evicted tenant still has option remaining halp

6 Replies

In these post Dodd Frank days everyone recommends doing a separate option contract to the lease agreement and having neither document reverence the other so as to not imply an installment sale. My question is, if a tenant defaults and is evicted, but he/she still has a year left on his option, what do you do? 

Do you sell the property and bet on the tenant not being able to exercise their option because of the eviction on their credit history? 

Do you re lease option the property and if the first tenant wins the lotto and exercises, you refund the second guy's option consideration? 

In any case it's hard for me to imagine getting out of this alive if the evicted tenant has a windfall of money and exercises his option. 

Thoughts greatly appreciated! Thank you!

Do you have a right of repurchase on the option agreement?   Could you simple buy it back from the evicted tenant at the original (or a time-degraded) price?

Is this a real situation, or a hypothetical? 

If the latter, why not just put a clause in your option contract stating that an eviction, broken lease, late rent, eviction notice, (or whatever) triggers a cancellation of the option? You can still be careful about how/if you reference the lease. 

I would caution you not to limit it to an eviction that has made it all the way through the court system (which is why I referenced broken lease, eviction notice, late rent, etc). In my experience, tenants often vacate long before their eviction is finalized, and landlords often opt to not spend any more time and money pursuing the eviction once they have possession of the property. 

I'm not an attorney and this is not legal advice, but he who has the best paper trail usually wins, so I would also follow this up with a certified letter to the tenant saying:

"Dear Tenant, 

Pursuant to the terms of your option contract dated XX/XX/XX for the property at 123 Main St, your option is now cancelled and considered null and void due to the fact you stopped paying your rent, broke your lease, received an eviction notice, got evicted (or whatever). 

Best of luck in your future endeavors, 



most option agreements become void if the tenant does not follow the lease agreement. Check your contract. 

Originally posted by @Christine Kankowski :

most option agreements become void if the tenant does not follow the lease agreement. Check your contract. 

My understanding from the OPs original post is that there is no linkage between the lease and the option agreement - which is one of the things the new regulations in the U.S.A. were trying to remove.

Yes this is a hypothetical scenario. Roy is absolutely correct. Having the option reference the lease by saying that the option is voided by a default in the lease defeats the purpose of separating the documents to avoid Dodd Frank and makes it easier for a tenant to claim equitable interest and force a foreclosure instead of an eviction. 

I know of someone in my market who actually sold his house with an outstanding option because he was so confident that the person would not exercise. That is his modus operandi in any eviction scenario to sell or re-lease with total disregard to the first option. He hasn't been burned yet and it's unlikely that he will but if I'm going to adopt that strategy I want to be prepared for the worst case scenario.

Thank you all for the prompt replies!

Just let the option expire. No need to mention the lease since it is not longer in force. If you sell or lease the property and the option is exercised it is simply that a new owner has taken over the property. People sell properties with tenants all the time. 

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