Ask Me Help Desk - Contract to Deed sale

Hello,

I am hoping to get some guidance. I have just put my home on the market to sell here in Florida. A man contacted me about it and said he purchases homes via Contract to Deed. He sent me an email describing what happens, came by and looked at the home and said that he would want to make the purchase based upon the appraisal price.

If we had the appraisal done, he said that he would then take a mortgage in our name for the full apparaisal price, pay off our existing mortgage, give us what was left and then make the payments on the new mortgage (including taxes and insurance, etc.). He said the contract would run 48 months at which time he would pay the balance

This for the most part sounds right in line with what I have read regarding Contract for Deed transactions but makes me a bit nervous.

As it stands now, I owe about $160,000 on the home. The apparaisal came it at $360,000. So... I am basically trading mortgage liabilaity of 160k for 360k if the guy doesn't make payments. But, if it is legit, I get $200K to go purchase my new home with, the original 160k gets paid off and then this guy makes the payments on the $360k for the 48 months and then pays the balance on the 360k and I am done with it.

Can anyone tell me how this person would make any money/scam me if I go through with this and he does not? It would be annoying to have to resell the house but I can't figure out how it would benefit him to go through this whole thing to then not make the payments. On the other hand, he isn't putting up any money of his own initially so it doesn't appear too risky on his part. I just can't figure how he makes money if he is scamming me. He claims to have many properties that he has done this with and that he simply wants to wait for the market to rebound in a few years and then sell.

Sorry for the long post and thanks for any help.

Quote:

Originally Posted by willbo1

Hello,

I am hoping to get some guidance. I have just put my home on the market to sell here in Florida. A man contacted me about it and said he purchases homes via Contract to Deed. He sent me an email describing what happens, came by and looked at the home and said that he would want to make the purchase based upon the appraisal price.

If we had the appraisal done, he said that he would then take a mortgage in our name for the full apparaisal price, pay off our existing mortgage, give us what was left and then make the payments on the new mortgage (including taxes and insurance, etc.). He said the contract would run 48 months at which time he would pay the balance

This for the most part sounds right in line with what I have read regarding Contract for Deed transactions but makes me a bit nervous.

As it stands now, I owe about $160,000 on the home. The apparaisal came it at $360,000. So... I am basically trading mortgage liabilaity of 160k for 360k if the guy doesn't make payments. But, if it is legit, I get $200K to go purchase my new home with, the original 160k gets paid off and then this guy makes the payments on the $360k for the 48 months and then pays the balance on the 360k and I am done with it.

Can anyone tell me how this person would make any money/scam me if I go through with this and he does not? It would be annoying to have to resell the house but I can't figure out how it would benefit him to go through this whole thing to then not make the payments. On the other hand, he isn't putting up any money of his own initially so it doesn't appear too risky on his part. I just can't figure how he makes money if he is scamming me. He claims to have many properties that he has done this with and that he simply wants to wait for the market to rebound in a few years and then sell.

Sorry for the long post and thanks for any help.

It doesn't sound quite true or legit, you are leaving the mortgage in your name. What quarantee do you have he will pay the mortgage? None.

With Contract for Deed, isn't the mortgage always in the sellers name?

THe mortgage should always be in the name on the Deed, the mortgae is only a promise to pay and the security if the Deed of Trust.

You would have the promise to pay, he would have the Deed to the property.

I thought the Deed remains in my name until the contract is paid off. Maybe I am not understanding the Contract for Deed scenario.

What claim would you have against the contract if the deed is in his name? The scenario is that you still have the mortgage (promise to pay) and the Contract of Deed will be in his name.

Who will be holding the deed until payment is made? You or the other Party.

Do you have a mortgage now?

Contact a attorney in your area who deals with real estate.

It's a scam all the way around. I work for a mortgage company and we have run into this many many times. I have heard of at least two people that did not take my advice, did it and now they have a mortgage but deed isn't in their name. Do not do this. Keep your house on the market and tell this guy if he wants to purchase the house legitamately you will do it otherwise you decline his offer. The only people that I have ever heard of that do legitimate contract deeds are companies, not individuals. If you choose to do business with him I suggest you hire an attorney to sit down with both of you and write the contract. If he doesn't agree to this than he has something to hide. He should have no problem letting you hire the attorney to write it up if he is being honest.

Yes, I'm definitely getting an attorney to draft/review everything.

The deed and mortagage will both be in MY name. The contract will have him making monthly payments for 48 months and then making a balloon payment to pay off the mortgage at which time deed will be transferred to his name. So, he doesn't get the deed until he pays the entire mortgage.

So... how does he benefit if he doesn't make the payments?

Here is how I have seen it work. He hires the appraiser, the appraiser appraises the property for approximately 50 to 75k less than what it is really worth. He makes payments on it for 48 months, lives in it or whatever. Then enough time has passed (48 months) to be exact so now he turns around and sells it. The plus side for him is 2 things. Its already worth way more than what he paid for it, and even more because 4 years have passed. Any idea of how much a house appreciates for in that time frame? What I would also do is make him show you where he has the money to pay it off with. For examply, copy of bank statement showing the money, or 401(k), stocks etc. Make that part of the contract. Cause if this guy is just thinking he is going to come up with the money in that time frame, that's usually not a reality for most people.

No this is not how a contract for deed works,

You do not take out a new "mortage" esp with or in with another person, this sounds like a scam that goes on, where he gets a mortgage with you, and then when it happens, he takes all the money and disappears.

On a contract for deed, he merely makes a contract with you to buy the house for a certain amount with certain payments, you don't get a new mortgage unless you want to, not with him or on his terms.

I would say this man is trying to cheat you somehow, If you are going to do this at all, you hire a appraiser yourself, set the price, tell him you don't need a new mortgage but you have an appraisal and will do it for >>>> dollars

And on a 300,000 home he needs to be putting down a down payment of at least 10,000 but should be closer to 30,000 to even consider a contract for deed

Thank you for the responses.

I guess the new mortgage for full appraisal amount is how he can guarantee that I get 100% of my equity immediately, which is in essence, the down payment. But if he takes off with the cash, I ain't getting anything anyway!

Quote:

Originally Posted by willbo1

I guess the new mortgage for full appraisal amount

Think about what you said there. Then put yourself in the mortgage lender's shoes. What lender is going to lend the FULL value of a house? Especially in this market? That's why a down payment is required. So, if the buyer defaults, the lender can sell the house and recoup what they lent. If the mortgage was for the full apprasied value, and the value went down, the lender would lose.

So, yes this sounds like a scam. You currently have a mortgage with a $160K balance. If he takes out a mortgage for $360K IN YOUR NAME, then you now owe $360K. If he doesn't pay, then you have to.

As Chuck said, in a Contract for Deed, the buyer pays you a down payment, and promises to pay a monthly amount until the purchase price is paid off. Generally there is a balloon payment but not always.