Foreclosures and Option Holders

Hello everyone,

I was wondering if some one could advise me on the following hypothetical situation. If i hold a call option over a property and then the vendor goes into foreclosure, what happens to my option? I understand that its a question of contract law. Perhaps a clause in the contract is required? Perhaps if they go into foreclosure they do not have the capacity to perform under the contract and i could be eligible to recover my premium? 

Any comments are appreciated.

Regards,

David
realestate@davidcball.com
 

Alternatively, if you were to exercise your option it would be at the agreed price - you can't have your cake and eat it.

Sorry Scott i don't quite understand. Wouldn't the vendor going into foreclosure mean that even if i did exercise my option they don't really have the capacity to give it to me - because the bank is now in control over what happens? 

On a side note, when they agree to give me the option, does that get put on the title? Does it have to be recorded in court / by a solicitor that they have done so?

Regards,
David

Hi David

The call call option agreements that we're familiar with, have in them a clause that states that we have a "caveatable interest" in the property.  We can them make our own decision as to whether we get our solicitor to register a caveat on the property, regarding the option.  Thanks.

Cheers,  Paul

Paul & Karen Dobson
negative2positive
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Phone: (02) 4984 9540

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It would depend upon what is in the option contract whether there is a provision for the loss of the option due to the mortgagee taking possession (the mortgagee would have had to have consented to the option if a caveat was placed on the land).

If you have a caveatable interest, have it registered for peace of mind.