Releasing funds to seller prior to closing?

Question

Hey All,

I'm pretty sure I already know the answer, but in an attempt to better serve our seller and go above and beyond, I wanted to ask the community for the off chance that someone knows of some way to structure this.

Deal:

We're under contract to buy a house for 625k, that we'll be flipping. We will do 75-100k rehab and ARV is 850-900ish. The seller asked if he could get some cash, about 25k, prior to closing for moving expenses and utilities. I told him there is no way to do that in which the buyer is protected, but we could do a seller rent back. So instead of closing in 30 days we are closing in 14 days, at which point he'll get most of his cash proceeds, and he'll have 2-3 weeks to move out from then. We're 1 week into escrow and he text me today asking again if he can get 25k prior to closing. Told him that I don't think there's a way to do that safely, but I would do some research just in case there's a structure that I'm not aware of.

The only ways I know how to safely get him cash sooner are: 1. seller rent back (we're already planning on doing this one) 2. offer to release 25k now in exchange for a 50k price reduction to justify the risk, and if he tried to breach contract or cancel the sale we could record a 50k lien on title (but that means we may have to wait decades to get our money back if he doesn't sell now)

Anyone ever done this?

Sergey A. Petrov · Answer

I'd never advise my client to do it. I would, however, as required tell my client/buyer that the seller made the request and you advise against it. If it were a personal deal, I'd consider it subject to a second deed of trust or a signed confession of judgment with a signed quit claim deed that I could record, provided there is enough equity in the property, with a price reduction or some other financial or other incentive to me. But my risk tolerances are generally higher than average...

Account Closed · Answer

I've done that kind of thing, usually with foreclosures and I just offered it on a 5 bed 3 bath property I just picked up to wholesale in North Phoenix.

When people are broke, they are broke. They need money to move. These people are broke.

If it's more than a few thousand dollars though, you might want to create a note and record a Deed of Trust so you can foreclose if they change their mind and become difficult. That part happens all the time. You are a hero until they don't feel the pain. Then you are a greedy investor. When people change their mind they ghost you and are very difficult to deal with.

Best to assume they will be difficult if you front them money. But, I understand the necessity to do so.

Greg Gaudet · Answer

Just a quick update, the seller actually never brought up this request again. So we got lucky and avoided the potential problem all together. He signed his closing docs today and we're closing Friday. Thanks for your input! Glad it was a false alarm!

Tom Gimer · Answer

A pocket deed for $25k cash on a $625k property? That's not going to end well, imo.

Bill B. · Answer

I assume they don’t own anything outright worth $25k or more than you could buy and sell back? Where are they moving to? Do they really need $25k or just $10k plus a buffer? Could they put the charges on a credit card and worst case pay 1 months interest and a tiny interest charge. ($250?). Can they take a loan against a work retirement plan? Can they take a withdrawal from a personal retirement account and replace it within the tax free guidelines (I thought there was a 30 day window once a year?) would all the furniture in the home be worth $25k? Buy it separately in advance?

Tom Gimer · Answer

Hell no... to the rent back and the $25k advance, regardless.

Cash at closing only with walk through immediately prior confirming vacant and with someone at the ready to secure the building / change the locks. Maybe advance a couple hundred to secure a storage/moving container for the property to be collected at settlement, but don't count on ever seeing those funds again.

Some of these types of sellers have multiple deals going simultaneously, with multiple advances. Holding over until evicted would be nothing in the mind of someone who does that.

Releasing funds to seller prior to closing?

Releasing funds to seller prior to closing?

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