We currently have a home listed for sale. The homeowners have been relocated to a different state and the home is vacant. We received an excited phone call from the seller this afternoon. She had received a full-price offer on her property! Since we have an exclusive right to sell listing agreement, I was curious how someone got the offer to her directly, but an offer is an offer.
We had her fax it over to us to review. Rather than a contract to purchase, it truly was just the transmission of an offer. They were offering full price with a $10 earnest money deposit. Out of the norm, but it was a starting point. I was doing okay until I read the conditions:
"Seller agrees to leave the existing financing in-place and/or finance Buyer's assignee or successor buyer." This one should be a huge red flag for any seller. Basically, they will deed their property to a new owner but not pay off their mortgage. Wrap mortgages can be done in some states but most modern mortgages include a Due On Sale clause which states that the balance is due when the property is sold. Some of these companies will tell you that they bank will not exercise the Due On Sale clause but I've actually seen it happen when a buyer transferred his rental property into a Limited Liability Company.
"Sales price is contingent upon the condition of the property, the actual Fair Market Value, and current market conditions." While they're offering full-price, it can be adjusted later based upon a number of factors.
While I personally classify this as a scam, do yourself a favor and do not become involved in this type of "sale" without consulting with an attorney.
Tom Branch and Gina Branch, The Branch Team with RE/MAX Dallas Suburbs, service the greater North Dallas suburbs including Dallas, Plano, Allen, McKinney, Frisco, Lewisville, and Carrollton. While Gina concentrates on traditional listings and buyer/tenant representation, Tom specializes in assisting distressed homeowners to avoid foreclosure. Tom and Gina have published two books (Achieving Rock Star Status and The Field Guide to Short Sales) and are available for speaking engagements in the greater Dallas - Fort Worth Metroplex. Subscribe to The Branch Team Blog.
Copyright 2009-2012 - The Branch Team
The Branch Team - Texas Real Estate Broker 547597 | Team Members are Texas Licensed Real Estate Professionals
Tom Branch - National Mortgage Licensing System 341963
Important Notice: The Branch Team with RE/MAX Dallas Suburbs is not associated with the government, and our service is not approved by the government or your lender. Even if you accept this offer and use our service, your lender may not agree to change your loan. If you stop paying your mortgage, you could lose your home and damage your credit rating.
All information provided is deemed reliable but is not guaranteed and should be independently verified. Properties subject to prior sale or rental.
Tom...It has been a long time since I wrote a contract for deed agreement. They can work, the buyer becomes owner of equity and the escrow attorney (or seller) holds the deed until pay off (while receiving the buyers payments and continuing making existing mortgage payments). Like I say it can work, if the seller gets enough down payment money to consider the risk, but we haven't done these deals in a long time (when rates were really high). P.S.. this sounds like a scam.
Oh Yikes...I trhink more and more of these types of "deals" will be happening as more distressed or perceived to be distressed properties come on the market! That is crazy....glad they have you as an advocate!!!
I agree with you, Tom. Scam all the way. $10? That's just crazy.
Tom,
Don't they give courses like this on "How To" at the Holiday Inn? Yes there are quite a few of these types of nitwits out there. Also not sure about your area but are they not dancing in a gray area of COE by contacting the seller directly? I am sure this did not come from a licensed agent though.
Where's the part where they tell the seller they must stop working with their agents? That's what I used to see, so sellers were trying to get out of their listing agreements not understanding the "protection period". I'm glad I educate my sellers upfront!
Sounds strangely like an offer I received on one of my listings at the beginning of the year. We laughed and went to a "real" offer.
Definitely sounds like a scam! I'm getting offers to present to sellers that look like this, but contacting the seller direct......that's scary.
Wow. A lot of red flags on that one...as though the SELLER directly receiving a full price offer was not enough to make the hair on the back of your neck stand straight up! Good eyes and great representation of your relocation seller!
Morning Tom. This is no better than the torrent of letters many have been receiving from purported Finance Ministers of tiny little 3rd world nations who need someone to help them transfer $20 Million to a US Bank!! Scams all. And if it isn't tortious interference with your contract with your seller I don't know what is!
Hello Tom - I agree that this smells of a scam and it is probably from a "seminar educated" investor wannabe. Wow, $10. earnest money! I would not have my seller even acknowlege such an offer.
Lame. If it were a real offer, they would have sent it to you, the sneaky morons.
Cheers,
Robin
Nice catch, this certainly sounds sleazy to me. Scammers seem to be getting smarter every year!
Sounds like a scam to me.
It used to be "buyer beware" No we can say "seller beware" . . . $10 EM, going to the sellers directly ... HA HA HA what a joke. Good thing they're not FSBO, and taken by this "full price" offer.
Tom - We buy property all the time "subject to" the existing finance as it is a win-win for the two main parties involved. This occurs mainly where there isn't really any true equity in the house. Needless to say, this transaction does have risks, such as the due-on-sale clause, but in 10 years we have never had a loan called, and quite honestly, we don't expect it to happen. However, we usually don't buy listed property as the seller doesn't want to incur another 6% negative cash flow on their property by paying the commission.
Does this work in every scenario? No. But in this market environment, there are people that need to sell and don't want to go the foreclosure or short sale method AND wants a sale to happen yesterday. That is where we step in and remove their problems. Furthermore, the seller has to be careful with whom they do this type of transaction as the buyer could stop paying and then there becomes a real mess. But if you choose carefully, the risk can be minimized and both parties can win.
While we are actively involved with doing "subject to" financing in 12 states, (Texas is not one of them) it is an option that fills a void albeit outside the box.
Tom, there are so many real estate scams going on it can be a daunting task to warn the public about them all...but this definitely sounds like one of them. $10 EMD...hee, hee! :)
Think I saw this one on late-night TV...Great post!
Tom I agree - this sounds like a scam to me as well.
So many of these scams these days.
Hi Tom -- Wow, this one would have made my hackles go crazy as well. How did they track down the seller?
It does sound like a scam. Good thing your sellers had you to review the offer and advise.
I just knew there was a deeper story behind this post, and I'm glad that you spelled it out for us, Tom. I wouldn't even think about receiving an offer like that, no way.
SCAM!!!!
I'm glad I decided to actually open the post as I had to read the into paragraph a few times and couldn't figure out what was going on. My first thought was "he's the listing agent and his seller called to tell him they had and offer"....huh? Glad I read more as this is clearly a scam and if it had any legitimacy they would have put this rather odd proposal in front of you to present. I guess they knew you would filter it right out of there....
If it's too good to be true then well you know the rest....
Here we thought you had good news! So many of these creative financing investors to deal with, to bad we can't shut down the factory that churns them out! sigh
This definitely sounds like a scam, no wonder the "buyer" sent it directly to the seller! Thanks for sharing this with us.
Hi Tom,
Yes, this sounds highly suspect. We all have to watch out for scams. Thanks for letting us know.
Cheers from Lake Tahoe,
~Grace
Bill #15,
It may work work in some cases but it seems to me the risk far outweighs the rewards. Texas is a non-recourse state so the entire debt gets wiped out in a foreclosure. Granted, the credit damage lasts for years.
I've seen a Due-On-Sale clause enforced, While it's likely rare, I suspect lenders are keeping better tabs these day as well.
Tom
Scram! It's a scam.
I hope your Sellers weren't too disappointed once you explained it to them. NEXT!
It's no scam. It's just an offer!
I have never seen a Due-On-Sale clause enforced, especially on pre-foreclosure obviously.
There is no law enforcing a EM to be deposited.
To make it short, it's just an offer...For my sellers, I would counter and go from there...
So, you have an unknown buyer without a lender, no proof of employment and no current credit report who is asking the seller(s) to carry a second in the amount of their equity in the property and then commit fraud against their lender, as well as cover the costs of commission and closing costs. After explaining the risks to your seller I would just advise them to reject it with no counter offer.
Tom - sad that your sellers thought they had something to be excited about. What a let down for them.
There's so many of these scams surfacing, we all have to remain diligent. If it appears too good to be true, it usually is.
Tom - I think an Attorney will have lots of fun with this type of transaction.
Sellers in my area are getting pounded right now with offers in the mail. Of ocurse all are just junk offers being mailed out in bulk.
I spoke to a seller yesterday who was roped in by a foreclosure rescue cpompnay. They charged her money up front, had her sign an agreement that she would not contact her lender and used an assignable contract disclosing they are flipping her property to an end user. She's been under contract for almost ayear!!! She WILL be foreclosed on.
I hate seeing folks get burned by pie on the sky promisses.
Best to stay away from these. The simple fact they look up listed properties and mail directly to the owner in order to bypass the agent is first indication that you're dealing with unethicical people. I heard a story of an aowner that actually signed one of these without tellint the agent and it turned into a huge mess.
Don't you just love these scams that come out of the woodwork. Poor folks that fall for these find themselves in some real difficulty.
I've heard of this type of transaction. They actually had classes years ago on how to do this.
To be fair, "subject to existing financing" contracts can be closed. Personally, I think the risk far outweighs any benefit.
If the new buyer stops making payments, the original seller gets to keep making payments while they try to foreclose on the new buyer. This could take months or years depending upon the state or situation.
While not the only issue, once this is explained to the sellers 99.99 percent realize it's not the way to go.
Tom
BB,
Charging up-front fees on a foreclosure rescue sounds like a MARS violation...
Tom
and this is why they need us!!!
Tom, I've seen a couple of wraps done a few years ago legally. They do have their advantages. However, your offer sounds like it is from someone who just graduated from a "How to Make Easy Money in Real Estate" course.
Tom - big siren and red flag should be going up when a seller gets an offer directly to them and not to the listing agent. Sounds like a big scam.
Thanks for sharing and this sound too good to be true and great post!
The hard part will be explaining that it is a scam to the homeowner...... I hope you have a smart seller.
Well I hope that $10 emd was in certified funds, lol! Any offer is so much more than a simple price and this one stinks of scam once you go past the flashy "price"
Ha, who comes up with this stuff? There must a be a large room of real estate scammers who sit around and think up crazy ways to try to circumvent laws and contracts. Run Forrest Run! :)
The flag that crossed my mind went fo i hear lawsuit in the making if they accept this?
Definitely a scam.
I am sure the information you provided to them further reinforced the reason they should work with a Realtor and not do it on their own!
I've had some of these same offers on properties that I own. A little homework can go a long way. Heck they could have Googled me and determined that I wouldn't be a likely candidate for an offer of this type.
Charita,
It's just a mass-mailing.
Tom
Ha ha, sounds like someone has been watching late-night TV! I had an offer like this on a property I owned written by another Realtor, and after working through the terms, not only were we effectively carrying the loan for her (in our name, with our asses on the line at least), we were paying her to take the property off our hands! Uh...let me think...NO THANKS!!!
Many many loopholes here. This is why the sellers hired you ...
Very risky. Yes, I agree, it is definitely a scam. Thanks for sharing.
Woah - definitley sounds lilke a scam. And I agree - If its too good to be true... consult an attorney!