Lease/Options May Soon be Illegal in Texas, New Senate Bill [Archive]

Tony Putman

04-19-2005, 12:26 AM

Hey folks,
I just got this from William Bronchick at another forum. :eek: I will be adding a few posts to help you find the people to contact. Here it is:

Texans, are you aware of Senate Bill 629 that just passed a committee hearing favorably and is off for a vote in the TX senate?

http://www.capitol.state.tx.us/tlo/79R/bil...xt/SB00629S.HTM

This law, if passed, will effectively OUTLAW lease/options in Texas.

Basically, it makes a lease/option an "executory contract", which is essentially a land contract. You are likely aware that land contracts require a lot of disclosures and annual reporting requirements.

Also, it further states that ALL EXECUTORY CONTRACTS (lease/options, land contracts) require the seller to have title. That means no sandwich lease/options, no selling a property on lease/opt or land contract that you bought on land contract.

AND, the kicker... you cannot sell a property on a land contract or lease/option if you have underlying financing! So, in effect, the only time you can sell on land contract or lease/option is if you have title FREE AND CLEAR!!

The only means of owner financing left in the state of TX will be:

1. Selling subject an existing loan and taking a wrap note (aka "All Inclusive Trust Deed" or "AITD")

2. Letting the buyer assume your note and take back a second

PLEASE, GET YOUR MEMBERS TOGETHER TO RALLY AGAINST AND KILL THIS BILL BEFORE IT KILLS YOUR BUSINESS!!

Bill Bronchick
Legalwiz.com

Tony Putman

04-19-2005, 12:35 AM

Here is more information for all. I forgot to use the quote function on my previous posts, sorry :SM140:

Two very strong comments are made that do show some concern:

1. You can not sell on Lease Option unless you basically own the property free of liens to include a mortgage.

This just does not make sense because it is a very radical change.

2. "Specifically, this bill will convert ALL residential home leases containing a purchase option into "executory contracts". An executory contract is considered a sale under IRS tax rules, whereas a lease with option is not. This will result in DRASTIC adverse tax consequences to investors who cannot take advantage of long term capital gains rules."

This is starting to get interesting...

================================================== ==
Thread taken from one of the local boards.

http://www.aireo.com/bbs/phase2/49521.shtml

**Lease/Opts will be illegal!
Posted by William Bronchick on April 18, 2005 at 12:06:46
bronchick@legalwiz.com

Senate Bill 629 just passed a committee hearing favorably and is off for a vote in the TX senate.

http://www.capitol.state.tx.us/tlo/79R/billtext/SB00629S.HTM

This law, if passed, will effectively OUTLAW lease/options in Texas.

Basically, it makes a lease/option an "executory contract", which is essentially a land contract. If you live in TX, you are likely aware that land contracts require a lot of disclosures and annual reporting requirements.

Also, it further states that ALL EXECUTORY CONTRACTS (lease/options, land contracts) require the seller to have title. That means no sandwich lease/options, no selling a property on lease/opt or land contract that you bought on land contract.

AND, the kicker... you cannot sell a property on a land contract or lease/option if you have underlying financing! So, in effect, the only time you can sell on land contract or lease/option is if you have title FREE AND CLEAR!!

The only means of owner financing left in the state of TX will be:

1. Selling subject an existing loan and taking a wrap note (aka "All Inclusive Trust Deed" or "AITD")

2. Letting the buyer assume your note and take back a second

If you are in TX, don't sit around and complain about it - DO SOMETHING! Get the newspapers behind you. Raise money and run ad campaigns. Write a hundred letters to your state senators. Camp out outside the capitol building.

KILL THIS BILL BEFORE IT KILLS YOUR BUSINESS!!

Re: **Lease/Opts will be illegal!
Posted by Bill Bronchick on April 18, 2005 at 16:06:18
bronchick@legalwiz.com

In Reply to: Re: **Lease/Opts will be illegal!
posted by Gulabv on April 18, 2005 at 15:58:28.

The effective date is supposed to be Sept 1, 2005. But, some of the provisions claim to be retroactive. For example, if the buyer under an executory contract (which would include lease/option or land contract) demand a deed, you have to give them the deed and take back a note and deed of trust. This is, of course, INSANE, especially in the case of a lease/option because it would create a sale for federal income tax purposes.

Generally speaking, it is illegal for the Government to create a law that will affect an existing contract, since it violates the "contracts clause" of the U.S. Constitution.

I suspect there will be much litigation over this new law, if it passes it its current form.

Re: **Lease/Opts will be illegal!
Posted by Bill Bronchick on April 18, 2005 at 13:12:34
bronchick@legalwiz.com

In Reply to: Re: **Lease/Opts will be illegal!
posted by Joe(TX) on April 18, 2005 at 13:02:34.

Great idea, thanks. Get everyone you know to write such an email, AND, get your investor and realtor associations to join in the fight.

Here's a sample email:

SUBJECT: SENATE BILL 629 - PLEASE VOTE "NO"

Dear Senator X,

It has come to my attention that Senate Bill 629 proposes DRASTIC changes to real estate law that will hurt many citizens of the great state of Texas.

Specifically, this bill will convert ALL residential home leases containing a purchase option into "executory contracts". An executory contract is considered a sale under IRS tax rules, whereas a lease with option is not. This will result in DRASTIC adverse tax consequences to investors who cannot take advantage of long term capital gains rules.

Second, the bill requires that any seller of a property under an executory contract own property free and clear of all liens. There are many cases where this would be impractical, since creative financing is often a solution to a property that is difficult to sell. Restricting the means of sale would result in more foreclosures in Texas. It would also limit the options of many low-income buyers who have no other means of buying a home than on an executory contract from a seller.

I strongly urge that you vote "NO" on SB 629.

Sincerely,