Have you received a mailer offering “all cash” for your house, or a monthly payment for your equity? As with any transactions among strangers, most are legitimate, but many are fraught with problems, including fraud. More that likely it can best be summed up with the old Latin adage “caveat emptor — let the buyer beware,” or in this case, the seller.
You have received an unsolicited mailing, whereby a promoter offers to buy any house — often sight unseen — and pay the seller on a monthly basis any equity that exists in the house. This might seem appealing at first, after all you don’t have to hire a realtor and pay a commission and if you get monthly (or yearly payments) this is called an “installment sale”, and you will be able to defer full payment of any capital gains taxes until you are paid in full on your equity. So what could go wrong?
- The buyer could go bankrupt or skip payments. This is not a problem if you have the first trust. The property will just resort back to you. However, if you are a second trust than the first trust would gain ownership and you would be out of luck. One common instance of fraud is that you agree to sell your property for $100,000, and take back a trust in the amount of $70,000. The Buyer gives you the difference in cash, namely $30,000. But unbeknownst to you, he arranges with his friendly title company companion to have your trust put in second position behind a first trust also in the amount of $70,000. The buyer leaves the area and defaults on both loan. He walks away with the $70,000 from the title company and after paying you the $30,000 is $40,000 in profit. Not only are you out the $40,000, but also lose the house.
- You could be subject to a due on Sale clause. If your buyer just wants to assume your existing mortgage, there are other issues to consider. Most mortgages contain what is known as a “due on sale” clause. This means that upon the sale of your property to a third party, your existing lender can call the entire unpaid balance of the mortgage due. While lenders do not often assert these clauses, the possibility remains. This is too great a risk, so you should not enter into such a sale without first obtaining your lender’s approval of the transaction.
- Even if you own your home free and clear, and you do not get full cash at settlement, there is nothing to stop your buyer from taking out a new mortgage on “your” home after settlement. If that new lender does not receive the monthly payments on time, it can foreclose. This can cause you a lot of aggravation, as well as uncertainly and legal fees.
- Before entering into this kind of transaction, you must learn more about your buyer. Are there any tax liens against the buyer that could become a super-priority lien ahead of your deed of trust? Is your buyer judgment-proof — i.e., you will not receive any money even after you successfully obtain a court judgment. There is no cash register at the back of the court house.
- What price are you willing to accept from this buyer? Clearly, that buyer is not a charitable organization; there is a profit motive behind the transaction. Why should this buyer offer you market price for your house, since when the house is ultimately resold, your buyer will not make any profit.
- What guarantees your buyer can give that you will ultimately receive payment in full? The short answer is none. Unless your buyer pays you all cash, you face a serious risk that you may not get paid in full. If there are any tricks, and if the buyer is not completely reputable, they will use every trick in the book to take advantage of you.
All real estate is a gamble, but offers that sound to good to be true usually are. You need to watch your investments and make sure you do not get sucked into a con. Not everyone is worthy of your trust or deserving of doing business with you. Be sure to take care and go into selling your home with a smart plan and an expert who’s goal is to help you reach your goal. For more of what to look out for or help in selling your home, call Helen today at 847.967.0022 or email [email protected].