I’m often asked whether the death of a legal owner will affect an option agreement that he granted. The simple answer is that the option will not be terminated (unless the contract states otherwise).

However, there may be associated problems with a lender or relatives of the owner.

Lenders

In most cases, a lender will not insist that the mortgage be repaid immediately on the death of the owner. The option holder could simply continue to make the repayments pursuant to the terms of the option.

If the deceased had life insurance, the proceeds may pay off the mortgage. If the mortgage is cleared, the option holder would have an option to buy a debt-free property at the previously agreed Purchase Price.

An issue may arise where a lender learns of the owner’s death and somehow discovers that an option has been granted without its consent. The lender may instigate repossession proceedings for breach of the mortgage. If it obtains an order for possession, it would take the property free of the option and the option holder would lose his right to purchase the property.

Relatives

Relatives will often not know about the option agreement until after the owner has died. They may expect to inherit the property and be upset to discover than an option agreement is in place. The executors will not be able to sell the property, as they will be bound by the terms of the option, which should prevent a sale during the option period to anyone other than the option holder.

A disgruntled relative may want to find a way to cancel or end the option. The terms of the option would not help him, unless the option holder was in breach of the terms of the agreement (in which case the executors might be able to terminate the option). The executors could argue that the deceased owner was coerced or induced to sign the option agreement. The argument would be much stronger if the owner did not take legal advice prior to signing. If successful, the contract could be deemed to be null and void.

In light of this investors do well to ensure that owners obtain legal advice before signing an option, even if you have to pay for it. This increases the likelihood that the owner understands what he is signing. It is also more ethical if you insist an owner has legal advice.

Richard Spencer is a partner in the Commercial Property team at BPE Solicitors. He acts for property investors and developers and has built a strong reputation in dealing with option agreements.

Tel: 01242 248232.

Email: richard.spencer@bpe.co.uk

Disclaimer: Although we endeavour to ensure any information given here is accurate and up-to-date, we make no representation or warranty as to their accuracy or completeness. The material is provided for information only and does not constitute legal or other professional advice. You should always seek appropriate legal advice from a suitably qualified person before taking any action.

But the Rainbow itself is real. You must have seen one glowing brightly after a summer storm. Set against black clouds the effect is dramatic and stunning!

When air-borne droplets bend and reflect light from the sun after a downpour the message is clear and reassuring; storms tire and pass. We can learn much from a rainbow. Consider the process of negotiating an Option Agreement. This can be done clearly and in a way that gives reassurance. Since Options are more about people than property, offers made by phone often fail. A rainbow lives only in the mind of the beholder, so to enjoy its beauty you must be in the right place.

We established during our initial telephone conversation that the Seller is motivated to consider an offer and that the situation lends itself to an Option Agreement. For more information on how to do this visit www.PropertyOptionExpert.co.uk

We have developed trust (remember strong flour from the previous article?) which will help your offer to be accepted. More is involved, though. A rainbow glows only when light, water, air and the eye of an observer work together in a special way. For the Seller to sense that your offer is not too good to be true, but is a real solution, you need to negotiate skilfully. The Rainbow (Seven Step) System

We see seven distinct layers to a well-defined rainbow. There are seven stages to negotiating a well-defined Option Agreement. If you work through them one by one when you visit potential Sellers you will have great success. Let’s look at each stage in turn, starting with red

1. Rapport (Red)

Rapport is that ready connection between people who sense they have something in common. Rapport creates a warm feeling and a safe environment, ideal for talking openly.  When you visit the house, thank the seller for inviting you round.  If they are keen for you to view straight away, do so.  Ask tactfully about their family, work and hobbies. Pat the dog (unless it’s dangerous or flea infested). Notice photographs and ornaments, and comment.  Show genuine interest without prying.

2. Frame (Orange)

Ask the Seller where you can sit down to discuss things. Arrange a frame for your negotiation to ensure you get a decision before you leave. With rapport already in place, this follows naturally. Keep it light and upbeat, vibrant. Establish that you may offer a range of suggestions; a Yes or No in response is fine, but a Maybe is not. You want to reach an agreement today. Ask permission to tell them if what they need is beyond what you can offer.

3. Denial (Yellow)

Yellow is the colour of denial. For many sellers, especially when a sale is forced, being open is tough. It takes courage to face reality; to enjoy a rainbow one must look at the clouds. If denial is not worked through, any agreement will be short lived. Gently draw out the needs of the person. Engage with them on an emotional level. Be sure they describe the difficulties they face, not you, or there will be resistance.  Ask warmly – “What were you hoping I could do to help today?” Listen to hear and not to answer.

4. Go (Green)

Only when you understand where the person needs to be can you show them the green light. People sell to avoid pain or make a gain. It’s rarely about the money.  So, having discovered what is driving your Seller, point them in the best direction. The owner may have three choices:  letting, selling or waiting. Eliminate the alternative routes open to them, leaving the one you are signposting.  Do this by asking them how they would feel about renting out to tenants themselves or selling through an agent within 6 – 12 months.

5. Deadline (Blue)

Few things play on mind and mood more than a deadline and overcoming the blues can be a real challenge for someone pressured by time.  Ask “When would you like to have this problem gone, in 6 months… 12 months? In an ideal world how quickly would you like me to take this away?” The usual answer I get is “within a month”. Reassure the seller that if you are able to rent now and buy later you can do something today! Where there is no deadline, there is little motivation.

6.Financials (Indigo)

Dig in deep and review the financial situation. What is the asking price, the secured (and unsecured) debt, (you need to see some statements) and monthly payments? What is the lowest price they will accept? To contrast wanted price with lowest price ask; “What do you realistically expect to get for the house?”

7. Supposing (Violet)

This is where it all comes together.  Don’t vie

- let your ideas gently float, like droplets in air, and allow the light to play with them. Keep the Seller with you, moving one step at a time until you find the right angle and she sees the rainbow you’ve created.  So only make your offer when you agree that you have found a solution. That way no one gets offended and a “No” won’t kill the process.

Negotiation is an art which can create a powerful message, like a rainbow.  Negotiating for Option Agreements is rewarding.  Often the vendor is amazed at their simplicity and grateful for the reassurance. Against the dark backdrop of heavy clouds the effect can be stunning. The message is clear; storms tire and pass…and for those skilled at helping others… even the pot of gold is real!

]]> http://www.optionexpert.co.uk/lease-options/options-are-about-people/feed 0 http://www.optionexpert.co.uk/lease-options/motivated-sellers-and-lease-options http://www.optionexpert.co.uk/lease-options/motivated-sellers-and-lease-options#comments Thu, 22 Oct 2009 21:25:12 +0000 Mark Jackson http://www.optionexpert.co.uk/?p=237 Have you ever watched bread rise? It’s amazing! Almost magical.

Helping a motivated seller with lease options can be similar. Under the right conditions and with a considered mix of vital ingredients something quite special happens. This is what makes working with Options so rewarding! You can become a highly skilled baker.

You may remember from previous articles, for Property Options to benefit all, we need three essential ingredients – a genuine interest in the Seller, honesty, and the right measure of information. We also discussed how to find those who need the creative solutions you can offer.  Do you remember the moth and flame analogy? Or sniffer-dog sourcing? Please feel free to review those earlier articles at www.optionexpert.co.uk

So – your marketing is flying and the phone is red hot! This is where the real fun starts! What are some important things you want to keep in mind when taking calls?

Making Trust Grow

If your option deal is a loaf of bread, then trust is strong flour. Make it grow. The water of communication and the yeast of motivation are also indispensible. A sprinkle of salt will enhance the flavour – humour is always welcome. You’ll need a little elbow grease too.

Some advocate a twenty-four hour recorded message service, answer machines or call centres. I’m not keen. Never underestimate the power of the first point of contact! When Sellers call, if at all possible, answer them personally.

Research shows that when communicating face to face 45% of what we say is conveyed through the voice. Of this 38% is conveyed vocally (the tone, rhythm, inflection) and just 7% verbally (words). Stop and think about that! Rather than getting hung up on precise words and phrases, focus on the way in which you communicate. The vessel from which water is poured into the mix matters little… much more the temperature.  Freezing water hinders growth.  A warm tone and a smile work wonders, so let your smile speak. Friends step in time when walking side by side. They talk in time too, matching rhythm and pace.  With practice, this will become natural for you on the telephone even with strangers, and trust will grow.

Asking the Right Questions

Start with, “How can I help you?” Ask about the situation, before you ask about the house.  And find out why they would ever consider selling! During this first call you aim to get the ingredients together and in the mixing bowl. Keep it brief, three minutes is fine, but don’t be afraid to digress to find common ground.

Are you talking with the owner?
What is their situation?
How long have they lived there?
House address and description
Is the house currently on the market?
How much do they want for the house?

Allow time between calls for the bread to prove. Follow through without chasing, and get more information stage by stage, not in one sitting. Bread doesn’t rise in the freezer – so keep things warm and friendly, but professional.

Kneading takes a little effort, but without it the yeast or soda can’t do its work. Decide if a Lease Option Strategy is the best solution early on, but do remember that Lease Options are only one of the tools in your tool-bag, and they are often not the best one.

You should have answers to the following questions before you agree to view the house or suggest a solution

Do they have a mortgage?
How much debt do they have?
Will they sell for what is owed?

As the trust grows you will need to find out:

Who is the Lender?
What are the monthly mortgage payments?
How will these payments change over time?

Need to Knead!

We have a responsibility to the Vendor to “stress test” the proposed agreement to ensure our kneading has created something which will grow and not cave in (more later in YPN or visit www.PropertyOptionExpert.co.uk).

If interest rates rise by x% over the term of the agreement – can you still cover it? You will want to see specific details when you meet the Vendor – but if you can get facts now you will save time and energy.  Bread half-baked makes your belly ache.

Some investors are very excited about Options and claiming to be baking by the dozen. It is wise to see the difference between a motivated seller with massive debt agreeing to a Property Option – and a genuine sustainable Option Solution. For this you need practical knowledge, not romantic ideas. It’s not the sun, sea and sand of Property Options we need, it’s the deepening of the harbour. So be thorough before you visit the Seller.

When you have your Heads of Agreement and other initial paperwork signed, you are ready for the oven. Baking bread in a plastic mixing bowl would spoil your hard work, so be sure to use solicitors who are familiar with Options (Richard Spencer at BPE is excellent) and UK solicitor approved paperwork – to download simply visit www.PropertyOptionExpert.co.uk

There are few things in life more appealing than the smell of freshly baked bread, especially when it has been created in your own kitchen!  But it’s more than the magic of the dough rising, putting bread on the table and attaining financial freedom fast.  Skilfully helping motivated sellers with well-baked Property Options is very rewarding – truly magical!

Besides distributing a regular newsletter with Option Expert tips for investors in the UK, Mark Jackson conducts regular workshops and offers personal mentoring.  For details please visit www.PropertyOptionExpert.co.uk or write to mark@optionexpert.co.uk

Why moths are drawn to a flame is a mystery.  But drawn they are.  A light in the night can attract them from 70 meters away!  Once trapped, the moth can circle for hours, working hard but getting nowhere.  More important things like feeding, pollinating plants, or just enjoying life become secondary.  Freedom comes when day breaks or the flame dies.

Motivated sellers are similar.  What was once appealing and attractive has now become a trap.  The emotional cost and energy spent can be huge.  They need to move on.

Motivated Sellers

Emotion is the mother of motivation, not logic.  A situation which has become emotionally charged and draining needs resolving.  A Seller is motivated strongly when uncertainty or the fear of being trapped or unable to cope, or simply the desire to move on, becomes overpowering.  “Motivated” means the mind of the person you are talking to right now is full of how to sell the house. They need peace of mind, certainty and freedom.  Lease Options are brilliant for giving that, allowing the homeowner to start enjoying life again.

Your aim is to help the moth move on.  Motivated sellers will be attracted to your solution and away from the flame, and do not need to be manipulated, persuaded or convinced. Lease options are a breath of fresh air, powerful enough to blow a flame away.

Here are 4 situations where Lease Options can really shine.

1.  Financial difficulties

The stress created by the struggle to make ends meet, and the threat of repossession is enormous.  Many sellers I talk to have difficulty covering the mortgage in the face of job loss, wage cuts or illness. They feel tied to a place which is stealing their life away.  A house bought on emotion by those who could never really afford it quickly becomes insatiable in a falling market, like a cuckoo in a sparrow’s nest.  Many have been burnt by a deal that initially looked brilliant when struck by a generous lender.  People get tired, so tired, they just want to walk away.  I like to point out that they can walk away… and keep their credit clean, or have it improved! The question – “Let’s imagine I’m able to help…  would you be willing to sell the house for what you owe?” is often all that’s needed to get started.

Michael and Julie were highly motivated, having decided to walk away from their 3 bed semi in a good area of Newton. They had already found a smaller house to rent. Meeting monthly payments of almost £1,000 was exhausting. They could think of little else, sleeping was difficult. They were frustrated after six months’ of pointless effort to sell the house.

They responded to a line ad I’d placed in the local paper…  I initially suggested they switch to Interest only, get consent to let and use the rent to cover the mortgage until they could sell.  I felt this was in their best interests. About 4 weeks later they called again, asking me to take the property off their hands.

We agreed a 120 month Lease Option to buy at £93,000. They were willing to cover payments on a second charge which will be cleared within the term. I promised to contribute a maximum of £500 monthly towards the mortgage, with any surplus due to future rate rise offset by them and added to the final purchase price. 2 days after they moved on, a family moved in, paying £160 a week rent.  After a little effort, the mortgage payments were reduced to below £500 pcm. Michael and Julie are much better off financially. They have peace of mind.  They avoided repossession unsinged. The tenants (Michael and Julie kindly did the viewings) have improved the property and all are now firm friends. You can see and hear more about them if you visit www.propertyoptionexpert.co.uk

2. Splitting up

Relationship breakdown is painful.  It can be expensive too.  People need closure.  Trapped in a space filled with negative emotion and surrounded with triggers for painful memories, selling and moving out becomes a priority, a fire not a flame.  Often it’s too expensive for one person to cover the costs of running a family home, adding another burning issue to the emotional one.

One of the 12 Option deals I’ve agreed in the last 10 days falls into this category.  Natalie and her ex-partner John had remortgaged and invested heavily in their 2 bed end terrace in County Durham.  Animosity and frustration got temperatures rising; they both wanted and needed closure. Natalie had been offered housing from the local authority and wanted to move out yesterday. Unable to sell for what was owed, they felt trapped, caught in a downward spiral.

We agreed a 60 month Lease Option, with me paying a modest amount to John to allow him to move on. We will avoid a hefty Early Repayment Charge by waiting at least 24 months, and I will be able to pay Natalie £2,000 above the redemption amount when I buy.

3.   Letting Blues

It’s so easy to get burnt in property, especially if it’s not your profession.  There are masses of motivated landlords trapped and waiting for dawn in the UK and to date I have helped 11 different ones.  One exhausted investor sold me most of his portfolio of 17 houses over a two year period – all through Options. What makes other investors a pleasure to help? They want to let their property out!  They often don’t have equity, so are not banking on a lump sum to move on.  A 60 month lease with rental guarantee, the property fully maintained and insured and a sale within the term is daybreak to a struggling landlord!

I have granted Options on property I bought in the early days to other investors because I didn’t want the headache of keeping or selling it.  I once exchanged Lease Options on two houses I’d got cash out of but didn’t want to maintain in return for a number of new deals.  Those properties would have had me flying around in circles! Getting rid was better than paying a hefty finder’s fee.

4.  Relocating

Whether for work, to emigrate, downsize or upsize, people need to move on. Given a deadline that need can become a burning desire.  Rattling round in a big house after the kids have left; having to climb stairs with two bad knees and a dodgy hip; or family growth when the house can’t stretch – these are all situations which create high motivation.  Lease Options can work brilliantly here!

Caron owns a beautiful 2 bed semi with a conservatory and well kept gardens in a good part of Darlington.  Although she had moved into a Park Home in the countryside 40 miles away, she was unable to settle and enjoy life with her partner Lee. They were paying £490 for the mortgage on the empty house, not to mention insurance and council tax. Their concern had matured into anxiety.  Thoughts about vandals and burglars were taking the joy out of life.   They wanted to cut the 40 mile elastic band tugging them back to their house, but couldn’t sell it and didn’t want to become landlords.  They even considered giving up their dream of living in the countryside.

We agreed a 48 month option to buy at £97,000 (the house was on the market for £125,000). The mortgage has now been reduced to £278 pcm and we have an excellent tenant who pays £104 per week. Caron has peace of mind and no stress! You can meet Caron at www.propertyoptionexpert.co.uk

Once you appreciate the situations which create powerful emotion that motivates, you are able to target your marketing and find or attract the right sellers easily!

Finding Motivated Sellers

Use the Moth Attractor Method

Let your light shine! A flame is more hazardous than an energy efficient light bulb.  Plug yours in and switch it on.  At times you can blow the flame away with your Lease Option strategies, but you can also draw attention to your solutions by using low key, modest and inexpensive marketing.

1. The best way of doing this is to simply do the right thing.  I’ve had loads of referral business because I did what I said I would and treated people fairly.
2. Use line advertising in small, community papers (often run on a charitable basis).  Follow the ADS principle –

1. Address the need
2. be Different
3. keep it Simple

In a small publication delivered weekly and full of local news I run a line ad in the births, deaths and marriages section (some classified ads are squeezed in there too!) which reads: Wanted! 2 or 3 bed house in the local area.  Please call Mark on (Landline). I love paying for the word please. Why?  I get lots of calls from older people, and have been able to help many with Purchase and Lease Options.  Not bad for a 70p ad. I have had good success with other one word introductions like Stuck?… or Struggling?… because they address the emotional need of the Seller.

3.  Use leaflets with a simple, clear message. I’ve had great success with postcard size leaflets.  They are easy to deliver and very keep-able. I avoid language that may be technical, replacing phrases like “negative equity no problem” for ones like “I can buy even if you owe more than your house is worth”.

4. Post letters to empty properties. These are just goldmines! Owners of empty properties are often much more motivated than other sellers. The letter needs to be written simply, in a non-corporate style with a message that says you can help.

5. Deliver slips.  You can print a message that reads, “Wanted, 2 or 3 bed house to rent or buy in the local area. Please call….” on a sheet of A4 paper and cut into 5 or 6 strips.  These work remarkably well.

Sniffer Dog Sourcing

Sniff out motivated sellers by following through on their advertising! I’ve had very good results by calling those advertising in the local press and online for tenants. Calling ads which are at least 3 weeks old is much more effective!  For good workable scripts see Wendy Patton’s book “Investing in real estate with lease options and subject to deals.”

Lease Options are so powerful because they allow you to work with empathy.  They almost understand the emotion behind a situation, and can give immediate relief.  Lease Options let you blow a flame away.  With the burning issue gone, motivated sellers can move on.  The peace of mind and freedom these solutions grant the seller, and the satisfaction and wealth they can provide the buyer means Options are here to stay.  At last – daybreak for moths!

Besides distributing a regular newsletter highlighting expert tips for other Option investors in the UK, Mark Jackson conducts regular workshops, sharing his experience and helping others succeed.  He also offers a personal mentoring service.  Just write to mark@optionexpert.co.uk for details.

]]> http://www.optionexpert.co.uk/lease-options/lease-options-in-practice/feed 5 http://www.optionexpert.co.uk/lease-options/freedom-with-options http://www.optionexpert.co.uk/lease-options/freedom-with-options#comments Wed, 02 Sep 2009 06:34:39 +0000 Mark Jackson http://www.optionexpert.co.uk/?p=8 Tomatoes change with time. Green ones are toxic. Red ones are not. Timing is key. Imagine being able to harness that! You Joint Venture with Time to transform something toxic into something healthy. Property Options can empower you to do just that.

Options are agreements which give the holder freedom. Depending on the wording, the Owner grants you exclusive freedom to buy, use or sell the Property, or a combination of these freedoms. Options are powerful, simple to use and flexible. With an Option, a splash of creativity and a genuine interest in others “toxic” property can magically become healthy! Skilfully weaving such simple solutions brings wealth running.

Tomatoes need more than time to blush. Warmth, light and water are all essential. It’s the same with Options…

For your efforts to bear fruit experience shows the Vendor must like you. There must be warmth in the deal. Create it by listening, asking the right questions, and holding a genuine desire to help the person who needs what you have.  Only if you appreciate their motivation for selling, (the “Why”) will there be trust and warmth.  If the Seller is not sold on you, walk away.

Success with Options requires the light of honesty. Is the Vendor clear on whether you intend to buy, sell or hand the house back? Lenders have requirements, and though it may be easier to ignore them, rushing Options through, that will harm your reputation and profit. What about “Consent to Let” and buildings insurance? Is your paperwork suitable for the UK market?

The paperwork is the greenhouse glass. It should be transparent. Although it must be watertight to create the desired environment remember it is brittle, so avoid throwing stones.  Anything you structure must be good for both sides. Always be consistent and true to your word.

Selling a property you don’t own through a “Sandwich Option” may appeal, but what about the legal complications? Some of the more experienced Optioneers in the UK are working hard to find ways to better protect Tenant Buyers and comply with Lender criteria before getting overly excited about this.

Ants on a canvas don’t enjoy its beauty; ensure you avoid that mistake. Step back. Get the whole picture. Options can create cash fast, but a big-picture vision grows a solid reputation bringing true satisfaction and lasting wealth.

Ideas drown in words, and saying too much rarely gets the deal to fruition. Beware of swamping the Vendor you want to help! They need just enough information to feel comfortable and informed. Watering little and often brings the best results. UK vendors might be described as sophisticated and possibly enjoy a different approach to that used in other English speaking countries.

Since 2006 I have helped more than 80 people with various forms of Option Agreements in England, the UK way.  Here are some examples:

Buying:

Darlington DL3 May 2007

The Situation: A family needed to sell their empty large end-terrace; the mortgage was crippling them.  £93,600 would clear the debt and inject capital into their restaurant business.
The Want: £110,000 in 4 months
The Need: A quick sale of £95,000 and instant relief from mortgage payments
The Solution: A 4 month Purchase Option (£93,600) with mortgage payments (£475) coming off the balance at completion.
Commentary: This Option was assignable. The investor I sold it to made 3 mortgage payments before buying.  He converted it to two flats and achieved an end value of £200,000.

Darlington DL3 June 2008

The Situation: Two brothers own an empty modern 2 bed house with no debt; 6 months marketing at £85,000 found no buyer.  Unwilling to become landlords and struggling to pay the mortgage on their new home, they needed a quick fix.
The Want: Clear the mortgage on the new home
The Need: Monthly money to cover the mortgage on their new home
The Solution: A 48 month Instalment Purchase Option (£67,000) with permission to let
Commentary: I pay them £280 pcm and let the house for £650 pcm. I will buy within the term and hold. There are many houses out there mortgage free, which seem to the owner to be a liability!

Selling

Newton Aycliffe, DL5 August 2008

Tired of problem tenants, Allan responded to my line add.  His 3 bed semi was perfectly located. It was important for him I didn’t negotiate on the price.  The property was mortgage free.  We quickly forged a 48 month Instalment Purchase Option at £82,500 and agreed my £250 monthly payment would be credited to the purchase price.

The Financials: I get rent of £500 pcm. The family improved the property hugely and can buy within 36 months for £110,000. £2,000 was the deposit; work’s credit of £10,000; £50 a month instalment.  If they buy in 36 months they will pay £96,200. I will owe Allan £73,500.  My total profit will be £36,620.

The family are ecstatic in their dream home.  Allan has peace of mind and a monthly income.  I made some new friends…and an amazing return for a couple of hours work.

Success with Options eludes some. To craft solutions focus on the person, not the property.  Understand their wants but address their needs, show warmth, be fair and honest and water judiciously.  Remember, options are primarily tools for helping people, and secondly instruments for profit creation.  That way, even the greenest tomato will blush.