Buyer wants to make a short term loan to a seller to close a house?

14 Replies

Greetings BiggerPockets community!

I have what I believe to be a rather strange situation on my hands. I am in the process of purchasing a primary residence for myself and my significant other. We are doing a 203k streamlined renovation loan. This is the second 203k loan I will have done and I thought it was going to go a lot smoother than the first which was a full 203k (about 75k in repairs).

Anyway, the problem is this: We are supposed to close tomorrow and the financing is not ready yet due to the construction side of the loan being backed up. The seller doesn't want to give us an extension to close the loan. Her initial rider on any extension was that she wanted to keep her appliances. This sounded odd to me as I have met her a few times during inspections and such. I had to go over to the house anyway to do a lead based paint test for the construction department, so I asked her, "Is doing this test even going to matter? Are we going to extend this thing?"

This is where she started to really lay it all on me. She needs cash by Friday. Now, I know you are probably thinking--How does not extending the purchase agreement get her money by Friday? She wants to be free of the purchase agreement so she can start hawking her appliances and other odds and ends. She claims she has already exhausted all her options for personal loans. She has taken out a few payday loans to make some repairs on the house that I asked her to make as a condition of the sale. OK...so now that I know what she needs I am in solution mode. I hate the idea of me giving her a personal loan. There is no other way to get the deal done and not have me out of pocket any more money (assuming I can get my personal loan back).

My question is: is it possible for the buyer to make a personal loan to the seller to be paid out of the seller's funds at closing? She already said she would accept and extension agreement that included her paying me $2500 in closing costs. But what happens if the loan doesn't close for whatever reason?

Should I just let this one go? I like the house and the neighborhood. There is nothing out there like the house today, but that doesn't mean there won't be tomorrow. And I know they are sunk costs, but of course all the time and money I already have wrapped up in the place.

Thanks in advance for any advice!

I am currently closing on a 203K loan that has been extended TWICE now. Each time I was very worried that the seller wouldnt sign off on it. Were 25 days past the initial closing date but the seller seems to be motivated to get this deal done. I was also held up with the contractors bids not matching and contingency percentages fluctuating. 

I think the seller needs to think twice about denying the extension. What is she going to do? Let the contract die and relist her property and wait months for another person to come along and throw an offer at it? Thats just dumb. 

I would talk to your lender and get your loan officer to explain the delays to your agent so he can relay the message to the sellers agent. Agents would lose money if the contract dies so they should be motivated to try and talk the seller into signing the extension. 

I wouldnt start figuring ways to give the seller any money before closing. That sounds like legal issues written all over it. Get that extension signed! 

Thats my two cents. I hope it helps. Good luck!

@Coire Fox

  I second @Kyle Gregg .  This isn't your problem to solve with a personal loan, this is a problem for the agents and loan officers to solve. 

Even if you gave this seller a personal loan, there is no guarantee that the deal would close or that she would use the money for what she says she needs it for.  I don't do personal loans ever, if a friend is a bad situation, I'd rather just give them the money than loose a friend over an unpaid loan.

If the appliances aren't conveying with the property per the contract, can't she sell them now instead of waiting until closing?  Not sure I understand her issue and seems a bit iffy to me. She's more worried about Friday than the next two months after this deal falls through, something doesn't add up.  Friday will be just the beginning for her if the deal falls through now.

Best of luck!

@Kyle Gregg You are absolutely correct on all accounts. She understands that the delays are not my fault and are just part of the process. She needs $2500 by Friday to pay for her son's college tuition that is due. She thinks if she denies the extension she will be able to sell her appliances to get the money together. She claims to have no other resources to get the money.

She is not thinking past Friday. She seems to be in a very emotional state about her son's college tuition. She doesn't want to bring him home from school.

@Michael Olesky The appliances are being conveyed with the property. Sorry if I was unclear about that. The deal not closing would certainly make it much harder for me to get my money back. I considered making her sign a promissory note to "guarantee" the funds on a repayment schedule if the loan should happen not to close. I realize that even if I had a note and she defaulted, and even if I got a judgement, I would still have to collect and it would be a pain in the ***. The renovation department will have everything they need in about 2 hrs and my loan officer says they will clear the loan to close by the 12th. I feel confident that the loan will close by the 12th.

This lady seems like shes always in it, Friday and two months from now not withstanding. I know more about her than I probably should. She has a tendency to tell me more about her life than she really needs to. Maybe she is trying to garner sympathy, but I don't know that her intentions are malicious. I'm very unconvinced of her ability to repay me if the loan doesn't close.

As much as it sounds cold, that's not your problem. You're purchasing real estate, not paying for juniors college tuition. Separate yourself for the seller and her issues, that's not your job to figure out. The agents should be the middle man for all communication. THATS THEIR JOB! From the sound of it, your job is done (getting the contractors situated and sorting out the loan documents..etc). Its time for the loan officers and agents to step up and close this deal. 

So take the appliances out of the contract, and reduce the purchase price by that much? Don't know what a changed purchase price will do to your loan approval process though. FHA will get "hinky" with any "side" dealings between you and the seller.

@Kyle Gregg You are right. It isn't my job. I think that if I go back to them with that, this deal won't get closed. The seller isn't rational. Why would I want to loan money to someone who isn't rational??!?!

I think I will just tell the seller that my lawyer said I can get in big trouble for lending her money. I will ask her to sign the extension, give me a $2500 credit toward closing costs, and let her keep her appliances. That way I'm not giving her money out of pocket, but she can still get her cash by Friday (hopefully), and I'm not out more cash to buy appliances.

@Wayne Brooks HA! We were typing that at the same time. Essentially the same solution, but if she credits me at closing I don't have to be out that cash and won't affect the underwriting (I think?), vs reducing the purchase price which would only affect my loan amount and would have a bigger impact on underwriting.

Thanks for all the candor, @Kyle Gregg @Michael Olesky ! You definitely have pushed me away from making the loan to her. I felt like it was a questionable idea at best. Hopefully it works out!

Tell your agent to relay that message. Make them actually work for their money. 

Are these high-end appliances that have been just recently installed?  If not, there's no way she's getting $2500 selling them.

Based on what you've said, no way would I loan her money.

Are you already getting any credits from the seller at closing? FHA will (I think) limit your credits to the actual costs. I sold a house where we agreed to a 3% credit. But actual costs were less than that, and we only had to give them credit for the actual costs.

You could say "no" to doing anything, let the contract fall apart, then write a new offer at a lower price.   IDK if that would mess up the loan application that's already in progress, though.  Or if she would consider your new contract at all.  She might just wise up and come to the conclusion that doing the extension is the best way to be rid of the property.

Jon Holdman, Flying Phoenix LLC

Newbie here so maybe I'm missing something but if the appliances aren't part of the purchase, why can't she sell them now?

I definitely wouldn't be lending any money to someone who recently took out a payday loan and is still short on cash. Red flags all over it.

@Ashly B. They are ~1 year old Samsung stainless steel appliances. I am not currently getting any credits at closing. I think you are correct that FHA limits seller contributions to actual costs up to 6%. We will be well under that for $2500.

Originally posted by :

The appliances were included in the initial purchase agreement. If it closed on time I would have gotten them. She definitely should not have even owned this place to begin with. She bought it on contract. She hasn't paid the RE taxes. She didn't know it needed a roof. The windows are falling off the house. Payday loans...Definitely red flags.

 Ahh I see it was a rider on the *extension*. Tough situation, especially if you really want the house but I'd still pass on loaning her money. This is business for you, don't make it personal.

Tell her you'll buy the appliances from her if she signs an extension that lowers the price the amount you're paying for them.