Seller not able to close the transaction

[llee]

Hi,

As the buyer, I paid for the home appraisal, funded the down payment to my lawyer, my bank has advanced the mortgage, and home insurance arranged and paid. However, on the date of closing, the seller`s lawyer informed my lawyer that the seller cannot close the transaction because there is not enough fund (there was a 2nd and 3rd liens). Approx a few thousands were missing.

I am going to walk from the deal. What a time waster. However, who is responsible for the home appraisal paid, my legal + disbursement paid, and the mortgage interest and home insurance premium?

This is frustrating.

 

[GarthChapman]

Normally I would expect you and your lawyer would have examine the title to determine what debts are registered against the house. That won`t tell the whole tale, and if you were buying a FSBO from a distressed seller then you should dig for those amounts owing from the seller and if concerned you could ask your lawyer or mortgage broker to obtain payout statements from all mortgages and other liens against the property - then you`d know if there was enough funds from the sale.

You might be able to go after these costs as you have a contract with the seller, but it is tough to get blood from a stone.

So, how much are they short? Can you solve another way - do they have anything else to offer - unless the hurdle is too large to make this worth it, check out your options before you give up.

Hope that helps,

 

[llee]

Thanks for the your comment Garth.

It`s a RTO deal (refinance, because the seller is not able to renew herself) through a RTO company. My purchase price was $175K. The original plan was that the seller pays off her first mortgage (disclosed to us) for $153K. Then she will send me $21K from the equity as down payment. And I pay the RTO company 7K as tenant locator fee. Looks good on paper, until the date of closing.....

The seller`s lawyer informed us the date of closing that the seller actually has 2nd and 3rd liens from Legal Aid that needs to be paid off (around 20K). So, there`s no equity left in the house, so there is no way to find the 21K down payment to me.

My RTO company and I couldn`t find a creative solution, but to walk away. Now, my lawyer said she will pay the legal fee, but disbursement, mortgage penalty, the appraisal and home insurance paid will be on my plate.

The seller has nothing to offer. They cannot renew their mortgage due to poor credit from divorce earlier.

What should I have done to prevent this from happening in the future? Title search myself??

Lucas

QUOTE (GarthChapman @ Jul 15 2010, 11:46 AM) Normally I would expect you and your lawyer would have examine the title to determine what debts are registered against the house. That won`t tell the whole tale, and if you were buying a FSBO from a distressed seller then you should dig for those amounts owing from the seller and if concerned you could ask your lawyer or mortgage broker to obtain payout statements from all mortgages and other liens against the property - then you`d know if there was enough funds from the sale.

You might be able to go after these costs as you have a contract with the seller, but it is tough to get blood from a stone.

So, how much are they short? Can you solve another way - do they have anything else to offer - unless the hurdle is too large to make this worth it, check out your options before you give up.

Hope that helps,

 

[RedlineBrett]

QUOTE (llee @ Jul 15 2010, 01:08 PM) Thanks for the your comment Garth.

It`s a RTO deal (refinance, because the seller is not able to renew herself) through a RTO company. My purchase price was $175K. The original plan was that the seller pays off her first mortgage (disclosed to us) for $153K. Then she will send me $21K from the equity as down payment. And I pay the RTO company 7K as tenant locator fee. Looks good on paper, until the date of closing.....

Did your first place lender know that you had no cash yourself and were funding the down payment via cash back? That`s mortgage fraud if they didn`t know that. Almost all lenders won`t do this and CMHC certainly won`t.

Also this RTO company getting paid for finding a tenant... Are they licensed? Cause it sounds a lot like they are trying to be realtors and if they don`t have a license to do so they could be conducting business illegally.

Lots of fishy things in this deal. Not surprised it tanked.

 

[llee]

QUOTE (RedlineBrett @ Jul 15 2010, 12:20 PM) Did your first place lender know that you had no cash yourself and were funding the down payment via cash back? That`s mortgage fraud if they didn`t know that. Almost all lenders won`t do this and CMHC certainly won`t.

Yes, I funded 20% down payment myself $35,000. The cash back is after the deal is closed from the tenant`s equity. The lender knows it is a rental property, and the rental agreement shows the tenant`s down payment. However, there is no mention about RTO. It is on a separate document.

Is this still a mortgage fraud?

QUOTE Also this RTO company getting paid for finding a tenant... Are they licensed? Cause it sounds a lot like they are trying to be realtors and if they don`t have a license to do so they could be conducting business illegally.

I do not want to disclose the RTO company here. I think the CEO is a realtor though.

QUOTE Lots of fishy things in this deal. Not surprised it tanked.

But in general, if the seller is unable to close the deal, should he or she be responsible for all fees incurred?

 

[RedlineBrett]

QUOTE Yes, I funded 20% down payment myself $35,000. The cash back is after the deal is closed from the tenant`s equity. The lender knows it is a rental property, and the rental agreement shows the tenant`s down payment. However, there is no mention about RTO. It is on a separate document.

Is this still a mortgage fraud?

Does the bank know you are ending up with none of your own money in the deal. If they know that, it`s not fraud. If they think you are coming up with 20% and don`t know about the cash back contract it`s definitely fraud.

QUOTE I do not want to disclose the RTO company here. I think the CEO is a realtor though.

You wouldn`t need to worry about this anyway... just something to be mindful of if you are working with these guys. Their problem not yours but I figured this is something you may want to know about.

QUOTE But in general, if the seller is unable to close the deal, should he or she be responsible for all fees incurred?

Definitely and it probably says this in the purchase contract. However enforcing this is another item. Much easier for a seller to stick it to a buyer because there is a deposit in play. For you to get any $$ back you would have to sue the seller, receive a judgement in your favor then collect on the judgment. If the seller is broke it won`t matter...

 

[llee]

QUOTE (RedlineBrett @ Jul 15 2010, 02:20 PM) Does the bank know you are ending up with none of your own money in the deal. If they know that, it`s not fraud. If they think you are coming up with 20% and don`t know about the cash back contract it`s definitely fraud.

Perhaps it`s a gray area, but I did fund the 20% down from my cash. The cash back (or deposit) comes in after 1-2 weeks and it`s used for deposit for RTO (written on the lease agreement).

Anyway, the deal is gone, but want to make sure it is (or not) a fraud for future transaction.

QUOTE Definitely and it probably says this in the purchase contract. However enforcing this is another item. Much easier for a seller to stick it to a buyer because there is a deposit in play. For you to get any $$ back you would have to sue the seller, receive a judgement in your favor then collect on the judgment. If the seller is broke it won`t matter...

Not an easy path, but probably that`s why I need to do. Thanks!

 

[RedlineBrett]

QUOTE (llee @ Jul 15 2010, 05:16 PM) Perhaps it`s a gray area, but I did fund the 20% down from my cash. The cash back (or deposit) comes in after 1-2 weeks and it`s used for deposit for RTO (written on the lease agreement).

The reason it comes back to you 1 to 2 weeks later is so that they can close the transaction, transfer title and register the new owner without the bank knowing there is $ coming back. Otherwise they`d send you the $ right at closing when the seller gets paid.

If you want to know for sure to protect yourself in future transactions call your mortgage agent and ask them...

 

[RobMacdonald]

QUOTE (RedlineBrett @ Jul 15 2010, 06:14 PM) The reason it comes back to you 1 to 2 weeks later is so that they can close the transaction, transfer title and register the new owner without the bank knowing there is $ coming back. Otherwise they`d send you the $ right at closing when the seller gets paid.

If you want to know for sure to protect yourself in future transactions call your mortgage agent and ask them...

I think this depends on the client and the lender. If you have good clients, can prove the ability to put down 20% and satisfy any other net worth requirement, it doesn`t matter if they turn around and LTO the property. Fact of the matter is that the client is on the title and on the mortgage. If you`re getting $10 or $10,000 per month, the bank doesn`t care as the client was qualified based on the economic rent at the time of approval.

When you have the ability to LTO a property you`ve owned for several years, does it really matter if take an option deposit on the day you close on the property?