“Trick” or “Treat”?

Attention homeowners who think that they need some cash! There are a couple of real estate “programs” that have arisen recently that I want to mention. I’m not sure that I can call them fraud, but . . . tricks? Perhaps. If the consumers/homeowners are unaware of the impact of their decisions, then misleading, at least. Deceptive trade practices is one term I have seen.

The first example is something that the real estate, mortgage, and title insurance industries are calling NTRAPS (non-title recorded agreements for personal services). You will not be surprised that the American Land Title Association says that they were first identified in FLORIDA in 2017. These “agreements” are now contested in 32 states, and several states’ attorneys’ generals have joined the fight. It took a few years to understand exactly what the issues were.

Here’s how it works. A homeowner is thinking about selling, so he or she looks on the Internet for more information and finds a company that will provide a free, market analysis AND will PAY money ($500, $1000) to the homeowner as a thank you. But wait, there’s more. All the homeowner has to do is let this company be your real estate salesperson when the homeowner decides to sell.

That’s it? Who could resist?

Ah, but that’s not it. In that agreement is this little catch: If the homeowner decides to sell using a different real estate broker, the original company ends up with a lien on the property for a % of the sales price – as if that company had been the real estate broker! Worse? The “lien” can last for up to 40 years!!

So, if the homeowner wants to hold on to the house for several years, and then chooses another real estate broker to sell, the homeowner STILL has to pay this original company.

It makes sense to me to repay the original company for that original payment. But that’s not the repayment $ amount. AND the fact that the agreement puts a lien on the property means that sales which include a title search for the buyer would require that this lien be paid off before the buyer could be insured. One repayment was $26,000! Sigh…

The other potential trick involves marketing to homeowners who have mortgages with low interest rates. In today’s market, buyers have become hesitant to purchase homes with interest rates so high. What is the solution? Buying a home with a current low-interest mortgage. Easy, right?A new technique, usually used by investors, is when the investor/buyer agrees with the homeowner-seller to “take over” the homeowner’s existing mortgage payments. These purchases are then “subject to” the existing mortgage (also referred to as a “Sub to” offer). This offer only works if the current mortgage rate is low-interest. (are you sensing a theme?)

Subject-to purchases have been around for years, so what is the big deal now? According to a recent article, “the strategy has obvious appeal when interest rates are high, but it comes with a huge asterisk: Once a home has changed hands, banks typically have the right to ‘call the loan’ – that is, to demand that the seller’s mortgage balance be paid in full immediately. Also, if the buyer falls behind on the payments, the property can still be foreclosed on – ruining the seller’s credit for a home he or she no longer owns.”

In both cases, the homeowners may have fallen behind on their debts or they are in need of cash for other reasons. To all, be careful about “treats” that may turn out to be “tricks”!

2 thoughts on ““Trick” or “Treat”?”

  1. FloriDUH for the creative new, yea, I’ll say it, fraud schemes. Fraud because these are substantial disclosures hidden from the homeowners.

    Another thing I am seeing is a huge increase in assignments of sale contracts. Individuals are offering to buy the home, the advertising the contracts for sale. They are being flipped and every party along the way adds $5,000-$10,000. Predictors from all over the US, and other countries, are driving Florida property bales through the roof artificially. Title generally will be aware of ‘double closings’ but the last buyer holding the bag pays ‘assignment fees’ at closing. All Florida homeowners are victims in this as tax rates and replacement home values are artificially driven up.

    Keep fighting f the good fight Barb!

    • Hey, Cindi,
      You are right. It’s about the “non” disclosures to homeowners. BUT, many citizens, including homeowners, rely on the Internet for their information and are reluctant to consult professionals to advise them nowadays, so they do not hear the “If it sounds too good to be true, it must be false” mantra.
      Thank you for introducing the Assignment of Sale contracts situations. Not “illegal” but, as you pointed out, it just seems fake, no? It’s one thing for an investor / flipper to purchase a home AND spend time and money renovating it, then selling it. These types of investors are in this business and doing a great job with houses that need upgrading.
      It’s another situation entirely to purchase a home for, arguably, below market price and then promptly reselling it for more without adding any value to the property. Twenty years ago, lenders started to add requirements in their loan closing instructions saying that their loans would not be approved if the property had been purchased within 6 months of the proposed sale to try to prevent this type of scam. Who is duped? The original homeowner. The last buyer. The last buyer’s lender. NOT the “investor.” Hmm . . .


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