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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Ron Thomas’ answer
Ron Thomas, Agent, Fresno, CA
Tue Sep 25, 2012
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
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
Will Roan, Agent, Henderson, NV
Sun Jun 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
Al Magrella, Agent, Plainview, NY
Tue Apr 16, 2013
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
mark8, Home Buyer, Huntington Station, NY
Tue Sep 25, 2012
I plan to consult with an attorney, just trying to educate myself in advance.
0 votes
Anna M Brocco, Agent, Williston Park, NY
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
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