Pros and Cons of L/O and sales on notes


In New york atleast, if the tenant files bankrupcy you could lose your whole note on an outright sale, or atleast you’ll have to start negotiating or fighting for your share of a likely small pie in bankrupcy court, sometimes getting out only pennies on the dollar.

Much safer to do L/O.

Plus if tenant decides to, or has to, move in middle of term, with L/O, you’ll have better leverage to get the home back unamortized, and start over with new L/O.

Just my humble opinion,


The biggest con of L/O is getting PMs to let you do them. I’ve had trouble convincing PMs of the merits of lease/options.

Seems like the PMs would like them for the control that it gives you and him on

the MH owner/tenant. I wouldn’t mind having them in my park I don’t think. I

like that I can (you can) evict with the lease portion, and I would have you on

the line for space rent if your tenant goes no-pay on me.

I tried that tack, but no go. I don’t know if it’s how I present it or if the PM was just being inflexible about how title is held.

Ron: L/O == lease/option, PM == park manager

Unfortunately, your bankruptcy clause is unenforceable. To wit:

Virtually every lawyer insists on a clause authorizing the client to terminate “for cause” (or otherwise forfeit or modify rights) if the other party becomes bankrupt, insolvent, fails to maintain a contractually specified financial condition or makes an assignment for the benefit of creditors. Such clauses permit termination of the agreement simply because of the other party’s distressed financial condition. Such clauses are called “ipso facto” clauses.

Under current U.S. bankruptcy law, such clauses are not enforceable to enable a creditor to retain any of the debtor’s property. 11 USC 362(l). The trustee may sell, use or transfer any debtor property, after notice and hearing. 11 USC 362(b). But ipso facto clauses may permit a services provider (other than a provider of “utility service”) to terminate a contract for cause, provided that the trustee has not cured, or given “adequate assurances” of cure, for the default in connection with an “assignment and assumption” of an executory contract. 11 USC 365(b).

Indeed, an attempt to enforce such a clause could result in a violation of the “automatic stay” prohibiting filing lawsuits against bankrupt “debtors.”

When doing a L/O you cannot hold the title until all payments have been

made. Is this correct?

No. The option can be exercised at any time agreeable to the parties. If you want to make the option exercisable only after 24 months, you can.

I was under the impression you could as lein holder hold the title.

In most states, the lien holder owns what’s called “legal title”, and the debtor holds “registered title” (whence the term “register your car at the DMV”). The registered owner is responsible for taxes, insurance, liability, etc. When the registered owner pays off the lien, legal title is (must be) conveyed to them. If I recall correctly, rather than give lienholders naked legal title some states give lienholders proper liens, just like real estate. In those states it’s possible to have 2nd or 3rd liens on cars or mobile homes.

Couldn’t you hold them filed with the new owners names on them

and you listed at the lien holder?

Sure. No problem.