I am fairly certain that most of us have, at one time or another, financed a car, or a boat, or a home, or a piece of equipment for our business, or a commercial building or we’ve taken out a term loan for working capital or to fund a project or to send our kids to college or camp.
We’ve all probably compared various financing options and considered the various components of a loan or a lease and we believe that the choice we made was generally intelligent and resulted from an informed decision because we’re all pretty smart.
We’ve all probably received a set of lease or loan documents by mail or by email and we’ve all, well maybe not all of us but many of us, have read or at least scanned the documents to make sure they characterize the lease or loan that we agreed to and that the documents don’t have any surprises.
And once we were satisfied that the documents accurately represented the lease or loan we bargained for we sign the documents, put them into an envelope, slapped a stamp on the outside and sent them off in the next mail.
And I’m pretty sure that when the lender countersigned the documents and completed the lease or loan they sent a copy for our files. After all that’s the right thing to do and I believe it’s required by law.
And I am absolutely certain that almost none of us reviewed the signed copies to make sure that they were exactly what we signed and that there was a signed copy of every single document we signed.
Enter the magical disappearing $1.00 purchase option.
- You negotiated it.
- You saw it in the documents that were sent to you.
- You signed it.
- You sent it back to the leasing company or broker….. and they never sent it back!
And you will probably not notice that it’s missing until the end of the lease term when you try to exercise your $1.00 Purchase Option.
Then, after you’ve made all your payments on time, paid your property tax when due, keep the assets insured against loss and damage but when you tried to exercise the $1.00 purchase option that you negotiated years earlier…. surprisingly the lender has no record of agreeing to such a thing and surprisingly they have no record of ever signing such a document (the magical disappearing $1.00 purchase option) and surprisingly according to their records you can either buy the equipment for its Fair Market Value (certainly more than the $1.00 you negotiated) or you can return it or you can continue to lease it for another year or two.
A good way to avoid this problem is to require the lender or broker to email you the documents required for signature and to keep a copy of that email as well as a copy of everything you sign. A confirming email can also be helpful. A better way to avoid this sort of problem is to deal with only the most reputable (not the largest or most popular) lenders and brokers.
We offer this informational document as our opinion based on over 40 years of experience in the commercial finance industry and suggest that you to use it as a part of your decision making process. As with all important decisions, especially financial decisions, we also suggest that you consider all aspects carefully and consult with your attorney or accountant or other party who is knowledgeable about financial matters when considering entering into a legally binding agreement.