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I'm in contract to buy a house. The inspection revealed that a small portion of the home is structurally unstable and would probably need to be replaced. It is something the seller had no clue about, so it was never identified in their disclosures, and our original sale price never anticipated this problem. But now that it's been confirmed by a structural engineer, and priced by some contractors to cost above $30K, the seller is willing to provide a cash credit at closing (they simply don't have the time to deal with it before closing, which is only one month away). They know if they put the house back on the market buyers would run from such a problem.
Should I be concerned about getting cash from the seller at closing to deal with the issue? We would honestly apply the money to this specific repair...and we even know the work would probably cost more than is being credited.
Reducing the sale price is not an option for us because that doesn't give us cash in hand to deal with the structural problem (because we'd only receive about 20% of that cash credit). We actually need the full amount of cash to do to work.
What are your thoughts? Is receiving cash from the seller at closing OK? The onyl reason we think it's probably fine is because the seller would normally do this repair prior to closing, it's just that they don't have the luxury of time to do such an extensive repair.
But now that it's been confirmed by a structural engineer, and priced by some contractors to cost above $30K,
the seller is willing to provide a cash credit at closing
What are your thoughts? Is receiving cash from the seller at closing OK?
My thoughts are that this is far more about HOW you handle this transaction than whether you should or not...
but it's really a question for YOUR local RE attorney to square away.
So...if your LOCAL real estate attorney says that HOW it can be done (at settlement)
is both kosher legally and that it won't leave your behind out in the wind when the time comes...
and of course that you're sure you want to take on the work and possible extras... then go for it.
Location: Mokelumne Hill, CA & El Pescadero, BCS MX.
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I see no problem, but the escrow company should hold the amount of the credit in escrow and pay the contractor from that money according to your instructions. Most of them don't like to do it, but I've had them do it for one of my buyers before.
Yes, I'm getting a 30 year fixed loan...and we're putting 20% down.
FYI, This is in New Jersey...
I'm not scared of these types of structural issues since I'm an architect.
But I don't want to do anything illegal. I've read mixed reactions online about this sort of thing...Some people say not to do it if it's not on the HUD statement, others say it's not an issue...but I don't think our lender would approve of such a transaction (or so, this is what our attorney says), but if we took the money and did the fix, they would never care, right? I mean, what does it matter if the seller pays for this item before closing versus after?
We're in a horrible position because if we don't get the cash we can't take the house, and if we don't take the house, we'll be homeless (our current place is being leased to a new tenant).
Last edited by number419; 06-01-2012 at 01:15 PM..
I mean, what does it matter if the seller pays for this item before closing versus after?
A BIG difference... mostly based on the competence of the work.
As I'm reading it they are giving you a $30,000 lump sum payment for YOU to do with as you please
including the inevitable changes and overages and they get to skedaddle once they leave the settlement table.
If the work is done BEFORE settlement that gives you a chance to inspect and even to back out
if something else is found or some new problem is created by the work.
Yes, I'm getting a 30 year fixed loan...and we're putting 20% down.
FYI, This is in New Jersey...
I'm not scared of these types of structural issues since I'm an architect.
But I don't want to do anything illegal. I've read mixed reactions online about this sort of thing...Some people say not to do it if it's not on the HUD statement, others say it's not an issue...but I don't think our lender would approve of such a transaction (or so, this is what our attorney says), but if we took the money and did the fix, they would never care, right? I mean, what does it matter if the seller pays for this item before closing versus after?
We're not in a horrible position because if we don't get the cash we can't take the house, and if we don't take the house, we'll be homeless (our current place is being leased to a new tenant).
RESPA (Real Estate Settlement Procedures Act). All monies involved in the real estate transaction need to appear on the HUD. And yes, your attorney is correct in that no lender will approve a $30k cash back to a buyer. If a house needs that much repair even conventional lenders will balk and not lend. So you just have to decide if you want to commit fraud by not disclosing the cash transfer.
Silverfall....thanks, but are you sure it's fraud? The only reason why I'm posting this question is because our attorney was the one who said we could take cash on the side as a last resort if he was unable to get the cash any other way to close the deal. He didn't say anything about it being fraud or illegal...In fact, he said it happens all the time. For what it's worth, he is trying to get the buyer's attorney to agree to a check being placed in escrow for "contractor use" to deal with the issue, but I have no idea what our lender thinks about that. I fear the whole deal may fall through, my wife, 3 kids and I will be left homeless.
Do we have other options for how to get the cash that is acceptable?
If we take a reduction in sale price, how could we possibly recoup the cash to deal with the structural work? Take a home equity or construction loan to do the work? I don't even know how this stuff works or what my net loss would be for this type of deal...?
Silverfall....thanks, but are you sure it's fraud? ...
If you are getting a loan and the cash back is not disclosed on the HUD closing statement, it will be fraud.
You should recheck with your attorney and ask specifically if his advice to take cash back includes no HUD disclosure. If so, you should talk to another attorney.
I have been in similar situations and it is no picnic. The issues of "fraud" is not the key point to my way of looking at this, it is the feeling of the paper pushers that something could go horribly wrong. The problem cited by MrRational is what everyone ought to fear. Let's say you get Ace Number One Iron and Steel and they come out and properly shore-up the house temporarily while the permanent beams are welded up or what have you. Then while the temporary shoring is in place you have some Thousand Year Flood hit the area and the whole damned house washes away. You try to make a claim and the insurance adjuster comes out and sees the rigging from the temporary shoring. They say "we can't pay for work unrelated to the disaster claim". The lender finds out the collateral for your loan is now a worthless pile of construction debris. You have nowhere to live and no hope of ever paying off the mortgage... NOT GOOD!
Now granted these are EXTREMELY REMOTE possibilities but it is exactly this kind of stuff that makes lenders nervous about "credit for repairs" that are more than a paltry amount of the overall purchase price. These kinds of things are often why homes with known structural issues are often listed "AS IS CASH ONLY". This works out great for the rare cash buyer that can afford to fix a place up. Other folks generally stay far away.
Since it seems like the SELLER is OK and the OP (buyer) is actually the rare professional architect that has the skills needed to oversee / understand these kind of issues the odds of true "fraud" (where the buyer takes the seller's dough and instead of using to improve / preserve the home decides to buy a jet ski and take their chances they their place won't fall down) I would have NO PROBLEM having everything done as outlined. The "paper pushers" at the lender and title company kinda need to just be out of the loop... The HUD form is not some kind of magical document burned into stone by God's Own Hand. It is our meddling gubamint's way of trying to protect idiots from fleecing one another and then come crying to Uncle Same to bail them out. Trust me the US Attorney will never have a manhunt to find some decent architect that used the cash the seller received from the lender to fix up a home. I would certainly recommend AGAINST quickly flipping this home with borrowed funds and heaven help the borrower if they should default on this thing with the current lender, but fraud, as in trying to get something over for financial gain? PFFFFFTTTT!
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