Home Buying in 11746>Question Details

mark8, Home Buyer in Huntington Station, NY

Can earnest money be paid directly to seller?

Asked by mark8, Huntington Station, NY Mon Sep 24, 2012

Can earnest money be paid directly to the seller on a contract to purchase real estate. Secondary question: how far in advance can closing date be set on a contract?

I am in the credit penalty box for another 12 months due to a short sale. I have a relative who has agreed to purchase a house and lease it back to me until I can purchase it.

I'm trying to structure a transaction that results in:

-$0 out of pocket expense for my relative
-Does not trigger a taxable event
-Allows me to take down payment credit for the advance money I will be putting up at the time I purchase the house

Here is what I am thinking - please let me know if there are any holes in this or if there is a better way
Purchase price of the house is 350k
30% down payment = $105,000

Relative purchases house for 305k and puts 105k down from his own funds. We then execute a purchase agreement and I pay 105k earnest money. We set closing date no later then 18 months in advance. I rent the house until close.

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Al Magrella’s answer
You need to be careful and get the advice of a good real estate attorney. I have an excellent one for you if you need a contact.

There are laws that govern a situation like this. I'd love to be more specific and tell you exactly what the deal is, but as a licensed agent it would be considered inappropriate for me to do anything that looks like I'm giving legal advice.

Contact me if you need a good attorney.
0 votes Thank Flag Link Tue Apr 16, 2013
Wow you really have done your homework, there will be a taxable evening for the purchase, closing cost? a 1099 will be generated confirm with an accountant, and your attorney. 18 months is a lease with the option to purchase, there will be a taxable evening on the exchange from your relative to you as well, such as transfer tax, recording fees, etc which will again generate a 1099 for both of you.
0 votes Thank Flag Link Sun Jun 16, 2013
We have been in this weird Market since about 2005; and many, many people have tried to come up with weird ways to save house, and buy houses, due to declining values and forclosures:

You will get no credit for being the FIRST, and probably none for being the BEST.

The legalities of your idea would have to be answered by a local attorney, but this I can tell you:
Earnest Money is deposited into the Escrow account,
You are proposing a simple Lease/Option with your friend,

Good luck and may God bless
0 votes Thank Flag Link Tue Sep 25, 2012
Correct me if I am wrong, but it is my understanding that the option fee paid on a simple lease option is not creditable toward the purchase down payment for underwriting purposes. That is why I am considering a straight purchase contract with earnest money paid directly to the seller. I understand the risk associated with payment of earnest money directly to the seller and I have zero concern in that area. My question is; can it be done?
Flag Tue Sep 25, 2012
I plan to consult with an attorney, just trying to educate myself in advance.
0 votes Thank Flag Link Tue Sep 25, 2012
It's really in your best interest to consult with an attorney who specializes in real estate; don't simply rely on online information....
0 votes Thank Flag Link Tue Sep 25, 2012
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