This approach can be used along with the filing of a Memorandum of Option. The seller would actually sign the deed at the same time that they sign all of the lease option contracts. However, the deed is not yet recorded on the title. Instead it is held in escrow by an attorney or title company with instructions for its release. While this approach does not protect the title against the potential filings of liens, it tends to give sellers the feeling that they have deeded, or sold, their property, so they are much less likely to try to back out later on their lease option agreement. It can also allow the investor to close on the home without the seller being present.
The instructions included with the deed in escrow specify how and when the deed can be released and recorded. For example: “When Wendy Patton pays $155,000 in certified funds to Joe Smith, this deed can be released to her. These funds must be paid by (date).”
Excerpt taken from Investing in Real Estate with Lease Options and "Subject-to" Deals Book.
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