Underwriting Manual: IN


Options To Purchase

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An option to purchase does not create a legal or equitable interest in real property in Indiana unless the option is exercised. An option to purchase has been defined by Indiana courts as a contract by which a real property owner agrees to give another individual a privilege to purchase property at a specified price within a certain period of time or within a reasonable amount of time in the future. The privilege does not create an obligation on the individual to purchase. The option is viewed as a continuing offer to sell the property. North Side Asphalt & Material Transport, Inc. v. Foreman, (Ind. App. 1988) 520 N.E.2d 457; Romaine v. A. Howard Wholesale Co., (Ind. App. 1987) 506 N.E.2d 1124. Generally, the holder of an unexercised option to purchase Indiana property cannot obtain casualty or title insurance due to the lack of a real property interest.

Generally, a concern exists as to the effect of the Rule Against Perpetuities when an option continues for a long time or contains an indefinite term of existence. The Rule Against Perpetuities may defeat an option if the option does not expire or terminate prior to twenty-one (21) years following the death of a designated person or a member of a designated class. In 1991, Indiana repealed the common law Rule Against Perpetuities to adopt the Uniform Statutory Rule Against Perpetuities. I.C. 32-17-8-1 to 32-17-8-6. A nonvested property interest is valid if (1) the interest is certain to vest or terminate not later than twenty-one (21) years after the death of an individual then alive; or (2) the interest either vests or terminates within ninety (90) years after creation of the interest. I.C. 32-17-18-3. The uniform statutes may address this concern for nonvested property interests created after May 8, 1991. I.C. 32-17-18-1.

Bankruptcy of the landowner leaves an option holder with little protection. Although the Bankruptcy Code provides protection to the rights of purchasers in possession of property pursuant to an executory contract for the sale and purchase of land, an option holder usually cannot seek this protection. 11 USCS § 365(j). Prior to exercise of the option privilege, the holder usually does not possess the real estate or any legal or equitable rights to the property. If the option is lost due to the bankruptcy proceeding of the landowner, the optionee may attempt to recover the option money in the bankruptcy proceeding. Id.