Lease Option - Taxes and Insurance?

11 Replies

I pay the insurance and tax.  HOWEVER, in the agreement I have,  it specifically states that the client is to reimburse me for the value of the tax and insurance.

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So if I engage in a lease option and the owner doesn't pay his taxes or even his mortgage do I the lessee have any protection on my option or can the lender just foreclose or the tax authority put a lien on the property. Anyone have anything like this happen to them before? 

You can write clauses into the contracts that will protect you as the lessee. Typically the lessor writes the contracts, but just explain to him / her that you require these clauses or you wont sign the contract. The only person who will protect you in a deal, is you. Don't be afraid to advocate for yourself.

Originally posted by @David Smith :

So if I engage in a lease option and the owner doesn't pay his taxes or even his mortgage do I the lessee have any protection on my option or can the lender just foreclose or the tax authority put a lien on the property. Anyone have anything like this happen to them before? 

 If the seller and the assignee of the option are concerned about this, I always encourage them to work together and handle payments through a servicing company (though I do not do this myself or set this up myself), which will automatically distribute the monthly rent payments to the bank directly. That way you ensure that the rent payments are actually going to the mortgage. Most mortgage payments will generally include the property taxes and the homeowner's insurance paid directly through escrow (and if there is still a mortgage on the home, then you can virtually guarantee that property taxes and homeowner's insurance are being paid - in worst case scenario, the lender will pay if the owner refuses to do so, and add it to the balance of the note.)

Contract clauses are all nice and fine and dandy until the stuff hits the fan... then you realize that contracts are only worth your willingness to litigate over disputes. Litigation oftentimes will exceed the cost of the dispute itself, rendering contract clauses to be barely worth the cost of the paper they're printed on.

So the best way to protect yourself (or for your assignee to protect themselves) is to build in checks and balances and accountability up front, and that's precisely why I encourage people to consider using servicing (aka "escrow") to handle payments and ensure that the mortgage/taxes/insurance are being paid.

Thoughts, @Brian Gibbons ?

Hello all-

Great advise to utilize a servicer to make sure all provisions of the contract agreement are being met.

That way there is no 'grey area' or question as to whether or not the impound/reserve requirements are being met.  The servicer acts as a neutral 3rd party...to uphold the terms of the agreement between the buyer & seller.  If either of the parties is not holding up their end of the agreement the other will be notified. 

@Casey Carroll ...hey thanks for the positive comment on Evergreen!  We work hard to keep the 'service' in Servicing.

@David Smith ...Hi David.

We are practically neighbors...our corporate headquarters is in Puyallup, WA.

If you would like to learn more about servicing or have questions please feel free to give me a call or PM me here on BiggerPockets.


Kevin Foster