Buying & Selling Real Estate Discussion

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Roozbeh Afzal
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Seller asking for cash outside of escrow

Roozbeh Afzal
  • Investor
  • Los Angeles, CA
Posted Jan 25 2022, 22:25

I am currently in negotiations with a distressed seller that has agreed to the purchase price, but has asked for 10k outside of escrow upon signing to put some money in his pocket and to help him get situated for his next move.

I was thinking to record a lien on the property and include this term in the purchase contract. Feels risky to me given that the seller could back out and not close and I’d be chasing them for 10k and likely never see that money again.

Anyone else have experience with this?

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Mike Hern#4 Buying & Selling Real Estate Discussion Contributor
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Mike Hern#4 Buying & Selling Real Estate Discussion Contributor
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Replied Jan 25 2022, 22:47
Originally posted by @Roozbeh Afzal:

I am currently in negotiations with a distressed seller that has agreed to the purchase price, but has asked for 10k outside of escrow upon signing to put some money in his pocket and to help him get situated for his next move.

I was thinking to record a lien on the property and include this term in the purchase contract. Feels risky to me given that the seller could back out and not close and I’d be chasing them for 10k and likely never see that money again.

Anyone else have experience with this?

I'm not understanding the question. I assume you are taking the whole transacton through escrow and he gets his walking money when you close. Are you saying he wants $10k when signing the Purchase & Sale Agreement but before closing? Recording a lien in this situation can get you into legal trouble (for reasons your attorney will explain).

When you buy a house that is in distress you have a couple of choices:

1. Give them money to move and hope they show up to closing (bad choice)

2. Go through closing, they get their money and you give then 2 weeks to 4 weeks to move. (works, but not ideal)

3. Give them some money to move and hold back the rest until after they sign the documents in closing. (works but not ideal)

4. Give them some money to move, have them sign a Warranty Deed in front of a notary, but don't record, and hold back the rest until after they sign the documents in closing. The new Waranty Deed replaces the one they signed earlier. (works , but is an advanced strategy and escrow and your attorney will think you are nuts. Nonetheless. it works.)

4. They find a place to move to until after closing when they get all of thier money. 

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Dustin Allen
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Dustin Allen
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  • South Lake Tahoe, CA
Replied Jan 25 2022, 22:50

@Roozbeh Afzal

Not legal to pay anything outside of escrow if there is financing involved.  Everything needs to be transparent for the lenders.  If you wanted to give him a guarantee, you can do a non-refundable deposit.  Same trouble exists that he could just not close and you are out the deposit. 

I would try to find something else in the contract to appease the seller.  Maybe a credit to seller at closing, same effect but cleared through escrow and at the close of the transaction.

Real Estate Agent Nevada (#S.0193295) and CA (#02016625)

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Mike Hern#4 Buying & Selling Real Estate Discussion Contributor
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Mike Hern#4 Buying & Selling Real Estate Discussion Contributor
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Replied Jan 25 2022, 23:48
Originally posted by @Dustin Allen:

@Roozbeh Afzal

Not legal to pay anything outside of escrow if there is financing involved.  Everything needs to be transparent for the lenders.  If you wanted to give him a guarantee, you can do a non-refundable deposit.  Same trouble exists that he could just not close and you are out the deposit. 

I would try to find something else in the contract to appease the seller.  Maybe a credit to seller at closing, same effect but cleared through escrow and at the close of the transaction.

I think it is a cash deal. No lender involved.

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Roozbeh Afzal
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Roozbeh Afzal
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Replied Jan 26 2022, 01:46

@Mike Hern thanks for the feedback. I’ll do more research on the legal issues related to the lien.

The seller has asked for money when we open escrow at the time of signing the purchase contract. Seller is super distressed and out of money and needs a life line to be able to afford the move.

House is paid off so no mortgage.

Our plan is to use private money to fund the deal with 10% down. Reno cost also covered by private money lender.

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Wayne Brooks#3 Foreclosures Contributor
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Wayne Brooks#3 Foreclosures Contributor
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Replied Jan 26 2022, 02:21

@Roozbeh Afzal No way.  The best alternative is to give them 15-30 days occupancy after closing, but holding back a huge ($10k) escrow to ensure they vacate on time.

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Replied Jan 26 2022, 03:39

It is very risky and $10K is a lot of money.  You could offer them a smaller amount so they can move into a rental, but I wouldn't be comfortable giving a stranger (who has money problems) that sort of money.

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Mike Hern#4 Buying & Selling Real Estate Discussion Contributor
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Mike Hern#4 Buying & Selling Real Estate Discussion Contributor
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Replied Jan 26 2022, 09:27
Originally posted by @Wayne Brooks:

@Roozbeh Afzal No way.  The best alternative is to give them 15-30 days occupancy after closing, but holding back a huge ($10k) escrow to ensure they vacate on time.

The challenge here is knowing what the eviction status is in the town the property is in. in some places you still can't evict. If they fight leaving, you don't really have a recourse, so other options work better.

However, if evictions are permitted, then just assume you will have to evict, give them money to move and 15 to 30 days to do so, hold back a significant amount of money to be presented to them the day they are out.

Also, if they are a protected class ( elderly, minority, etc) and are facing foreclosure, be aware of the S.A.F.E. act in your state and any foreclosure laws. The fines can get prettty stiff if the purchase or eviction violate the act.

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Joe Splitrock
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Joe Splitrock
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  • Sioux Falls, SD
ModeratorReplied Jan 26 2022, 09:34

My first response was no, but you could lend them the money and secure it against the property. When you close on the property, they pay the loan off as part of closing. There is risk here, but at least they can't sell the house to someone else without you getting paid. Can you just do a fast close with cash?