Question:

Buyer wants to buy on contract starting Nov ending in May. Worried not binding & don't want to start over?

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A buyer has made an offer using a contract for deed; house is 239,900; want to put 1000 earnest money; get an FHA loan (he has been pre-approved for FHA as well as conventional) and we are worried that come next May if he didn't get the money we would get the house back. He will make $1100 monthly payments for 6 months, 600 going to the house, rest to taxes and insurance. If this falls through, we do not want to go through litigation.

Can't get blood out of a turnip they say. It is our only solid offer. Would it be better to pass on this and keep marketing and try to get a buyer who can buy now? Most have houses to sell which is a problem as well. Buyer also wants an FHA mortgage which I understand the appraisal is much harder to pass. Our house is nice but it could be a problem.

We do have an attorney but I still worry that any contract could be broken.

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  1. Don't take that offer.

    If he cannot closing within 60 days, then part of his "pre-approval" is probably paying off a substantial number of collections or getting his credit score up.

    A "pre-approval" doesn't tell you anything...it just means that it's with conditions...the types of conditions can be endless.  

    The appraisal of an FHA mortgage is NOT any harder than any other loan...so tell whover handed you that BS that it's not true.

    Wait on a solid offer...this isn't the one.


  2. run this by your attorney and have him bullet point your risk.  it is his job to minimize your risk as much as he can.

    if the risk is acceptable to you, and it works financially, go for it.

    it sounds like it would take care of any financial liability you may have on the property for the next 6 months at least.  if it all goes through, then everyone makes out, if not then the market might be more favorable in 6 months, so it could help you ride out the market slump  

  3. I would really think about this. They are offering you cheap rent money.

    My daughter did this with her home and half the time the people would not pay her and when she finally got them out the house was destroyed and still in her name.(deed was).She found out latter that their credit was not updated and it was bad. They had done this before. There was nothing she could do as they had no money and already had judgments against them. She also had a lawyer.

  4. The fact is that any contract CAN be broken.

    What you want the contract to cover is all the ways it can be broken, and what happens when it is.

    First of all, I'd suggest that the $1,000 not be considered "earnest money", but an "option fee", by styling the contract as a "lease, with option to purchase".   If it doesn't close by a specific date in May, the buyer no longer has the right to purchase at that price, and doesn't get the money back. That includes if it doesn't pass inspection, appraisal, or if the whole complex burns to the ground.

    Second, I'm not sure you want $600 of the $1100 monthly to go to the house.  How does that number relate to your monthly payment on your current mortgage?  If your payment is $1100 and only $250 of it is principal, that means that every month that goes by means you will net less from the closing.  

    What you need to bear in mind is that if the deal falls through, it isn't worth the trouble for the seller to litigate.  No court will force a buyer to buy.  A buyer might force a seller to sell, but you can't force someone to take property they don't want, even with the best contract.  All you'll get is money damages, which will be unknown until you sell it to someone else, and even then they can claim you sold it to cheap.  Better to have your remedy for their failure in the contract, and that's what "earnest money" is all about.  

  5. I don't like it, this is similiar to a lease with an option to buy arrangement but with him paying way below your costs.  He is offering below market rent (not sure what rents are in your area but the rent doesn't even cover what a mortage would be by a long shot) and is putting up very little money.  This could fall thru for various reasons and you'd get almost nothing and had the house off the market for almost 10 months trying to make this work.  Heck, I'd probably just rent the place out before I'd do this (I know the likely outcome and rent would almost certainly be well more than he is paying).  If you do this it may work out, but more likely you would be looking at many months of frustration and anoyance (possibly followed by an eviction at the end and maybe even other litigation).

    I'd almost certainly pass on this one.  I think the only way I would consider this is by simply doing this as an actual lease with option to buy.  In a lease with option to buy you are simply renting the place to him (but charge market rent, maybe even more) and he has an option to buy the place at a later date (could be next May) for a set price (could be 240K).  He also would pay you a fee to get this option (probably a few 1000, not one; and if he does not buy the place this money is yours nonetheless).  When May rolls around he can either buy the place, or not - its totally his choice - but if he does not you keep the fee an just keep renting to him or ask him to leave and start over with someone else.  Advantage of a lease with option over what you are considering is you get more money, and you know going in this may not work out but thats ok - you are still getting enough to cover your costs.

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