How a Lease Option Tenant Buyer Won Their Down Payment Back in Court

Last night was the local investor’s association monthly meeting. Myself and Dusty were invited to be on the expert panel. There were a total of 7 us on the panel, and it turned out to be a pretty informative meeting. The couple that runs the investor group up in Columbia, SC came down and had an interesting experience with one of their lease options.

When they initially filled the property, they had done their typical lease option paperwork and had collected a down payment. Their tenant buyer stopped paying the rent so they filed an eviction. The tenant probably called for a notice to show cause hearing because they ended up in court together (a notice to show cause hearing gives a tenant that is being evicted a chance to plead their case to the judge). At the magistrate level, the judge can pretty much side with whoever they want regardless of the “law.” Usually, when a landlord shows up with his paperwork and records showing the tenant’s delinquency, the decision from the judge is rendered rather quickly. The tenant is told to be out of the property by a certain date regardless of whether they are renting or in a lease option.

Not the case here! The judge found out that the tenant was in a lease option agreement and sided with the tenant. The judge said that the down payment gives the tenant an equity position in the property and that the owner would have to foreclose on the property. That sucks!

We have been doing lease options ever since we got started and have fortunately not run into this problem yet. This is good information to have at this point though. One of the guys on the panel summed it up pretty well. He said that in real estate, things like that are just going to happen. You are going to end up in court. You are going to get sued. And that ultimately, it’s a cost of doing business.

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