Received from BONANZA INVESTMENTS hereinafter called Lessee: Address: 18 Gold Coast Road, Yuma, Arizona,

The sum of ONE THOUSAND AND NO/100 DOLLARS ($1,000.00). In the form of: Note (to be converted to cash within five [5] ousmess clays from the date Lessee accepts the  property) as deposit for Lease with Option to Purchase on the property of LUCIUS B. VON ANZA AND ANN ANZA, his wife; hereinafter called Lessor: Said property situated in the City of MIDWAY, County of EUPHORIA, described as follows:

TO WIT: ALL THAT REAL AND CERTAIN PROPERTY BEING:

1.0 A THIRTY-iWO (32) unit apartment building commonly known as 100 Palm Street, Yuma, Arizona. including all equipment, appliances, furnishings, and draperies used  in the normal operation of the property.

SAID PROPERTY SUBJECT TO"

1.1 A Note and First Deed of Trust in the approximate amount of ONE HUNDRED THIRTY EIGHT THOUSAND AND No/100 DOLLARS ($138,000.00) payable at ONE THOUSAND Two  HUNDRED FORTY-TWO AND 72/100 DOLLARS ($1,242.72) per month including principal and interest at Six AND THREE QUARTERS PERCENT (6~4%) per annum.

1.2 General and special taxes for the 1980-81 fiscal year. Which property said Lessee agrees to lease subject to the restrictions, conditions, covenants, easements  and rights of way that are now of record. 

TERMS AND CONDITIONS

2.0 Lessee and Lessor mutually agree that said Lease shall be for a period of TWENTY (20) years and shall contain an option to purchase for an option price of THREE  HUNDRED TWENTY THOUSAND AND NO/100 DOLLARS ($320,000.00).

2.1 As consideration for the option to be given Lessee, Lessee agrees to pay Lessor TWENTY THOUSAND AND NO/100 DOLLARS ($20,000.00) including the above deposit, the  balance of NINETEEN THOUSAND AND No/100 DOLLARS ($19,000.00) to be deposited into escrow within thirty (30) days.

2.2 Lessee agrees to pay Lessor rental payments in the amount of Two THOUSAND ONE HUNDRED AND NO/100 DOLLARS ($2,100.00) or more per month for a period of TWENTY  FOUR MONTHS, then Two THOUSAND TWO HUNDRED AND No/100 DOLLARS ($2,200.00) for the next TWENTY-FOUR MONTHS, then Two THOUSAND THREE HUNDRED AND No/100 DOLLARS  ($2,300,00) for the next TWENTY-FOUR MONTHS, and then Two THOUSAND FOUR HUNDRED AND No/100 DOLLARS ($2,400.00) per month for the remainder of the lease period. In  the event Lessee shall exercise his option such rent shall be applied first to interest and then to principal of the sum of THREE HUNDRED THOUSAND AND No/100  DOLLARS ($300,000.00) at the rate of EIGHT AND ONE-HALF PERCENT per annum; and all principal when applied shall be credited against the option price.

2.3 Lessor agrees to have property fully rented upon close of escrow. Tenants accepted by Lessor after final approval of this agreement by both parties shall have  Lessee's prior approval.

2.4 Said Lease and Option shall contain a subordination agreement whereby if Lessee should exercise his option and therefore wish to refinance Lessor will  subordinate to a new first loan. Any proceeds remaining from the refinance after retirement of the existing first loan and payment of reasonable refinance costs  shall be paid to Lessor and credited to the principal due under the Lease. Should this refinance occur Lessee agrees to execute a Note and Sec- ond Deed of Trust in  favor of Lessor for the remaining amount due Lessor, said Note to be at 89'~% interest per annum and payable in monthly installments of interest only and due on  January 1, 1995.

2.5 If Lessee shall exercise his option to purchase without refinance or assumption of the existing First Note and Deed of Trust, then said loan shall remain in  Lessor's name until such assumption or refinance shall occur. Lessee is aware that loan contains an Acceleration Clause and that the Ben- eficiary (Mercy Savings  and Loan) has the right to call said loan or require a formal assumption. Lessee is further aware that it may be necessary for him to pay loan points, assumption  fees, title insurance fees and other costs involved in obtaining an assumption or replacing the existing loan with alternative financing.

2.6 Concurrently with the execution of said Lease, Lessor shall execute in favor of Lessee a Note and All-Inclusive Deed of Trust in the amount of approximately  THREE HUNDRED THOUSAND AND No/lO0 DOLLARS ($300,000.00), said note to bear interest at EIGHT AND ONE-HALF PERCENT (8V2%) per annum and to contain a due date of TWENTY (20) years. The payments on said Note shall correspond to the payments on the Lease for the period of the Lease still remaining when the option  is exercised, and thereafter shall be in monthly installments of Two THOUSAND FOUR HUNDRED AND No/IO0 DOLLARS until paid. Said Note and Deed of Trust shall contain  a subordination clause as described in paragraph 2.4, but shall not contain an Acceleration Clause.

2.7 Concurrently with the execution of said Lease, Lessor shall execute in favor of Lessee a Grant Deed to the property, said Deed to be held by Lessor until such  time as Lessee has delivered the Note and Second Deed of Trust described in paragraph 2.6 or until Lessee shall pay in full the THREE HUNDRED THOUSAND AND No/100  DOLLARS ($300,000.00) amount described in paragraph 2.6. Upon the earliest occurrence of either event Lessor shall deliver to a Title Company of Lessee's choice the  Grant Deed for recording.

2.8 Lessor agrees to furnish Lessee with a signed statement of rents and deposits for his property. Advance rents, cleaning fees and security deposits shall be  transferred to Lessee in escrow.

2.9 Lessor to provide the other with an inventory of all personal property within FIVE (5) days of final acceptance hereof by Lessee.

2.l0 This agreement is subject to:
(a) Lessee and/or his agents inspecting and accepting the property including all units and contents thereof within TEN (10) working days of acceptance hereof. Each  party to provide access as required.

(b) Lessee's inspection and acceptance of all rental or lease agreements and operating records showing rental history for one year, current tenants' rental amount, amounts past due, records of payment and security or cleaning deposits received, prior to close of escrow. Lessor agrees to provide said records or statements as required. Lessee to indicate acceptance of the above by writing the date and his initials next to each paragraph. And it is hereby agreed: That in the  event said Lessee shall fail to pay the balance of said option amount or complete the transaction as herein provided, time being of the essence of this contract, the  amount of said deposit shall at the option of the Lessor be retained by Lessor as consideration for the execution of this agreement. That the evidence of title shall 
be a policy of Title Insurance issued by the LAWYERS TITLE, premium to be paid by Lessor. Title is to be free of liens and encumbrances except as above mentioned. That should the title to said property prove defective or unmerchantable and the Lessor be unable to perfect same within 90 days from date hereof all amounts paid hereon shall be returned to the Lessee upon demand.

That should the improvements on said premises be destroyed or materially damaged prior to the close of escrow, all amounts paid hereon shall be returned to the  Lessee unless the Lessee elects to complete the transactiola regardless of the then condition of the improvements.

That the taxes for the fiscal year ending June 30th following the date hereof, the rents and insurance, shall be prorated as of the date of closing.

Any existing assessments and/or improvement bonds are to be PAID BY LESSOR.

That the real estate Agent is allowed FIVE (5) days to secure the acceptance of the Lessor.

Time is the essence of this contract, but the time for any act required hereunder may for sufficient cause be extended not longer than thirty days (30) by the  undersigned real estate agent.

Possession of premises to be given upon recordation of a memorandum of said Lease.

All terms and conditions of this Agreement shall be binding to the heirs, executors, administrators, successors and assigns of the undersigned parties.

The above deposit is received and this agreement is executed by the agent on behalf of the Lessee subject to the Lessor's approval.
By I agree to lease the above described property on the terms and conditions herein stated, and acknowledge receipt of a copy hereof.

Dated 20___________
Lessee ____________________
Lessee ____________________


I agree to lease the above property on the terms and conditions herein stated, and agree to pay the below signed agent as commission Six PERCENT (6~) of the above  option price, or onehalf the deposit in case same is forfeited by Lessee, provided same shall not exceed the full amount of the commission, and I hereby authorize  the Title Company to pay said commission from escrow upon closing.

Dated 20___________
Lessor _____________
Lessor _____________

Variable-rate mortgages (or floating-rate mortgages, as they are sometimes called) are mortgages that are written with an ihterest rate that is subject to periodic  adjustment based on fluctuations in some index over which the lender has no control.

The index is likely to be the interest rate on either six-month Treasury bills, three-year Treasury obligations, or the home loan rates as surveyed by the Federal Home Loan Bank Board.

Variable-rate mortgages have been around for years but until lately have been used only on a limited basis. You'll probably see a lot of them written in the future.  In fact, many people feel that institutional lenders will be unwilling to make any new long term mortgage loans at a fixed interest rate.

The reason for this, of course, is the violent fluctuation in interest rates (both short term and long term) since the late seventies. Until then, mortgage and  trust-deed loans were still being written by institutional lenders for thirty-year terms at fixed interest rates of 6 percent, and the lenders were paying perhaps as low as 4V2 percent for their money. But in the nineteen eighties, the average cost to them of the money they lend out has risen dramatically, while they still have  much of their assets tied up in the long-term loans they made at rates well below what they must now pay 'for money.

In the spring of 1981 the Federal Home Loan Bank Board finally gave the federally chartered savings and loans the right to make "floating-rate" loans. About the only  real restriction is that the savings and loan cannot arbitrarily raise rates. It must choose an interest-rate index the public can readily check, must decide how often the rate on its loans will be reviewed, and cannot raise the rate at the end of that period by more than the index rose over the same period.

In my view, it's still conceivable that long-term, fixed-rate mortgage loans may be written in the future. I think there'll always be lenders who will write them  particularly when interest rates are high and they want to "lock in" the high rate. Also, competition will be a factor, especially when there's plenty of money to  lend. We'll probably see both variable-rate and fixed-rate loans offered, with the initial interest rates set according to the lender's assessment of the economic scene at the time.

If you're offered a VRM, the lender might say to you in effect, "I'11 give you a loan at the going rate of interest, on condition that you agree to let me adjust your rate later to put it in line with whatever changes hit our index. We won't change rates oftener than six months. And we'll put a ceiling on how far and fast  your interest rate can go up, but no floor under the extent to which it can sink." Many lenders are further brightening this picture by making the VRM assumable by  the new owner if you sell the property, and by letting you pay off the loan at any time without prepayment penalty.

This could be good for you if you're taking out a mortgage when prevailing rates are high. Contrariwise, if money is cheap and plentiful when you borrow, you'd  better calculate carefully. What will happen to you when the pendulum swings the other way, as it undoubtedly will sooner or later? Exactly how much more will you be  committed to pay? Will you be able to afford the higher payment rates? Or does your loan give you an option to extend its term and continue to make payments at more  or less the same monthly rate over a longer period of time? This latter feature is advocated by many VRM proponents as a solution to the burden-of-higher-payments problem.

If you have a choice between a VRM and a standard fixed-rate mortgage, your best bet will depend on the terms of the loan contracts, and the circumstances involved. Study every clause of the proposed contracts, and figure what each will mean to you as rates rise or fall.

REMEMBER THESE HIGH POINTS:

Don't settle for a "standard" mortgage or trust deed. Consider possible variations.
Consider an all-inclusive loan (wraparound) when there is a locked-in loan that can't be paid off without severe penalties, or when you want to buy property for  which you couldn't qualify if you had to seek new financing.
Consider buying under a partnership, perhaps to avoid due-on-sale acceleration clauses.
Consider lease-options as another way of avoiding re-financing.
A variable-rate mortgage can be good for a borrower when existing rates are unusually high.

 

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