Selling my distressed home what should I do with my equity?

Question

Hello, my name is Bismarck, I currently live in a distressed home in CA. I have $105,000 in equity. I was recently approached by a buyer willing to buy us out in cash.

I also want to buy a new cheaper/smaller home for my family. What should I do? Should I sell my home? What should I do with the money if so?

Any step in the right direction would be helpful! Thank you so much!

Lynnette E. · Answer

Escrow is just really like having a secretary that processes everything for you, making sure all the paperwork is complete and that the funding is done correctly (real money, loans paid off, etc.).  But you need to choose the escrow company because scammers will have control if you do not choose the company.  Scammers sometimes have their own 'pretend' escrow company and the scammers hold all the money.  Often the scammers do not have any money and they only pretend they do, while they look for another person to actually buy the house at a profit for themselves.

You may be able to tell that he is a scammer if:

1.  He does not give you a non-transferable contract. The contract should be the state standard contract and over ten pages long.  If the contract is 2-5 pages, its a scam.

2.  He does not give you a deposit that goes into an escrow account.

3.  If he brings by several 'inspectors' or 'partners' who will be the people he is trying to resell the house to.  Real buyers bring their partners before a contract is signed and inspectors on ONE day, and generally only one inspector.  Sometimes a specialty inspector may come later like if there is a foundation problem with the house. but not five inspectors.

4.  He offers to buy the house within 30 days or some other fast turn around time and he lets you leave stuff there you do not want to take.

5.  If he is buying it as is, no repairs, "we buy anything".

6.  Look his business and his name up on the web.  If he does not have a presence, he is more likely to be  a scammer.  If he is really a realtor you should be able to find him on Zillow.com and realtor.com under realtors and he should have ratings, reviews, the same photo as the person you met, and the same phone number he gave you.  Call the number on the webpage and see if you get the same person.  He could be a scammer using someone else's name.

7.  Ask him to identify his business process, buy and rent, fix and resale, just resale.  See if the County home ownership records show properties in his name.

8.  Ask for addresses he bought before.  Then ask him for contact information from these sellers/buyers and call them, ask about him. how it went, etc.   Check the county records again, same names, same property addresses, same phone number.

9.  If his price is a lot different from what the realtors you interview say they would sell for, its a scammer.  (Remember the realtors will take about 5-6% commission off the sale, and you have some closing costs.)

10.  Scammers are also known to wait until you are packed up and moved out to say they missed something on pricing your house and now can only pay a lower amount.  They just want to squeeze everything out of you they can and they now know you need the money to pay for your new housing expenses and can not afford the loan on the old house too.  If the past clients mention a price change know its coming your way too.  And he is a scammer.

John Thedford · Answer

If you decide to work with that buyer ask for proof of funds and make sure they are not a wholesaler scammer.

Jermaine Chad Ingram · Answer

@Bismarck Chiang make sure not to over improve the soon to be rental. This could be your new or first rental.

John Thedford · Answer

They may intend to wholesale it. Beware long inspection periods. A lot of scammers want to tie up properties for 30 days while they search for real buyers.

Bismarck Chiang · Answer

@Brent Paul

Hi Brent!

Thanks for this advice, I will look into an HELOC option. I think that could be a good step into property rentals!

Just wondering, I see that you are into property rentals as an investor, on average how much time will you spend or recommend to spend a week for a single property?

Bismarck Chiang · Answer

@Lynnette E.

Oh wow, thank so much for responding! This is really helpful advice! I was really not aware of the type of scam there could be out there. I will definitely do some more homework on my part.

Just curious, what has been your experience with entering escrow? How can I know if this buyer is trying to scam me?

Thank you so much!

Bismarck Chiang · Answer

@John Thedford, hi John thank you so much for your reply, we definitely don’t want to get scammed. They did give us a business card and it appears they are a real estate broker. Is it common for them to work as a wholesaler as well?

Bismarck Chiang · Answer

@Wayne Brooks I think we rather move out and live closer to LA. That is interesting that you mention fixing it up though! Thank you so much for the help!

Brent Paul · Answer

Definitely talk to a real estate agent before signing anything with this buyer.  I agree with others that it could be a scam or you could lose out on more equity you didn't know you had.

What about renting your house and buying another one to live in?  You could take out a HELOC or refinance to get some of that money back.

It all really depends what your goals are and what path to real estate you want to take.

Lynnette E. · Answer

Before you sell to that buyer, you should talk with several realtors to see what they would list the house for.  Realtors will talk to you and show you what other houses that are similar sold for for FREE.  They will know how to value the property, even if it is distressed.  They also will know of buyers who buy distressed properties.  This process will let you know if you really have $105k in equity or $250k in equity.  The person who sought you out may be a scammer trying to cheat you for his benefit.

There are people who get owners to sign a sales contract for an amount that is under market, then they do not buy the house, but resell it to someone else at a profit.  They do not tell the sellers they are doing this because they want to make this profit.  They are liars and cheats.  They say they buy properties, but they really are scammers.  They own companies that do this.

After talking to a few realtors, then you can decide if you want to work with the person or with a realtor to sell the house.

If you work with this person, use an escrow company that you choose that is local to your area.  Use a contract for the sell, the escrow company in CA can help you with this.  There are disclosures, etc. that you are legally required to do so that the buyer does not sue you later.  The escrow company can make sure you do all the right things.  They will also receive the deposit for the buyer and the final money.  The escrow company will verify that the money is real, not a fake money order or certified check, etc.  The escrow company can help prepare the deed, distribute the funds, pay off your loan, etc.

Do not let this buyer lead as he/she may be there to cheat you, taking title to the house and leaving your old loan in your name.  Then when they do not pay your loan, your get the credit hit, and they can take your assets.

Selling my distressed home what should I do with my equity?

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