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”!