someone wants to buy my house cash/we still have mortgage

happydaddy1April 27, 2012

We are in the process of trying to sell our home privately. We are asking for $400,000, and we still owe on the mortgage around $350,000. A family who seemed pretty serious about buying our house came to us with a proposition; they would like to pay half of what we are asking in cash, I don't believe they qualify for a loan but the have cash to pay. they then said they would have us get a lawyer to create an escrow account so that they could pay off the remainder of our loan and then become owners of the house.

I apologize if this sounds at all crazy or unclear, and would be glad to explain anything more that may clarify my issue.

we have another potential buyer and dont want to hold things up.

Does this sound like a scam or can people really buy houses partially in cash and pay off the remaining mortgage???

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You probably have a "due on sale" clause with your mortgage, meaning if you transfer title or give up any ownership of the house the balance of your mortgage will be immediately due and payable.

What they are suggesting is a land sale contract. Normally you will continue to "own" the home until the contract is completely paid off,but I believe that your mortgage company can invoke the due on sale clause. Tread carefully.

    Bookmark   April 27, 2012 at 9:00PM
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Also, think about this--while the downpayment may seem very appealing to you, in the longrun, you're taking all the risk, they're taking none. Without knowing all the legalities, and terms--common sense tells you that YOU'RE name is still going to be on the mortgage, YOU will be liable for the monthy payments. If they find they cannot make them, YOU will be stuck for the money--and don't forget, it can be very, very difficult to get someone out of a property you own, even when they're not paying. Dsis had a tennant in a rental property she owned, who stopped paying rent--it took them over a year to budge her, cost them a bit in legal fees, and they never did get the back rent from her. Oh, and in the meantime, she virtually ruined the place--they had to replace all the appliances, a lot of the plumbing, floors, repaint, etc.

Look, ANYONE who can come up with half the selling price in cash for a downpayment can certainly qualify for a mortgage for the rest--unless there's something terribly, terribly wrong, or this is a scam to 'steal' your house from you for half price.

Myself? I wouldn't hold a mortgage (or let someone else live on mine) for anyone. If you decide to do this be very very careful--get a credit report on them. Investigate WHY they 'cannot' get a mortgage, even though they have so much ready cash, find out about their housing background--where have they lived? have there been problems? and do make sure YOUR lawyer is satisfied that whatever contract you come up with will adequately protect you.

    Bookmark   April 27, 2012 at 9:22PM
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One word came to mind after I read your post.....RUN!

The other posters gave you great things to think about, and honestly you need to trust your gut. The fact that you are already doubting is a huge flag that you already know what you need to do....RUN.

    Bookmark   April 27, 2012 at 11:36PM
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Certainly get your own legal advice on this, but don't refuse this deal simply because it is out of the ordinary. If people always ran away from the unknown, where would the world be?

Mortgage rates are low these days, but getting a mortgage is really hard if the buyer doesn't fit the profile of what the mortgage companies want.

    Bookmark   April 28, 2012 at 10:03AM
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Dh added something--people with a lot of ready cash, but no credit histories are often those dealing with illegal stuff like drugs. IF your house is turned into a meth lab, for example, you could lose it completely (the government often seizes those)--you'll be out the house and will still owe the remainder of the mortgage if that were to happen. I'd wonder if you'd end up with other legal issues if drugs were being shopped on your property?

    Bookmark   April 28, 2012 at 4:18PM
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There are many people (look at all the foreclosures and short sales) who cannot get a mortgage and want to buy a house. They have income and this might be the only way they can buy a house. I don't see anything unusual, however I don't think I would hold a mortgage for anyone.

They could be sincere but too many things could go wrong.


    Bookmark   April 28, 2012 at 7:14PM
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Lenders are very attentive to the 'games' that have been used previously to avoid 'due on sale' clauses.

Unless you have the ability to pay of the entire mortgage balance on demand (often 30 days) tread very carefully.

    Bookmark   April 29, 2012 at 12:25PM
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And don't forget that any cash transaction over 10K has to be reported to the government. So, when you deposit that cash, YOU come under scrutiny. They can use a fake name, a shill, or relative, and it won't show up because they aren't giving that cash to an institution, just an individual. That's another headache you probably don't need.

    Bookmark   April 29, 2012 at 2:02PM
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If you are considering this, you obviously need to consult a real estate lawyer.

One thing to remember - if major lenders think it is too risky to lend to this person, are you comfortable risking your financial future on them?

    Bookmark   April 30, 2012 at 9:10AM
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"if major lenders think it is too risky to lend to this person, are you comfortable risking your financial future on them?"

Can you afford the financial impact of having to foreclose and take back the property?

And correct any damage that has been done.

    Bookmark   April 30, 2012 at 10:15AM
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Most RE attorneys will not facilitate a "Subject To" closing, because they feel like they are helping to facilitate a civil crime. The current mortgage has a Due On Sale Clause which means that if the deed is transferred, the current mortgage must be paid in full. This clause was added in the 80's when interest rates skyrocketed and people found it beneficial to take a note subject to, at the current interest rate, as opposed to getting a new loan at the current, high interest rate.
I know an investor that does Subject To deals all the time, and the lenders have never called the note due. But there is always that chance. He only is in posession of the home for a very short time, as he immediately rehabs and sells them. Unlike you would be.
Another thing to think about... what is going to happen when you go to buy your next home and the lender finds that you have another mortgage? You will probably not qualify. And if you do, it might be considered a second home, which raises other issues.
I personally would not do it... too much risk.
If you do go through with it, set up a banking account in your name where the drsfts for the mortgage payments will be coming from, so the bank does not see the change. You will also have to figure out how to fool the banks as far as the insurance policy changing names, but the house was never sold. This is a major way that the bank will know that the home has changed hands. As you can see, even if no one has ever been prosecuted for doing this kind of thing, it is shady at best.

    Bookmark   May 2, 2012 at 7:38AM
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What I'd like to know is...
Why are you already selling a house of which you only own a quarter? It's never seemed smart to me to sell a house until it's paid off in full. (But I'm a bit of a Luddite that way.)

    Bookmark   May 4, 2012 at 10:55AM
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"It's never seemed smart to me to sell a house until it's paid off in full."

Are you for real?

Why would you stay in a house that no longer meets your needs (or wants for that matter) just so you can pay it off?

If you sell for more than the mortgage balance you use part of the proceeds to pay of the remaining mortgage, then purchase put the rest towards another house or whatever else you want.

    Bookmark   May 4, 2012 at 2:39PM
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After the closing, the home IS paid in full.

    Bookmark   May 4, 2012 at 6:14PM
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I too can think of why someone with that much cash might not be able to get a mortgage

but I would not want the complication such a sale would entail--
think about how you would carry insurance on that house--
or how they would

that is likely fraught with all kinds of snares and ways to lose coverage...

    Bookmark   May 13, 2012 at 1:17AM
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I have purchased any number of houses using a mortgage despite having assets that could easily purchase the place outright.

Having all your eggs in one basket is not a sane finical position.

    Bookmark   May 14, 2012 at 3:51PM
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