholes and exceptions in the  statute that if you’re careful and smart (and, you know, have a good  real estate lawyer), you can sell your house on a lease option safely,  profitably, and yes – legally."

There are far more favorable ways to take a property than have the risks of a LO. (Personal opinion.) ;-)

Account Closed · Answer

In Texas, if the owner does not have a loan against the property they can do any of the techniques. If there is a loan on the property, Lease Options are limited to 6 months. Subject To in not recommended. You can do Wraps. Always use an attorney, IMHO.

John Young · Answer

yes im curious as to how a wrap would be better? could you assign that wrap for a fee?

Greg Perkins · Answer

@John Jackson are you doing stacked LO's to get the year long term?  ie. (2) 179 day LO's to avoid providing the Buyer with a recent survey or a current plat; copies of liens, restrictive covenants, and easements; a Seller’s Disclosure of Property Condition;  tax certificates; a copy of the insurance policy showing the name of the insurer and insured along with a description of the insured property and the policy amount; a seven-day notice letter; and an annual accounting that includes amounts paid, amounts owed, payments remaining, taxes paid, and the amount paid for insurance premiums plus an accounting for any insurance proceeds. All of this must be done before the contract is signed. See Prop. Code §§5.069 et seq...since it is less than 180 days and not an executory contract?

@Jerel Ehlert @Danny Webber please tell me how a WRAP is better.  I'm thinking in both terms of acquiring and having an exit strategy for a property.

Is Lease Option or Subject to possible in Texas?

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