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| CRE Online > Real Estate Law > Bill Bronchick > Question and Answer |
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Question from John Leuck:
I recently completed the acquisition of a single family residence via a lease with option to purchase. I felt that by recording a 'memorandum of option' I was adequately protected from (among other things) the lessor placing any additional loans against the property. However I had a question arise recently when negotiating with a seller to acquire his property in the same manner (i.e. lease w/option). While he liked the terms and wanted to consummate the deal his concern was that he could conceivably get stuck with mechanics liens against his property if I failed to pay my contractors and failed to exercise my option . (This was a property requiring significant structural work but the price was right). Is there anything I can tell the lessor/seller to do to protect themselves from mechanic's liens in the event that I (the lessee) don't pay my bills?. Of course the answer could also benefit me when I am the other side as lessor/seller. Answer By William Bronchick: First, the filing of memorandum of contract does not place a lien on the property, it only "clouds" the title. A lien is a charge against the property, whereas a cloud is simply notice of some uncertainty as to ownership. You cannot stop a material man or laborer from filing a legitimate (or bogus) mechanics' lien. One way to protect it from liens is to filing a "performance" mortgage (or deed of trust) in your favor to secure your option agreement. Among other things, this will place a priority lien on the property, which is senior in line to all subsequent liens. Read your state code on mechanics liens - in some states, the lien is only good for about a year, then it becomes null & void. Disclaimer: The foregoing is not intended to be given as legal, financial or tax advice, but intended for instructional use only. If you require legal, financial or tax advice you should seek the assistance of a qualified professional.
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