Sharks attack trusting buyer

Published 9:00 pm Saturday, August 19, 2006

Question: I made a $6,200 deposit to buy a house on a lease-option contract. Of that, $5,000 was my down payment, $1,000 was the rent for July and the extra $200 was so I could move in a week early. The house had been beat up by the previous tenants, so the sellers agreed to fix it. I met with the sellers late one evening and signed the papers and gave them a personal check. They said they were in a hurry and didn’t even give me a copy of the contract after I signed it. I was supposed to move in two weeks later, but the sellers never replaced the carpet or did any of the other work they said they would. They later said the house was only two years old and the carpet didn’t need to be replaced, only cleaned.

A neighbor told me the house was really eight years old and had lots of liens against it. I finally got a copy of the lease-option contract, but it was really complicated and I could hardly understand it. To make a long story short, I finally told the sellers I didn’t want the house and asked for my money back. They said “OK.” They immediately advertised the house and moved in a new family in July – but they wouldn’t give me my money back. I had an attorney contact the sellers and they offered to give $2,000 back. I said they could keep $500, but I wanted the rest of my money. How can they keep my money when I didn’t even move into the house? I talked to the new people living in the house and they’re planning to pay cash for the house, closing next month. What can I do? – K.H., Lake Stevens.

Answer: Sounds like you have been a victim of a shark attack. Your story is a clear example of why I always advise buyers in a “For Sale By Owner” transaction to hire an attorney to review all documents. Unfortunately, there are unscrupulous real estate investors out there who prey on inexperienced, trusting homebuyers.

Frankly, it’s a good idea for all homebuyers to use an attorney. However, most real estate agents use standard form contracts that have been prepared by corporate attorneys and a good buyer’s agent will look out for the buyer’s best interests, so it’s not as bad as going it alone.

Now, let’s review your situation. Your first warning should have been when the sellers refused to give you a copy of the lease-option contract. Not only did you not have an attorney involved, you admit that you didn’t even understand what you were signing. Never, never sign any document you do not thoroughly understand. When you get into court, a judge will assume that you knew what you were signing. In most lease-option contracts, the option consideration (down payment) is non-refundable.

So if you signed a contract that called for a non-refundable down payment, you will have a harder time getting your money back. If the sellers promised to replace the carpet and make other repairs to the house in writing and they did not do it, you could use breach of contract as a reason to get your deposit back. But if it was only a verbal agreement, you will have a much harder time. Again, it pays to know what you are signing.

You were wise not to accept the $2,000 refund offer. Your most powerful weapon for forcing the sellers to give you a full refund is to put a cloud on the title to the house before they sell it to the current occupants.

Since the sale is scheduled to close next month, you’ll have to move fast. If your copy of the lease-option contract has not been notarized, take it to a notary public and re-sign it with the notary certifying your signature. Then take the contract to the county recorder’s office and have it recorded on the title to the house.

Be sure that the contract includes the legal description of the house. If it doesn’t, look up the house in the county property tax records and write the legal description and tax parcel number on the contract before recording it. Once the contract has been recorded, hire somebody to serve the sellers with notice that the contract has been recorded (including the recording number).

I know this sounds terribly complicated, but it’s the best way to protect your interest in the property. Be sure to consult a real estate attorney before recording the contract. If the sellers can prove that you had no right to “slander the title” of the house, you could be sued for damages.

After the house is sold, you could still sue the sellers for breach of the lease-option contract, but you’re in a much stronger bargaining position if you can hold up the pending sale of the house until they pay you off.

Once you get your money back, don’t let this bad experience dissuade you from trying to buy a home on a lease-option contract. That is actually an excellent way to buy a home with minimal money out of your pocket. Just learn from this experience and be sure to get an attorney involved in your next deal.

If you run into a hot deal and you have to move fast, you can sign a purchase and sale agreement on the spot and insert a clause that says “all documents subject to review and approval by buyer’s attorney.” That way, you have an out if the attorney discovers problems in the agreement after you have signed it. And never give money directly to the seller. Always use an escrow company to hold the money as a neutral third party.

Mail your real estate questions to Steve Tytler, The Herald, P.O. Box 930, Everett, WA 98206. Fax questions to Tytler at 425-339-3435 or e-mail him at economy@heraldnet.com