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Division of Equity in a Home Leased with a Purchase Option

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  • 01-07-2018, 04:42 AM
    fdc
    Division of Equity in a Home Leased with a Purchase Option
    My question involves a marriage in the state of:CA

    Prior to separation (and filing for divorce) the ex and I signed a 7 year lease to purchase contract on a house. We locked in the sale price and came in with a pretty substantial down payment. the contract is set to expire in august of 2019. The title holder of the house (the private party we signed the lease/purchase with) is only due the original purchase price (minus principal payed down in monthly rent payments), to conclude the lease, (the purchase or sale may occur at any time by the ex and I). If the decision is made to sell the home on the open market any moneys from the sale above the original price are to be distributed to the ex and I. The ex moved out and has no interest in keeping the house and is only interested in half the money if the house was put on the open market. The ex has been requesting I terminate the lease early by either buying the house, and giving her half of the money that would be left over from satisfying the lease at an appraised price or placing it on the open market. To make it easier to understand :

    example....house appraises for $400,000
    still owed on original purchase $200,0000
    the difference is split and $100,000 to the ex to release their interest in the lease

    I have made several offers to buy the ex's interest in the lease, but have not been able to afford a mortgage that pays out the ex in full. I have requested that if the ex wants the lease executed prior to the expiration date of the lease she should work with me and take less so I can afford to pay the mortgage.

    Here's me question.

    Do "watts charges" apply to a lease/purchase agreements, (the monthly lease is below market rental value)? Can the judge force me to terminate the lease and buy/sell prior to the date the lease is set to expire. Does the ex owe anything towards the payments made on the lease in exchange for moneys paid out after completion of the lease? does the ex still acquire all the "equity" after the separation date?

    Essentially found out my ex was sleeping with my best friends 4 months after signing this lease to own contract, the ex moves out, sticking me with all the bills (had to double my income). Then they dragged out the divorce for YEARS while the housing market made a come back. Now they demand I end the lease early and they get to reap the benefits (extra money from the housing market bouncing back) and then charge me more money for maintaining the lease that they are making all of this money on .... ?
  • 01-07-2018, 06:58 AM
    budwad
    Re: Lease with Purchase Option
    Are you represented by an attorney or are you pro se? If pro se, I strongly advise you hire a CA divorce attorney.

    I'm no expert on CA divorce law but just reading about Watts Charges and Epstein Credits makes it clear that you need an attorney. The leas to purchase has value and it was the marital home. And I believe the judge could order the lease completed and the home sold.

    In both cases, since your Ex moved out and you stayed, Watts Charges will be applied. On the other hand, since your EX stuck you with all the bills (and lease payments I assume) Epstein Credits will also apply. I just hope you are not paying out of a joint bank account.

    Google Watts Charges and Epstein Credits.
  • 01-07-2018, 01:30 PM
    fdc
    Re: Lease with Purchase Option
    We both have attorneys, and there seems to be confusion between the lawyers about applying rules that apply to owning a home verses a lease.
  • 01-07-2018, 01:40 PM
    budwad
    Re: Lease with Purchase Option
    Then I would want to speak to another attorney. It's not just a lease. It is a lease to purchase and you have been building equity in the property. Not all that different if you carried a mortgage with a balloon payment.
  • 01-07-2018, 02:17 PM
    fdc
    Re: Lease with Purchase Option
    Not being on title has carried a lot of weight in settlement conferences and have been able to leverage not actually owning the house ... as we actually do not own the house ... I do plan on speaking to another attorney.
  • 01-08-2018, 01:54 AM
    llworking
    Re: Lease with Purchase Option
    Quote:

    Quoting fdc
    View Post
    Not being on title has carried a lot of weight in settlement conferences and have been able to leverage not actually owning the house ... as we actually do not own the house ... I do plan on speaking to another attorney.

    It would probably behoove your divorce attorney to consult with a real estate attorney.
  • 01-08-2018, 11:08 AM
    Mr. Knowitall
    Re: Lease with Purchase Option
    Quote:

    Quoting fdc
    View Post
    I have requested that if the ex wants the lease executed prior to the expiration date of the lease she should work with me and take less so I can afford to pay the mortgage.

    How much are you asking her to effectively gift to you so that you can afford a mortgage? If it's < $10,000, it may be worth it to her to wash her hands of the situation; but you should also be able to find a way to equalize that amount from the balance of the marital estate. More than that and you're asking for quite a windfall.
    Quote:

    Quoting fdc
    Do "watts charges" apply to a lease/purchase agreements, (the monthly lease is below market rental value)?

    A leasehold interest in real property is a community asset and thus is potentially susceptible to Watts charges.
    Quote:

    Quoting fdc
    Can the judge force me to terminate the lease and buy/sell prior to the date the lease is set to expire.

    The court could decide that the best approach to resolving the situation is to place the property on the market, and to accelerate the lease and pay off the property in association with the sale and closing on the home. Your lawyer can advise you as to what the judge in your case might consider.
    Quote:

    Quoting fdc
    Does the ex owe anything towards the payments made on the lease in exchange for moneys paid out after completion of the lease?

    Broadly speaking, if you retain the exclusive use of a marital asset, you have no claim against your spouse for contribution to the cost of the payments. Even less so when the payments are below market.
    Quote:

    Quoting fdc
    does the ex still acquire all the "equity" after the separation date?

    From what you have told us, the purchase price is fixed, and you are not building any equity through your (below market) lease payments. If the lease is accelerated in association with a sale, it would be reasonable for your ex- to pay half of the money used for the early payoff of the lease (which, under the facts you have given, would be an allocation of that expense prior to division of equity from the sale).
    Quote:

    Quoting fdc
    View Post
    Not being on title has carried a lot of weight in settlement conferences and have been able to leverage not actually owning the house ... as we actually do not own the house.

    But you state that you have a legally enforceable right to purchase the home for an agreed price.

    What leverage have you managed to assert by virtue of this being a lease to own? It would not seem that you have been able to gain much benefit from that leverage, given that we're having this discussion.
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