AIUI, since this is an allowance and we don’t have a fence company picked out, any check written to us from the title company would be considered an enticement. If we had a company (closing is next Monday), it could come from proceeds.
Do you have a real estate attorney involved? Have the seller give your attorney the $3000 check for escrow, for the fence. Normally you’d do something like this through the seller’s escrow, so you only get the actual cost, maxed at $3000. In this case it seems like the $3000 is agreed. They give it to your attorney, your attorney cuts you a check.
This probably can’t be handled in that manner due to the enticement concerns that the OP referenced in an earlier post. A closing attorney (who represents the mortgage company, by the way) will shut down the closing in a heartbeat if they get any sense that the seller is returning money to the buyer. It’s too close to a kickback scheme. For that reason, this probably should have been handled via the purchase contract as an allowance (new home contracts often cover buyer allowance for appliances, upgrades, etc.).
This is flat wrong. Circumstances similar to this happen frequently in home sales, albeit moreso from the buyer to the seller. When I bought my house recently the previous owner and I made a deal for me to buy the tractor and implements. It was, of course, contingent on the closing going through, but on our real estate agents’ advice we could not combine the deal with the closing nor could we exchange funds (a personal check, BTW) at the closing table due to enticement concerns.
Nars the only thing that is not clear from your OP that may be a red flag is whether a separate, signed contract exists outside of the home purchase agreement that covers the fence allowance. That contract could even specify a “bank check no later than 4 business days after closing”, or similar. Neither decent realtor is going to want to do anything that may irritate the mortgage company/closing attorney and potentially screw the deal.
I do not have a real estate attorney.
Yes. The addendum to our signed sales contract says “Seller to provide $3000 for a fence allowance to buyer.” Unfortunately, that’s all that it says.
IANA real estate attorney or a mortgage lender. Take my opinion with a grain of salt, but . . .
The key here is that the money is coming from the buyer’s loan; it isn’t currently sitting in anyone’s bank account. And the loan is a mortgage loan, not a home improvement loan, which have very different regulations, stipulations, and interest rates. So it’s actually the buyer who is in danger of doing something wrong here AIUI.
The right thing to do, would be to contact your lender and let them know there is a small improvement necessary to the property and you’d like to add $3k improvement to your loan package. Unless you are right on the edge of approve-ability, I would think that would be no problem.
Uh, how does borrowing more money help the buyer in any way?
If I understand you correctly, that $3000 would essentially be coming out of my down payment and would put my down payment under 20% and then I’d have to pay PMI.
Can you explain what “enticement concerns” means in this context?
The way it stands now, it seems like the buyer is taking a loan for $3000 to give to the seller, in order for the seller to give it back to the buyer.
If I were the seller, I would like that.
There are schemes where the seller and buyer work as a team to defraud lenders on mortgage loans. One such scheme is, at a high level, where someone buys a house at a below market price, conspires with a buyer (and sometimes an appraiser as well) to flip the home at an inflated price. When the seller gets the difference in cash at closing they split it with the buyer who then walks away from the mortgage.
Beyond that, though, kickback schemes of various kinds have existed in the RE market since there was a RE market. Lenders want the mortgage deal to be squeaky clean to lower their risk, any hint of money changing hands under the table is highly frowned upon.
IANAR (realtor), I am giving this info as it was given to me by both agents prior to closing on my house about 6 months ago.
This is very old information, but back in the 80’s or 90’s, I handled all of the small claims cases for our office.
We had sold a Recreational Vehicle to a member of the Army. This person failed to make some payments to us, but we were unable to sue him in small claims because he was not stationed in the area. Or something like that. I can’t recall all of the details, but this could be a concern for you.
Yeah, but this is Nars Glinley we are talking about. I’m assuming that the OP is not planning on committing fraud, but rather concerned about potentially being out $3k due to a seller moving out of state. So I don’t see how borrowing the $3k helps him in any way.
This screams ‘scam’ to me. It might just be some weird financial arrangement, but the fact that they are bouncing money around and want you to take the risk of a potential bad check seems really sketchy. The fact that apparently whatever arrangement you’ve arrived at is technically illegal is another big red flag, scams like to get you to do something ‘off the books’ to cut down on the ways you can try to recover. I have no idea why on earth you’d set up a complex transaction for tens to hundreds of thousands of dollars without springing a few hundred for a lawyer to make sure the documents are in order. There is probably some way to incorporate this into the final sales contract without an ‘enticement’ issue that a real estate lawyer could sort out.
Probably the same. If you’d risk a $3k check from an out of state stranger bouncing then go for it, if not then the fact that they’re in the army doesn’t really change the risk.
Assuming the check is present when you’re signing, just call the bank and tell them you’d like to verify available funds on the account. “I have a $3,000 check drawn on SoAndSo’s account #xxxxxxxxx. Are there sufficient funds in the account to cover it?” Used to be how you did it, maybe banks don’t do that anymore. If not, maybe you just take the check to the bank right away for cashing. If it’s good you head back and finish the signing.
If there were sufficient funds in the account to cover the check, then the entire situation wouldn’t happen because they could bring a cashier’s check or actual cash to the closing. The scenario is specifically that they cannot cover the $3000 check until the deal for the house is completed and the money from that deal is in their account. Until OP finishes the assignment, the other people certainly will not have money in their account.
The way I understood the OP, the seller of the house will write a personal check for $3000. The buyer is not to cash it right away. At closing, the seller will get a check for the profit on the home (or purchase price or whatever). Then, the seller will deposit that amount. Once the money is available, the seller will then inform the buyer “Ok, you can cash that personal check now”
That’s how I saw the original OP.
Really - the seller and I could not, according to our realtor’s, exchange a check or keys for the tractor at the closing table. In fact, we were told not to even mention it. We settled up on that on in the parking lot afterward.
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Derp. Ya, so a post dated check. Nevermind. I’ll just be under this rock over here.