Do we release funds early from escrow?

July 16, 2011 6:00 PM

We are purchasing a house. The seller is asking us to release some of our deposit in escrow to him before closing. Is this a good idea? Read the details...

We are in escrow to buy a house. The seller purchased the house 9 years ago without any loans, but never paid property taxes. He rented out the house up until 5 months ago. His renters moved out in the middle of the night (supposedly) and he moved in.

During this process, we've found that he is pretty irresponsible with money. He has to sell the house because he never paid those property taxes, and he has no cash to pay it now.

The seller's agent has asked our agent to ask us if we could release some funds early from escrow to him so he has money to move out with. If we did, we'd be able to start moving into the house early--before closing. Closing is August 4th, so it'd be nice to be in the house a couple weeks early. We have a lot of work to do and crap to move to the house. However, I don't like the idea of releasing money early from escrow. After a discussion, my wife told our agent that we were not releasing funds early, and we want everything (including closing) to stay on track as had already been discussed. I feel that she's basically asking us to give up something pretty major with potentially negative results. If the deal falls through (which it most likely will not because we're all set to close), we'll lose whatever money we released to him.

Now, our agent called me and left a message. She again stressed that the seller has no money except for what he'll make in the sale, and won't be able to move without money we release from escrow. She said he may need to rent the house from us for a couple of weeks, or that he won't be able to move out until the close of escrow.

Renting out the house is not an option. However, my wife is feeling a bit pressured to release some of the money early. Besides, it'd be convenient to get into the house early before closing.

Just to clarify, everything else looks nearly perfect. The loan is funded, house passed inspection, and I can't think of any reason that the deal WOULD fail.

I discussed with my wife, and agreed to ask the Metafilter community. So, is this weird? Is there anything we can do to secure our interests in case the deal falls through and he has our money?

posted by rybreadmed to home & garden (32 answers total)

If the current owner hasn't paid property taxes wouldn't there be a lien against it? I guess if you guys have gotten this far in the process, this has already been looked into.
posted by TheBones at 6:15 PM on July 16, 2011 [1 favorite]

You're not a bank. Don't let anyone ask you to be one.
posted by Inspector.Gadget at 6:16 PM on July 16, 2011 [12 favorites]

You need to talk to a real estate lawyer about all of the possible scenarios. I can imagine this guy takes your early money, uses it for hookers and blow (or whatever) and still isn't moved out when you close.

If that happens, your jurisdiction may consider you a landlord and seller a tenant. If that becomes the case, eviction proceedings may need to begin.

And however remote, the possibility that closing doesn't happen is real. Fire? Flash flood? Earthquake? These things and more can render a house instantly unsellable.

You also need real legal advice about those unpaid taxes.
posted by bilabial at 6:19 PM on July 16, 2011 [4 favorites]

I'm not a real estate professional and I'm no psychic but this gives me a really bad feeling.

All you want to do is buy this guy's house. You are not responsible for his poor money management choices. Don't let him pressure you or guilt your wife into thinking that you are somehow in the wrong by not wanting to do something so completely off. He's an adult. He should be hitting his family or friends up for money to move, not you.

Like I said, I'm no professional but this still stinks. How do you know he'll use the money to actually vacate the property. For all you know he could blow the money on drugs and still not move out. Once you give it to him there is no turning back. He could take the money and then burn the place down for all you know. I'm sorry, it's just an all around bad idea.
posted by TooFewShoes at 6:22 PM on July 16, 2011 [9 favorites]

On preview I see that bilabial had the same idea I did.
posted by TooFewShoes at 6:23 PM on July 16, 2011

Do not do it. He'll have to come up with the money some other way (borrow from friends/family, credit card advance, etc.). And if the terms for closing said that you take possession of the property at the closing, he doesn't "have" to rent the house from you. You own it, and you get to move in at the negotiated time. His agent certainly knows that, and is being unreasonable in asking you to do this.

Under no circumstances should you agree to be his landlord--he may refuse to leave and it will be a long, pricey process to evict him. If you want to be very nice to him, you could renegotiate the closing date to give him more time to come up with the money to move on his own.
posted by jesourie at 6:26 PM on July 16, 2011

My husband is a realtor and I let him read this.

After his head exploded in a great big NO I decided to let him post the following: Here he goes:

Okay it is never good to give any money to the seller before closing... In the "old days" before government intervention this would be easier...

If the deal fails you would most certainly lose your money...

I really have heartburn over this situation there is no good answer and I am worried about the back taxes...

If your realtor assures you that the back taxes are simply not an issue perhaps it would be ok to proceed with caution,,,

If you take buyer possession before closing take caution! It would be better to sign a full blown lease which protects you.

In my state a realtor can only do a 7 days early possession so ask yours...

This is a tough case! Have I done something like this in the 16 years I've been a realtor yes but it was scary.

the best thing to do would be if the seller could talk to the moving folks and get them to wait for the proceeds of the sale.

I also am worried that since now all parts of the transaction have to be on the closing statement your lender will not approve of that... (And if you don't reveal it it is loan fraud and the feds will hunt you down!)

If the worst case thing happens you give the seller money and he doesn't show for closing a lease would protect you.

Remember you started by saying the seller isn't responsible so you are counting on his greed for money to insure his continuing participation in the deal.

It could work but warning buzzers are going off!

Are the funds going to be credited to you in the sale?
posted by St. Alia of the Bunnies at 6:27 PM on July 16, 2011 [6 favorites]

So the owner just now realized he has no money to move out? I don't buy it. Yes, the whole thing is weird. It's also very weird that your own agent is pressuring you to do something that's not in your financial interest.

You need a real estate attorney, to talk about this and about those unpaid property taxes.
posted by ImproviseOrDie at 6:27 PM on July 16, 2011 [1 favorite]

Your agent wants this deal to close so she can get her commission. That doesn't mean this proposition makes sense for you. I see lots of risk with very little upside (a slightly earlier move-in date). This guy can take out a loan if he needs money. Don't risk yours.
posted by Dasein at 6:28 PM on July 16, 2011 [1 favorite]

(This is the husband realtor again...)

Don't let the seller stay in the house after closing and don't change the closing date. It may be more trouble but if I were your realtor I'd help you evict his rear end. In North Carolina I could get him out in 40 days with the sheriff locking him out.

Do your side of the contract as written. If he does not do his side then put the legal hammer upside his head.

Do not give the seller cash and any funds paid outside of the closing must be put on the closing statement (RESPA) and like as not your mortgage provider will not approve any funds paid to seller. If they approve ok.
posted by St. Alia of the Bunnies at 6:34 PM on July 16, 2011 [4 favorites]

Husband Realtor again!

My head is still exploding and I am only licensed in North Carolina. Your state may have different state laws and if you live in California or one of the easy states for folks to prolong eviction it could be different but the federal laws must be obeyed everywhere all parts of the transaction must be in writing and revealed to the lender.
posted by St. Alia of the Bunnies at 6:39 PM on July 16, 2011

My whole experience in real estate is that I have, in my adult life, bought three houses and sold two. Do not give the seller any money outside of normal channels. Deals fall through at or before close all the time, and his extremely tight money situation would make me more wary, rather than less. He will be responsible for the seller's share of the closing costs (unless you have agreed to pay these) as well as his own moving expenses, as well as the cost of leaving the house in the appropriate condition (cleaning supplies, or having it cleaned). In your shoes, I would not only not advance him any funds, but I wouldn't make any irrevocable plans based on taking possession of this house at a certain time that will leave you in the lurch if it falls through.
posted by not that girl at 6:41 PM on July 16, 2011 [3 favorites]

His realtor should lend him the money and take it back through her commission at the close.
posted by BlahLaLa at 6:46 PM on July 16, 2011 [24 favorites]

Don't release money from escrow, and make it very clear to your agent that you will absolutely not be renting the house to him at all, and that she should be telling this to him or his agent.
posted by jeather at 6:49 PM on July 16, 2011 [1 favorite]

Also, it seems fishy to me that the seller apparently has enough money to rent it from you for two weeks but can't afford to move? If that isn't the case, would he expect to pay for those couple of weeks at the end of the tenancy? I have never heard of any rental agreement that allows you to pay rent afterwards.

His plan rings of the half-baked fix-it-later financial scheming that merely puts off problems until later. I wouldn't enable it, and I have trouble believing that this person doesn't have any friends or family that could be called upon to help move. It isn't up to you to solve his problems for him, and it is wrong of the seller to make this your issue.
posted by nasayre at 6:51 PM on July 16, 2011 [2 favorites]

Thank you all for your fast answers. I was personally firmly set to say no. We're not landlords. Why complicate anything? My wife has a heart of gold which is good, but sometimes frustrating.

However, you all provided very good reasons to not do this. In fact, the seller seems even creepier with more thought. I'm even more firmly set to 'no.' The house officially will close at 5:00 PM; I picture new locks on the doors at 5:01 PM.
posted by rybreadmed at 7:06 PM on July 16, 2011 [7 favorites]

Its so difficult to not let emotion become involved in this type of transaction. You *want* everything to work out. However, push back! I second BlahLaLa's comment; tell your realtor or the seller's realtor to loan him the money. Why should you? He's got to be out by closing, how he does it is his problem.

Also, other folks have mentioned this but, its important. I would urge you to confirm for yourself that property taxes are not owed on this house. Don't count on some paper-pusher at the mortgage company. Call the county courthouse yourself. I can envision the mortgage company saying they've confirmed that taxes have been paid, then you try to file the new title at the courthouse and it gets rejected. Who knows... That's trouble you don't need.
posted by Arbitrage1 at 7:17 PM on July 16, 2011 [1 favorite]

When I bought my house, I did a walk-through the morning before closing to make sure it was still in the same shape as during the inspection. I would insist on something similar to make sure he has moved out before you close.
posted by procrastination at 7:28 PM on July 16, 2011 [11 favorites]

Definitely do a walk-through before closing! If the house isn't empty, why would you close? He should be motivated to get out so you can close and he can get his money.
posted by bluedaisy at 8:29 PM on July 16, 2011 [1 favorite]

Good luck! You have some great advice from the folks here so I wanted to just give my regards.

Mrs cmetom and I bought a place last year and even though it went as smooth as these things can it was very very stressful - I can only imagine what your situation is like.

Someone who knows the rules and laws better might correct me but - once closing time comes and you take possession, if he's still in the house he's not a tenant - he's a trespasser! Call the cops! I certainly would not hesitate to do so.

Good luck :)
posted by cmetom at 8:47 PM on July 16, 2011

Definitely do a walk-though right before closing to see if he's out. And check that all the copper pipes, appliances, and other easily-stripped sellable things are still there.
posted by LobsterMitten at 9:04 PM on July 16, 2011 [5 favorites]

Just to pile on with everybody else:
1. absolutely no to releasing the funds early; it just sets off all kinds of scammy alerts to me, and his 'not having the money to move out'? Not your problem!
2. heck yes, absolutely do the walk through before closing: make sure he has moved out and the place is still in good shape (turn on the faucets, flush the john, test the exectricity etc.) before you release one red cent.
3. your agent wants to release your money early to the seller, in effect give the guy a loan?!? Danger, Will Robinson, Danger!!!
posted by easily confused at 9:06 PM on July 16, 2011

This guy has already proven that he is utterly irresponsible with money. He somehow had enough money to buy the place with cash nine years ago and then never even bothered to make his first property tax payment? Unless some horrible unexpected catastrophe struck him, that's just idiotic.

You should not loan money to someone who has proven to be unable to manage his own finances. He's clearly not operating rationally, which would make things even more difficult for you should he screw up this arrangement, which he probably will. The obvious reason "why the deal should fail" is that the house is being sold by a crazy person, who might do something crazy. Your lender is unlikely to want to be stuck in the middle of this situation also, which has absolutely no upside for them and carries non-trivial risks.

Moving out is his problem and not yours. He is free to get his own loan, sell property, ask friends and family for help, ask his realtor to front him the money from his/her commission (yeah right!), rent a U-Haul with a credit card, or any number of the many things that people do when they have immediate and necessary expenses and insufficient cash to pay for them. Personally, I would not close until this guy is 100% gone. Renting the place to him for a couple weeks after you own it could work out, but it could also mean that you have to go through months of headaches with lawyers to evict him if he decides to mooch off you for a while, depending on the laws of your state and city. All this would be going on while this guy is living in your house, which means that you'd have to be living someplace else. Not worth the risk.
posted by zachlipton at 9:20 PM on July 16, 2011

Don't do it. And don't move in before closing--there could possibly be legal ramifications. Do everything by the book, and through proper channels.
posted by 1000monkeys at 11:35 PM on July 16, 2011

Not that this is new advice at this point, but: give no quarter, accept no favors. Do everything by the strictest interpretation of the documents you have. Talk to a lawyer if you haven't yet. But do not release one nickel of the money to him, and don't move in a second before closing. If the agent asks you again, you can come back with Miss Manners' old standby: "I'm sorry, that simply isn't possible." And walk through, walk through, walk through, with a video camera running. . . in fact, I'd consider doing a daily drive-by to take exterior photos.
posted by KathrynT at 12:48 AM on July 17, 2011 [2 favorites]

I'd be really cautious about making sure the tax issues are properly resolved before closing, and I wouldn't trust the seller or the seller's agent.
posted by theora55 at 6:38 AM on July 17, 2011 [1 favorite]

Just to add an anecdote to all the great answers- You never know what random things could happen before closing that may make the sale fall through. A week before we closed on our house a car that was parked in front of it burst into flames and melted siding on the house. No structural damage, and we ended up going forward with the purchase anyway (if we had known the hassles we were in for to actually get the insurance money to fix the problem we may have though twice), but all the realtors involved in our sale were surprised we actually wanted to go through with it. There's too much money at stake in house purchasing to not do things by the book.
posted by banjo_and_the_pork at 7:16 AM on July 17, 2011

You have the answers you need now. The only advice I would add is that you communicate very clearly through your realtor. Your decisions, based on advice in this thread, should be communicated NOW. Calmly, professionally, clearly. Your expectations are not at all unreasonable, are actually standard for any real estate transaction. Reaffirming these points will only help your position, and make it clear to all parties that you know what you're doing and won't be taken advantage of. I would call your realtor TODAY and state the following: 1. It will not be possible to release escrow prior to closing. 2. We expect a clear walk-through on the day of closing. 3. In that walk-through, we expect the property to be completely vacated. 4. While we are sympathetic to the seller's situation, we are not going to get involved.
posted by raisingsand at 7:55 AM on July 17, 2011

WALKTHROUGH with your camera before going to the closing. KathrynT's videocamera is an excellent idea. I had a friend with an equally sketchy seller who did a walkthrough before closing and asked her brother to park in front of the house and wait for them to arrive with the keys; the seller's boyfriend showed up and let himself in during the closing. Turns out he was trying to take appliances that had been agreed upon to be part of the sale once they had been verified as present during the walkthrough.
posted by catlet at 1:21 PM on July 17, 2011 [1 favorite]

If the guy hasn't paid the taxes, and doesn't have the money to do it, how are they going to get paid? Because they're still going to be owed, and noone will care you weren't the ones who didn't pay it. And if he's going to pay them from the proceeds of the sale, then what's to keep him from simply saying "no longer my problem" and not doing it?

P.S. - If it's been a rental for very long, you can probably count on either no serious maintenance being done or maintenance and repairs being done as cheaply as possible. Something else to consider.
posted by kjs3 at 1:23 PM on July 17, 2011

Be forewarned that if you close and he hasn't vacated the property, it's a BITCH to get him out. When we bought our current house the jerks living in it didn't move for almost a week! The sheriff's department said that we could file with the courthouse, but there was nothing he could do to induce them to leave. There is NOTHING like paying for a property, paying for the insurance on the property, and having no access to it. We were even told that DRIVING BY the property could be construed as harassment and we could be arrested for checking on our property.

I hope you never experience that particular kind of nightmare, but your description of the guy makes me nervous.
posted by PorcineWithMe at 5:19 PM on July 17, 2011

I'd really love to see an update here. Please let us know how everything went!
posted by TooFewShoes at 8:47 AM on July 24, 2011