Real Estate Agent · North Jersey, NJ · Member since 2008 · 287 posts · 51 votes
I came across this agreement that basically states you, the buyer, agrees to purchase from the seller their personal property. I thought that this might be a good way for homeowners to make some money from investors when doing a short sale flip.
Has anybody ever heard of this? Does the bank have to know if this agreement has been made? Is it even legal? I would love to hear your thoughts on this, because if it is legal I think it might be a great way to motivate some homeowners a little more. An extra 1 to 2 grand in their pocket can go a long way for us investors and certainly help us close more deals.
An agreement of sale for personal property is completely legal. I have used notarized agreements of sale for personal property for buying houses where the seller leaves all the stuff behind (CYA tactic, so that I can toss into the dumpster what is now my property). But when you have that agreement from the lender to not benefit the seller in any way, you end up circumventing / violating that agreement with the lender.
Some of the gurus used to pitch this idea, to buy somebody's stuff for more than it's worth along with their short sale - don't even think about trying that. If you do insist on pursuing doing this, I suggest you find out what the FMV would be for that used item (Craigslist or ebay might have pricing), and don't exceed that amount.
And you might want to actually arange for others to do this for you - this becomes a bit of a gray area, as to whether you benefited the seller by this type of arrangement.
I've signed plenty of addendums that state in no way shape or form is the homeowner allowed to make any money off the sale of the property. I just personally think the risk is too high however I think it's PERFECTLY ok to tell the homeowner you will ask the lender permission to give them $XXXX at closing and tell them it needs to be on the HUD. If the lender agrees, there is no problem. If the lender disagrees then I wouldn't be giving the homeowner a dime.
I have heard of investors purchasing "property" from the homeowner, so for instance Couch, Fridge, Microwave Stove, etc. and that is a way to get the homeowner money. I personally have not attempted it. Not sure if it's legal or not if you sign an agreement stating the homeowner is to receive no proceeds from the sale.
I think if it appears on the HUD which is approved you're safe. Anything off the HUD I would question. At least that's the way I work.
I'm not saying if it's OFF the HUD it's illegal either, but possibly very questionable.
This is just a circumvention of the law. Paying a homeowner anything without pemission from the bank could constitute fraud and teh short sale lender could come after you.
I have also heard of buyers paying for the moving truck for the seller, again, this is even more clean and hard to trace back, but still in the grey area. Question is, do you want to operate in grey areas or steer clear of them?
Smitnlit is certainly approaching this the right way. Ask for permission just to cover your butt, the last thing you need is to be charged with fraud.
However, there is nothing illegal about purchasing personal property. As far as I'm aware, the disclosures you're signing about the seller not making a dime pertain only to the real property.
If you don't buy their fridge, microwave, etc... and it has value, someone else certainly will. If you can justify the value of your purchase price then I personally would not hesitate to do so. But if you're paying someone $3,000 for a crappy coffee table and some bed sheets then you're asking for trouble.
It may not be illegal, but it certainly is unethical. If you were a lender that lent money on a RECOURSE basis, agreed to take less and satisfy the loan, and later found out someone benefited from the sale in any way shape or form would you be happy? This is compounded if you sign anything stating that they aren’t benefiting from the sale.
Others make a ton of money with short sales, but I hate them with a white-hot passion. Haggling with a bank, “influencing†the BPO, and all of the other used-car tactics have never sat well with me. To each his own…
Will- isn't the personal property the homeowners to keep anyway? I've seen many cases once the homeowner moves out they take all of their furniture with them and leave the place completely vacant. They probably sell some of those things anyway. I think the question to ask is if personal property is actually considered part of the sale. If it's purchased before the sale or a few weeks or months would it still be considered part of the sale?
I'm not trying to circumvent the law, but if this is legal without having to be on the HUD I just think tying up these deals would be a whole lot easier when dealing with sellers. Don't you agree?
An agreement of sale for personal property is completely legal. I have used notarized agreements of sale for personal property for buying houses where the seller leaves all the stuff behind (CYA tactic, so that I can toss into the dumpster what is now my property). But when you have that agreement from the lender to not benefit the seller in any way, you end up circumventing / violating that agreement with the lender.
Some of the gurus used to pitch this idea, to buy somebody's stuff for more than it's worth along with their short sale - don't even think about trying that. If you do insist on pursuing doing this, I suggest you find out what the FMV would be for that used item (Craigslist or ebay might have pricing), and don't exceed that amount.
And you might want to actually arange for others to do this for you - this becomes a bit of a gray area, as to whether you benefited the seller by this type of arrangement.
Bryan, I'm not sure what is "used car salesman" about getting the homeowner some cash IF it is perfectly legal. As investors we are trying to make win-win situations for all parties involved and sometimes these people just desparetly need some money. But I agree that unethical tactics should always be out of the question.
If the item is sold for many multiples of fair market value it is used car salemanish...I wouldn't get involved in something like this at all. Let them sell their property on the open market if they need money.
Lafi, there is nothing wrong with what you are suggesting per se. The issue is that you want it in writing. If I need a washer and dryer for a rental, I go to craigslist, find someone who has it and then buy it. There's no receipt or anything proving how much I paid for it or who sold and who bought. Everything people have told you is correct but what I am saying is, if you put something like that in writing, you are asking for trouble. If you want to buy some of the homeowners belongings and pay them in cash so it is untraceable, that is the way to go. Anything other than this approach is trouble if you ask me. The seller can just as easily post on craigslist his appliances and sell them for cash to anyone other than you and the bank wouldn't care. That's the way you need to look at this.
Steve- do you inform the lender when you are doing this?
Lafi, Sorry, but I have not done this with a short sale.
If you tell the lender and the lender says it's fine, then wonderful for all. If you tell the lender and the lender balks, is your approval letter now at risk?
They can hold a yard sale, they can list on Craigslist or ebay - lots of ways to sell used items.
As many have posted, buying personal property from anyone is usually not an issue. But if you are buying it MAINLY to get the sellers some money, then you are entering the Fraud area. A better idea would be for the seller to have a 'garage sale', place a classified ad, or take the items to a pawn shop. If you put an "arms length" step between the seller and you, then you shouldn't have a problem.
I wouldn't waste my time on any homeowner who is truly underwater with their mortgage that is asking you for money...MOVE ON! There are many homeowners that are happy to have a short sale completed that aren't going to ask for money in exchange.
I agree with the post where you are in a "grey" area and anywhere that I think is "grey" I stay away from because I'm not dipping my toe anywhere near the fraud pool.
There is no reason to offer a homeowenr money in a short sale situation.
Giving them untraceable cash is definately not an option for me and shouldn't be for anyone who wants to last in this business.
You are joking right? I didnt say untraceable cash I said paying in cash for items someone is selling in untraceable. You are talking about people lasting in 'this business' yet you post a question that is very clear what you are trying to do is fraud, ok? I gave you an easy way to legally do what you are proposing. Guess you know it all . Good luck to you.
Actually Maryann is right on with her suggestion. Disclose!
For me, when the seller has a legitimate need for help with moving expenses, I do not mind helping them out. In doing so, I simply put a $500 fee on the HUD1 as POC (Paid Outside of Closing) and present it to the lender.
this works much better than trying to get the lender to pay out of their proceeds which will usually result in a NO.
If the property is a primary residence and the seller is in financial distress, most of the time I find they will allow it. By presenting it on the HUD as POC, it is not included as an expense to them, but to the buyer.
Personally, I have a hard time justying putting money into the pocket of an investor or even a homeowner that is doing a strategic default. My experience and abilities is a real premium and should be considered as something of value.
I do not encourage nor do I practice giving monies to any property who is underwater on a principal basis alone. However, if I were unable to get the money to a seller at closing and who legitmately needs help, I would simply call up a moving company and pay for it myself. I even have gone out a bought diapers for a single mother and her child. I have never handed anyone cash and never will!
If in your market you are competing against others who are offering to pay them, chances are they are not doing it in writing. If you need to compete in thei climate, I would try disclosing it on the HUD first. If some sleazeball is asking for money upfront, or some sort of written agreement, I would run the other way.
I forgot to mention, do not listen to the Guru's because many of them do not even practice what they preach. Listen to your gut instinct. if you posted this in a forum, you probably already feel that it is WRONG.
I never said I know it all but your post basically said the way to do it is by paying cash and not having anything in writing. I obviously don't want to do that because I am not trying to hide anything and am going so far as to ask the lender about how it could all work. It's not like going to give them cash for stuff that I don't need and just put it in writing. The point of this was for me to see if i can motivate more sellers by being able to purchase some personal property.
And you say the question I asked is clearly fraud yet the first line of your post says there is nothing wrong with what I am suggesting???
I asked if it was legal, and if the lender should know about it, so I don't see how that makes anything fraudulent.
Scott- that is why I posted on this forum. To get the opinions of other more experienced members. I found this document in one of my old files and am almost certain it came from and old program or seminar.
But just to be clear my intention was never to committ fraud or anything of the sort, just to see if this is actually being used by some of the members and how they are doing it.
Lafi, there is nothing wrong with what you are suggesting per se. The issue is that you want it in writing. If I need a washer and dryer for a rental, I go to craigslist, find someone who has it and then buy it. There's no receipt or anything proving how much I paid for it or who sold and who bought. Everything people have told you is correct but what I am saying is, if you put something like that in writing, you are asking for trouble. If you want to buy some of the homeowners belongings and pay them in cash so it is untraceable, that is the way to go. Anything other than this approach is trouble if you ask me. The seller can just as easily post on craigslist his appliances and sell them for cash to anyone other than you and the bank wouldn't care. That's the way you need to look at this.
I would disagree with this. If I'm going to do anything I absolutely want it in writing. When you have a transfer of funds and no documentation to back it up, then it's suspicious. If however you have a bill of sale for some appliances at or below market value then you have covered your butt with proof of what you did. Plus, with the receipt you can write off the purchase on your taxes.
Either way, whether you do or don't, the F-word is being thrown around a lot these days when it comes to short sales. There's a risk in doing a transaction like this, but there's also the risk of not being able to do a deal without it. Even if you are completely innocent of wrong doing, the accusation itself could do more than enough harm to you to put you out of business. No one needs that reputation of being accused of the F-word, especially in these times. It will ultimately be up to you to decide whether it's worth the risk.
Hey...here is a dumb question! What do you plan on doing with the personal property that you are considering purchasing? Hold a garage sale? Put it in a rental? It may be great for a hunting camp! My point is that I sure would hope that you are doing something with it and not just letting the home owner keep the cash and the property. I would not do it either way, as it has been posted, let them sell it on Craig's List themselves. If you need to resort to under handed tactics to get business, then you are not doing something right. As Maryann has said, "There is no reason to offer a homeowner money in a short sale situation.". Concentrate your efforts towards home owners that appreciate the help you give by just completing the short sale and allowing them to move on with their life.
Bill
"I would disagree with this. If I'm going to do anything I absolutely want it in writing. When you have a transfer of funds and no documentation to back it up, then it's suspicious. If however you have a bill of sale for some appliances at or below market value then you have covered your butt with proof of what you did. Plus, with the receipt you can write off the purchase on your taxes."
Andy, you dont know what you are talking about. If I pay someone $200 for a washer and dryer set from craigslist, which I have done numerous times, it is under $600 and I do not need a bill of sale to write it off on my taxes. If your accountant tells you that then fine but don't post on a forum your opinion and state it as a fact. Yes a bill of sale would be great, but it is not necessary in small amounts and that is what I am referring to in this situation. Either way, the person who posted it knows what he is asking about is wrong and thats all that matters.