Seller, foolish & broke, relisted property "to get" EM

Buying & Selling Real Estate
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Seller, foolish & broke, relisted property "to get" EM

PG Henderford
Investor · Houston, TX · Member since 2014 · 16 posts · 0 votes

OK, BP-Landia, to pass the time waiting to hear back from my lawyers, allow me to share the following tale, edited here for brevity (believe it or not):

Duplex in Houston TX, listed at $X68k; after extended negotiations, which purportedly included a new tenant on a year lease at $1400/month and promised repairs, went under contract for $X56.5k w 3d party financing. SD was a week+ late. Seller agreed to extend OP & closing bc lease "not ready"; Seller informed that  delay was holding up appraisal bc I wasn't "putting out" without pre-agreed baseline disclosures. Eventually I received an almost-valid lease that Seller executed without my written approval (not ok). Idk, I thought (not really, but this is a family show), but the deal would put me right where I wanted to be for the right dollar amount, even w questionable tenant. Besides, my research suggested additional negotiations if property didn't appraise for several reasons. 

Skip to last week. Seller is freaked by news of new delay based on no-shows by appraiser. Listing agent calls my rep to demand additional $3k in EM "bc Seller needs to pay contractor." ?!!?? Why not arrange for mechanic's lien settled at closing? Response: Seller can't wait, won't acknowledge amendment re new closing, plans to relist property and "use EM to settle with contractor." Wtf? Two days ago, Seller's agent relisted property. Yesterday, Seller called title company to request EM and got feelings hurt. Sent me letter requesting release of EM. We are through the looking - glass. I am mightily annoyed, not least bc this will now cost Seller and everyone way more than Seller can possibly understand.

Anyway, I do not seek legal advice in this forum, but solicit comment. Is there some above-board way in Texas for Buyer to offer Seller a short-term loan to cover costs of poor planning, etc., to be settled from proceeds at closing? My realtor won't touch the topic. I would love to find a way to assist this jewel of a Seller from wreaking more havoc than she can comprehend. I'd much rather complete transaction than pay lawyers/sue for damages, etc.

Opinions?

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Cody L.
Rental Property Investor · San Diego, CA · Member since 2013 · 3k+ posts · 4k+ votes
10y

I try to stay away from making any negative comments, but honestly, I read your post twice and have no clue what you're talking about.

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  • Cody L.
    Rental Property Investor · San Diego, CA · Member since 2013 · 3k+ posts · 4k+ votes
    10y

    I try to stay away from making any negative comments, but honestly, I read your post twice and have no clue what you're talking about.

    6Reply
  • Robert Melcher
    Residential Real Estate Broker · San Antonio, TX · Member since 2016 · 506 posts · 311 votes
    10y

    If it smells, walk away.  Take your money and leave.

    1Reply
  • Charlie Fitzgerald
    Lender · Las Vegas, NV · Member since 2015 · 2k+ posts · 1k+ votes
    10y

    I with Cody.  If the repairs being done by the contractor are due to inspection items uncovered during due diligence and a condition of purchase was to have the units fully rented, I do g see the issue by seller performing.  Seller sure does not require your approval to execute a lease while they still own the property.  If the appraisal delays are causing the COE to be pushed out of contracted agreed to times, thats on your lender, not seller.  If seller is asking for additional EM and/or release of EM to extend the COE, I don't blame them.  If you don't want to  maintain your offer them forfeit your EM and walk away.  Like Cody, I read your post several times and it appears as if the breach us on buyers dude, not sellers.  Please enlighten us if we're missing something.

    0Reply
  • Asim Iftikhar
    Investor · Houston, TX · Member since 2015 · 35 posts · 11 votes
    10y

    Can we get some English here to understand what is going on?

    2Reply
  • PG Henderford
    OP
    Investor · Houston, TX · Member since 2014 · 16 posts · 0 votes
    10y

    I thank @Charlie Fitzgerald (don't know how to tag) for the helpful response!

    The point is that Seller failed at every step to disclose in accord with written agreement between parties and agreed to extensions premised/required because she failed to hold up her end. Then, when her delays caused delays in appraisal under new lending rules, Seller said that she needed extra money to pay her contractor.  Anyone who operates in Texas knows that a Seller cannot extort additional EM from Buyer to cover contractor costs. EM is placed in escrow and therefore not available before closing unless the parties agree otherwise. Seller signed agreement that required her to present lease within a defined time period, then didn't. When her failure to disclose caused delay in appraisal process, she demanded more money. Where do you all operate such that additional EM is available BEFORE CLOSING? If she wants to terminate, I understand. If she wants to terminate "to get the EM" to pay her contractor, despite failure to disclose numerous documents (like Seller Disclosure) as legally required or promised in written sales contract, she should not expect my agreement to release EM. As I type, she has no sale and no EM. She has only whatever debts were already pressing, a paper trail of written promises she failed to keep, and a Buyer left with decisions as to how to recover costs incurred based on those promises. She is back to Square 1, as opposed to the alternative.

    I appreciate the opinions from those who appreciate my wish to minimize damages on all sides by helping the Seller to closing without running afoul of any regulations that restrict such financial arrangements. I get that I don't always express myself clearly, can't expect just anyone to understand, and don't trouble myself with those who don't. Thanks, nevertheless, to those who read, re-read, and suggest based on benefit of doubt!

    0Reply
  • PG Henderford
    OP
    Investor · Houston, TX · Member since 2014 · 16 posts · 0 votes
    10y

    By the way, I should apologize for posting this inquiry in a non-legal setting. The TREC Sales Agreement form essentially requires that a Seller cannot execute a Lease after the date of execution without written approval of Buyer (read). Other regs dictate disclosure of Seller Disclosure and the consequences for failure to disclose timely. Specific provisions of the Sales Agreement under new rules speak directly to circumstances under which the Buyer with financing forfeits EM and, oh, never mind....

    0Reply
  • Greg H.Pro Member
    Moderator
    Broker/Flipper · Austin, TX · Member since 2013 · 4k+ posts · 4k+ votes
    10y

    While you may not like my answer based in the information given my opinion is :

    You have mentioned several valid reasons for you to terminate the contract based on the seller's actions but you want the property and have chosen not to do so

    The seller however has a valid reason to not extend the closing date and terminate based on the financing not being approved during the contract limits .  The seller has no obligation to extend the contract

    Whether or not the seller is entitled to the EM may be ultimately up to the court. 

    To your question of a "loan" to the seller. If your loan is subject to FNMA guidelines , you could pay the contractor and have the seller contribute toward your closing costs not to exceed the maximum of 2% of the loan amount

    1Reply
  • Patrick Connell
    REALTOR® · Bastrop, TX · Member since 2013 · 324 posts · 191 votes
    10y
    In Texas, a Seller is NOT required to provide a Sellers Disclosure on anything other than a Single Family Residence. Duplexes and up are NOT required to provide a SD. The Seller is also not required to sign and amendment or do anything else. It sounds like you can't the timelines within the contract and are going to lose your EM if you are already outside the originally agreed upon OP. Also, there is nothing in Texas that prohibits a seller from "extorting" more money from a buyer. Edits closing. They have something you want, they can dictate what they want from you for certain things you want. All you can do is decide how bad you want it. Either way, you won't be recovering any of the money spent on due diligence.
    0Reply
  • Patrick Connell
    REALTOR® · Bastrop, TX · Member since 2013 · 324 posts · 191 votes
    10y
    You are correct, however, that they can't execute a lease without your written permission after the execution date.
    0Reply
  • PG Henderford
    OP
    Investor · Houston, TX · Member since 2014 · 16 posts · 0 votes
    10y

    Thank you, some of this information is very, very helpful. Of course a Seller can't force an amendment or compel the sale; I was only trying to salvage costs on all sides before we part ways. I used the term "extortion" not bc I am disinclined to contribute more toward the deal (I wanted to pay the contractor if I could get arrangement structured), but because she wanted money then...that day, whereas demand for additional EM would not achieve that purpose. Sure - all probably will walk away and lose, only she certainly didn't get what she wanted (EM within 24 hours to pay contractor). 

    As for appraisal process, etc., I'm done with mortgages for a while. What good is sterling credit and even decent terms (fixed,15-year conventional, around 4%) when delays and process hang up deals, especially since few really know the new rules? Am reworking model around cash purchases. Might even come back with cash offer on this once ... but probably not. 

    Thx also for info on SD rules for SFR but not duplexes. I still say that if Seller signs a contract that requires (via special provision) disclosures, lease agreement, etc. before OP ends, the contract shd count for something.

    0Reply
  • Christopher Morin
    Flipper/Rehabber · San Francisco · Member since 2014 · 124 posts · 49 votes
    10y

    Sounds like you have a bad taste in your mouth with this seller.  Maybe worth it to walk, but in business and finances, keep the that pathos mind suppressed and that logos mind at the front.  If it's a good business decision that won't cause you to lose your mind, perhaps reengaging with explicitly clear terms may not be the worst decision.  Obviously you're in it, and know your limit with these frustrations.  Good luck!

    0Reply
  • PG Henderford
    OP
    Investor · Houston, TX · Member since 2014 · 16 posts · 0 votes
    10y

    So: just as I predicted, property did not appraise. The appraisal report came in 1 week later than promised, 4 days after Seller relisted property, and 2 or 3 days after Seller learned the meaning of EM "deposited in escrow." Appraised value was $2k less than contract price. Btw, failure to appraise would effectively let me out of the contract and return of EM.

    My realtor told listing agent that the property appraised below contract price (and not much more).  After extensive consultation with lender, I made Seller cash offer for smidgen less than appraised value with invitation to close in 24 hours. We closed today, with EM and option fee credited against sales price as outlined in original agreement. 

    I am cautiously pleased. Next actions include working with lender to immediately apply appraisal, paperwork and all to pull out at least 50% equity. If all goes as planned, I will be mightily pleased. But then, what could possibly go wrong ; )?

    A significant factor in deciding not to walk away: completely unrelated BP forum thread about insurance led me to shop for quotes based on my humble portfolio. Found BP reference to Benchmark Insurance and that company came through in no small way. With the increase in cash flow, I couldn't square walking away (-$$) without one more stint at problem-solving (+$). All in all, it's enough to make me upgrade my membership.

    0Reply
  • PG Henderford
    OP
    Investor · Houston, TX · Member since 2014 · 16 posts · 0 votes
    10y

    @Christopher Mori (Augh! Can't get this Android to mention, d $/^%+!) 

    Your suggestion encouraged and validated my approach. I have walked before on decent deals, some of which probably called for creative problem-solving. Sure, the EM was returned, but not other valuable resources like time. My realtor has put time and energy into submitting low offers and negotiating on value-add properties at price points below her norm on my behalf. It's her job, but I don't want a rep as a skittish or shaky Buyer who waffles or won't close. The proof is in the results, whether measured by her commissions, my acquisition goals or the balance sheet. At least this realtor knows that I am good for repeat business, I am closer to my portfolio goals, and the numbers work all around.

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