Thanks for the thoughts and questions. We saw the attorney today, who is with one of the top real estate law firms in Palm Springs. He spent about 90 minutes on our discussion including preparation and charged for one hour. We liked him.
His opinion was that our particular lease was pretty good as leases go, given that it doesn’t expire until 2080 and it increases by CPI every 5 years. Apparently the Indian tribes are not taxed on income from these leases, so they are glad to have them in their portfolio of assets. He said some of the concerns I was worried about were not significant as a practical matter. He said as long as you’re paying your mortgage, taxes, insurance and lease payment, the Bureau of Indian Affairs leaves you alone.
However, I’m still a bit skittish about this because:
- Many high volume lenders won’t lend on leased land, so our rate will be about 1/8 point higher.
- HELOC’s and reverse mortgages are not an option on leased land.
- Any time you want to refinance your property, you must get Indian approval and pay the requisite fees (currently about $2K).
- You cannot lease your property for a term longer than 12 months without getting Indian approval. May not be in our plans anyway, but it’s a good example of how your freedom is limited.
- The lease must be renegotiated before 2045 because there must be at least 35 years left on the lease in order for buyers to get a 30-year mortgage. There is no guarantee that the lease will be renewed, and when it is extended, lease cost often increases a lot. 2045 is a long time from now though so probably not a huge concern for us.
Palm Springs definitely has a lot of leased land, and the area we like best, called Indian Canyons, is one of the most exclusive areas in town and is almost 100% leased land. The SFR’s in this neighborhood are mostly over $1M, with condos in the $250k-$650k range. We are trying to decide if this is the only area for us, or if there is somewhere else on fee simple land that we could enjoy.