Talk me through the downsides, please.
May 20, 2010 6:03 AM Subscribe
Is this real estate deal too good to be true?
About a month ago, we put our house up for FSBO sale (we are not financially distressed—we simply want to move to a more rural, farm-animal friendly locale). We were recently contacted by an outfit from Kissimee, Florida (we are in MI) and offered a price substantially above market for our house, provided we enter an agreement that they will find a lessee/buyer (they are a rent-to-own outfit) to put in our house and that they (the R to O company) will pay us a small down payment and a decent monthly payment (about 80% of our monthly house mortgage) for a two year period, at the end of which they will guarantee a sale on our house for the substantially-above market amount offered. They will pay for all maintenance and utilities during said period. My wife is ready to jump on this, but I am having reservations.
Having googled this particular kind of scheme, I come up with all manner of warnings for lessees/buyers in such situations, but nothing about sellers. Could some real estate savvy Mefites please explicate some of the potential downsides for us in this arrangement?
About a month ago, we put our house up for FSBO sale (we are not financially distressed—we simply want to move to a more rural, farm-animal friendly locale). We were recently contacted by an outfit from Kissimee, Florida (we are in MI) and offered a price substantially above market for our house, provided we enter an agreement that they will find a lessee/buyer (they are a rent-to-own outfit) to put in our house and that they (the R to O company) will pay us a small down payment and a decent monthly payment (about 80% of our monthly house mortgage) for a two year period, at the end of which they will guarantee a sale on our house for the substantially-above market amount offered. They will pay for all maintenance and utilities during said period. My wife is ready to jump on this, but I am having reservations.
Having googled this particular kind of scheme, I come up with all manner of warnings for lessees/buyers in such situations, but nothing about sellers. Could some real estate savvy Mefites please explicate some of the potential downsides for us in this arrangement?
If a child is lost, their best bet is to go straight to the nearest adult and ask for help. If they wait for help, it's more likely that the person is somehow predatory. Same thing with real estate. When a company contacts you, it's almost always too good to be true. :)
I'd definitely worry about what happens if the company goes under and leaves you stuck paying two mortgages. This is a super weird time in real estate and any company trying to make money based on the assumption that property values are going up is *seriously* at risk. Especially in Michigan.
You're still liable for the mortgage, which through some financial magic probably keeps it off their books. That's good for them, and might make it harder for you to get a good deal on your new mortgage.
Who is going to be paying the taxes? Who will be caring for the property? Who assumes liability if someone gets hurt on the property? If they can't sell your house, do you really want to spend YEARS in court fighting this at a cost of thousands of dollars to you?
posted by pjaust at 6:35 AM on May 20, 2010
I'd definitely worry about what happens if the company goes under and leaves you stuck paying two mortgages. This is a super weird time in real estate and any company trying to make money based on the assumption that property values are going up is *seriously* at risk. Especially in Michigan.
You're still liable for the mortgage, which through some financial magic probably keeps it off their books. That's good for them, and might make it harder for you to get a good deal on your new mortgage.
Who is going to be paying the taxes? Who will be caring for the property? Who assumes liability if someone gets hurt on the property? If they can't sell your house, do you really want to spend YEARS in court fighting this at a cost of thousands of dollars to you?
posted by pjaust at 6:35 AM on May 20, 2010
No one can guarantee a sale on a house. Run.
posted by dfriedman at 6:36 AM on May 20, 2010 [1 favorite]
posted by dfriedman at 6:36 AM on May 20, 2010 [1 favorite]
Lawyer up, cowboy. It certainly sounds scammy, but without knowing the details of the contract and the payments, it's difficult to assess.
posted by electroboy at 6:37 AM on May 20, 2010
posted by electroboy at 6:37 AM on May 20, 2010
OK, here are the downsides in more detail:
(1) from your description it sounds like this company claims that it "guarantees" a sale on your present house in Michigan. This is the first, and largest, red flag. No investment, bar US Treasury bonds, is guaranteed, and none should be advertised as such. (It is true that the US government guarantees many mortgages and insures deposits in checking accounts and savings accounts up to a specific limit, but neither of these cases of "guarantee" is what is going on here.)
(2) You have no guarantee that the company you plan to do business with will remain in business. What happens if it goes bankrupt? Does ownership of the house in Michigan revert back to you? If so, do you have the cash flow to manage two homes at once (your new place in FL plus the older house in MI that had been a "guaranteed" sale?)
(3) Have you seen the new house? Have you been to this town? Or are you buying sight unseen? It's not clear to me if the company you are thinking about doing business with also has an interest in this house in FL. If it's on both sides of your transaction (selling you this new house and guaranteeing a sale on your old house) then it holds all the leverage and you hold none.
In short, this scheme raises many, many red flags, none of which can adequately be resolved by anyone posting here.
I'd pass.
posted by dfriedman at 7:04 AM on May 20, 2010
(1) from your description it sounds like this company claims that it "guarantees" a sale on your present house in Michigan. This is the first, and largest, red flag. No investment, bar US Treasury bonds, is guaranteed, and none should be advertised as such. (It is true that the US government guarantees many mortgages and insures deposits in checking accounts and savings accounts up to a specific limit, but neither of these cases of "guarantee" is what is going on here.)
(2) You have no guarantee that the company you plan to do business with will remain in business. What happens if it goes bankrupt? Does ownership of the house in Michigan revert back to you? If so, do you have the cash flow to manage two homes at once (your new place in FL plus the older house in MI that had been a "guaranteed" sale?)
(3) Have you seen the new house? Have you been to this town? Or are you buying sight unseen? It's not clear to me if the company you are thinking about doing business with also has an interest in this house in FL. If it's on both sides of your transaction (selling you this new house and guaranteeing a sale on your old house) then it holds all the leverage and you hold none.
In short, this scheme raises many, many red flags, none of which can adequately be resolved by anyone posting here.
I'd pass.
posted by dfriedman at 7:04 AM on May 20, 2010
There is a similar outfit in the Bay Area which offered to take over the homes from distressed homeowners and do much the same as offered above. Needless to say, the "company" was a scam. They rented out the homes (offering the same rent-to-own deal!), collected the checks, and failed to pay the mortgages on the homes. Which were then foreclosed on, leaving both the renters and the homeowners totally screwed.
posted by Wavelet at 7:06 AM on May 20, 2010
posted by Wavelet at 7:06 AM on May 20, 2010
Sure you can guarantee a house sale. Why wouldn't a contract that says, "If the house doesn't sell in two years, I will pay you _____." The real question is whether that contract is enforceable / collectable (ie, if the company goes bankrupt).
How sure are you that you have accurately priced the property? A plausible explanation is that the company has valuation insight / knowledge that you don't. (Perhaps a shopping mall is being built there in a few years? Sort of unlikely in today's economy, but not impossible.)
Similarly, it is possible that the market-clearing rent (or rent-to-own price they think they can extract) is significantly higher than their payments to you.
These types of deals were really common during the real estate bubble. (See: "creative real estate investing or financing".) I thought they had dried up given how hard it is to sell real estate in most parts of the country.
Beyond what's already been mentioned, if the company puts a tenant in there, and the tenant starts running a meth lab, what then? Are you the landlord (with the ability to evict), or is the company? Are the company's financial guarantees enough that the risk of default / getting the place trashed is worth it?
posted by QuantumMeruit at 7:10 AM on May 20, 2010
How sure are you that you have accurately priced the property? A plausible explanation is that the company has valuation insight / knowledge that you don't. (Perhaps a shopping mall is being built there in a few years? Sort of unlikely in today's economy, but not impossible.)
Similarly, it is possible that the market-clearing rent (or rent-to-own price they think they can extract) is significantly higher than their payments to you.
These types of deals were really common during the real estate bubble. (See: "creative real estate investing or financing".) I thought they had dried up given how hard it is to sell real estate in most parts of the country.
Beyond what's already been mentioned, if the company puts a tenant in there, and the tenant starts running a meth lab, what then? Are you the landlord (with the ability to evict), or is the company? Are the company's financial guarantees enough that the risk of default / getting the place trashed is worth it?
posted by QuantumMeruit at 7:10 AM on May 20, 2010
The same outfit also operated in Fresno:
Arnel Reyes says in September 2008 he signed over his deed and paid $500 of a $2,000 fee to United Investments to try to save his Bay Point home from foreclosure and to protect his credit. Reyes: "They said if they couldn't save it, they would foreclose under their name, not our name. Basically I spent $500 for nothing so it came around, it still foreclosed under my name, my wife's name, and we still got hit with 7 years, 10 years of bad credit at this point."
posted by Wavelet at 7:10 AM on May 20, 2010
Arnel Reyes says in September 2008 he signed over his deed and paid $500 of a $2,000 fee to United Investments to try to save his Bay Point home from foreclosure and to protect his credit. Reyes: "They said if they couldn't save it, they would foreclose under their name, not our name. Basically I spent $500 for nothing so it came around, it still foreclosed under my name, my wife's name, and we still got hit with 7 years, 10 years of bad credit at this point."
posted by Wavelet at 7:10 AM on May 20, 2010
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If the company goes under in this period, where does that leave you?
posted by Hiker at 6:14 AM on May 20, 2010