Contract for zero net sum to seller?

Question

Hi all, question: I have a seller that just wants out from under his 10 year old loan, he wants no money in his pocket, he just wants the darn thing gone. How would I structure a contract that results in a zero net sum to the seller? I have his current mortgage statement and balance, does it matter that I am in Texas and should I use a state specific contract?

Andrew Syrios · Answer

Now that I think about it, I'm not sure in Missouri (never made an offer for zero dollars) and I was told this by another investor not an attorney. You could of course just set the purchase price at one dollar (I'm assuming you'd be willing to part with one dollar). That being said, I've heard of people making negative offers. After all, some properties are so bad they're worth less than nothing quite literally. So I would think you could make an offer for zero.

Guy Gimenez · Answer

Sorry if this posts twice...first version didn't seem to clear.

Guy Gimenez · Answer

@Andrew Syrios

@Chris McDaniel

Andrew, I don't know about MO., but earnest money is not necessary to have a legal binding contract in Texas...that's a common misconception. However, a purchase price is required because it is an essential (material) term.

Andrew Syrios · Answer

Just make the purchase price zero and put in the contract that you will cover all closing costs including pro-rated taxes, HOA's if there are any and if there is a tenant, all pro-rated rents and the deposit will be kept by the seller. You still need to offer an earnest money (it could be $1) because a contract needs to have some "consideration" to be considered valid in court.

Guy Gimenez · Answer

@Chris McDaniel

Just add language to special provisions (para. 11 of TREC form) that the purchase price will be adjusted downward if the payoff is less than the purchase price shown. Of course you would have to pay the seller's closing costs or he/she will have to bring money to the closing table.

Chris McDaniel · Answer

@Guy Gimenez i will be paying cash, the sellers just want out from under the loan and are willing to accept the loan balance as the selling price, the payoff is around $72k.

Thanks for the reply, i was considering trying to negotiate a sub2 but after doing some reading on BP I decided that I probably didn't want to go that route.

Guy Gimenez · Answer

@Chris McDaniel

You can use the TREC form if you don't have an attorney drafted form you prefer.  Just stipulate that the purchase price shall be adjusted to the actual loan payoff amount if lower than the purchase price indicated in para. 3 of the contract. Will you be paying seller's closing costs? Are you using institutional financing? Buying sub-to? There's a lot more that you need to consider Chris.