Short Sale Side Deals - Legal?

Asked by Dean Durie, Brighton, MA Tue May 17, 2011

I want to make an offer on a short sale home but the seller wants to make a $5500 side deal for the major appliances. After doing some research I'm not sure this is legal in a short sale situation and could be considered mortgage fraud. Is this legal in a short sale? I'd appreacite any and all opinions.

Help the community by answering this question:

+ web reference
Web reference:


Mikel DeFran…, Agent, Canton, MA
Sat Jun 30, 2012
listen.. much cleaner to let them take their personal property and buyer your own appliances. If it's a condition of the sale.... it's probably not something to delve into. There are many more short sales out there without that risk. The fact they want way above market and as part of the offer are red flags 1 and 2.
0 votes
Jeri Creson, Agent, Studio City, CA
Mon Jun 11, 2012
You should consult an attorney. I have done legitimate, and very above board personal contracts for personal property outside of escrow, with advice from an attorney and a contract written that provides a foundation for demonstrating that no fraud is occurring. Personal property is defined in real estate laws of each state, and differentiated from real property. There is nothing fraudulent, nor illegal about a buyer and seller agreeing to purchase additional personal property concurrent with a real property transaction. As long as the sale and value of the personal property sale stand alone as a legitimate bonafide transaction. What would be fraudulent is, as it appears in your case, that there is no bonafide value in the exchange that a normal, stand alone buyer and seller would commonly agree to. Who pays twice the going value for a sellers old stuff?

A well written personal property contract that specifically indicates that the underlying real property contract will not be affected in the absence of the personal property contract; plus a "craigslist" "ebay" used price value comparison, similar to one that you might produce in court for, say, valuing items in a divorce, goes a long way towards providing a foundation and basis for legitimacy to help your contract pass the sniff test. A contract written this way, should it come to the attention of the bank "should" not be a problem, as a short sale lender has no lien nor rights of collection against a seller's personal property, and a seller has no obligation to "throw in " personal items to sweeten a short sale transaction to the bank's benefit.

Finally, while offering to purchase some truly desirable items from a seller, at fair market value, in a short sale could very well be a good incentive to sweeten a deal, and "all other things being equal" cause a seller to like your offer better best. I would say that's a legitimate "throw in bonus", especially if those items were going to be sold at a garage sale anyway. If the buyer, after inspection of the items chose to rescind the offer of purchase, without affecting the underlying real property contract, then, if the items were truly priced at fair market value, the seller isn't really harmed…he/she just has to sell them to someone else. There is a loss of convenience, but not of value.

But a seller "requiring" this, either directly or by insinuation is just plain creepy, and could possibly demonstrate an intent to defraud the lender, especially if it can be established that an offer was selected that was not the most beneficial to the bank, or that competitive offers were hampered by this activity. Bad news… don't do it. Did you know that 25% of all lawyers are currently unemployed? Let's not give the banks a good reason to engage their services, right?
0 votes
Justmereally, , New York, NY
Fri Mar 16, 2012
Yes, in the way you describe it, the seller is committing fraud, and by agreeing to a side deal, you could be judged to be party to the fraud (misrepresenting the short sale transaction to the mortgage lien holder). If the seller and/or you have a broker/agent, and they too can be party to the fraud, and if it were exposed the broker/agent has the most risk (i.e. at the minimum their reputation, and possibly losing their license plus penalties depending on the jurisdiction.)

The likeliness, however, that this fraud would be exposed is fairly low, and if it occurs, at most you and the seller are looking at financial penalties that are likely to be relatively minor.

I would suggest you can structure the deal in a different manner such that at least you can avoid being party to the fraud. Consult an attorney on how you might structure the deal as there are many scenarios.

An approach that will protect the buyer in most states is to utilize a little known (or under utilized) contract option where by the buyer pays a commission to their agent. Conventionally, the seller pays all commissions, but in most (if not all) states, the standard real estate contract forms do allow for a buyer to pay a commission. This contract is disclosed to all parties in the transactions including any lien holder(s).

If the buyer's agent wishes to take their funds (from their commission on the sale or otherwise) and pay the seller, then that is their decision and obligation to report while the buyer has lived up to any obligation they have for disclosure and arm's length relationships with the seller in a short sale. If the same broker/agent is representing both parties, the same approach applies.

In any case, consult an attorney. Almost any deal can be done if structured correctly.
0 votes
Robert Schult, Agent, Sarasota, FL
Thu Jun 9, 2011
Hi Dean: Your instincts are right on this. Though you can write a seperate agreement to cover the purchase of personal property, in this instance and circumstances, this doesn't pass the "smell" test. Full disclosure is always best and I would certainly speak to your advisors involved in this transaction for guidance. Good Luck!
0 votes
Dean Durie, Home Buyer, Brighton, MA
Tue May 17, 2011
Thank you for all the answers. I wanted to add some additional information that will help explain my question.

The seller will not sign the offer letter and purchase and sale without the signing a separate agreement for the appliances. The appliances are nice but a few years old so the $5500 they are asking is about double the going rate for the same model and year appliances (fridge, stove, washer and dryer).

And the thing that really raised a red flag is that this is a separate agreement, outside of the purchase and sale that the seller’s bank is not supposed to know about. It's the secrecy that is making me looking into this further.

From what I've read online side deals can be allowed in a short sale situations but there is supposed to be full disclosure with the sellers bank.

Thanks again for all the responses!
0 votes
The sale of real property (of no interest to the bank) as part of the transaction is one of the many ways to address this issue, and an attorney can help you structure this approach correctly. You're correct in that disclosure for your own protection is a requirement. Read my other post for additional details.
Flag Fri Mar 16, 2012
Louis Wolfs…, Agent, Needham, MA
Tue May 17, 2011
Standard language in Massachusetts for most purchase and sales agreements.


Included in the sale as a part of said premises are the buildings, structures, and improvements now thereon, and the fixtures used in connection therewith including, if any, all wall-to-wall carpeting, drapery rods, automatic garage door openers, venetian blinds, window shades, screens, screen doors, storm windows and doors, awnings, shutters, furnaces, heaters, heating equipment, stoves, ranges, oil and gas burners and fixtures appurtenant thereto, hot water heaters, plumbing and bathroom fixtures, garbage disposers, electric and other lighting fixtures, mantels, outside television antennas, fences, gates, trees, shrubs, plants, dishwashers, refrigerators, washer and dryers, all window treatments and all lighting fixtures. But excluding the following:

Hope this helps.
Web Reference:
0 votes
Joe Arnao, Agent, Sanwich, MA
Tue May 17, 2011
It is possible for the seller to sell non-real estate property on the side. If there appliances are not part of the P&S or needed to convey, such as the stove, then there may be a chance for side deal. Your attorney is the best source for this is question.
0 votes
Cynthia Bell, Agent, Cedar Park, TX
Tue May 17, 2011
I would seek out counsel. In a typical transaction, appliances are included in the conveyance of the property (stove, oven, dishwasher), having you pay for this on the side seems questionable. If it is the the washer/dryer you can usually include that in the cost of the loan. Flat screen TVS, home audio systems are a different, typically need to be handled by a bill of sale.

The short answer - the seller can not gain any proceeds from the sale of the property.

You also need to bring you mortgage lender in the loop on this.
Web Reference:
0 votes
Lyle Wolf, Agent, Morristown, NJ
Tue May 17, 2011
If you are buying a short sale you should use a real estate attorney to represent you in the purchase and protect your interests. In my experience doing short sales $5,500 sounds like a lot of money for the appliances. If a functioning stove is required in Mass. for the sale of a home then the seller cannot sell that separately since it is included in the sale. A dishwasher also would be included in the purchase. Other appliances (refrigerator, washer, dryer) would be considered the sellers' personal property and could be sold separately if they were not included as part of the listing.
0 votes
..., , Lexington, MA
Tue May 17, 2011
Hi Dean

The terms of the short sale have to be acceptable to the seller, the seller's bank, you and your bank. It's all negotiable to a point. People can make all sorts of offers but no one is obligated to accept them.

$5500 may or may not be a good price for appliances but check the contract to see if some of them are excluded or included in the sale, as Louis had suggested.

I guess my questions would be (1) can you refuse the side deal? If not, then it's not really a side deal, the price of the home is really increased by $5500 but the current owner wants that money instead of it going to the bank. (2) is the home still a value to you if you were to pay the extra $5500?

If you want a skilled negotiator, I have an attorney who has a LOT of experience in short sales. I would be happy to refer you regardless of your choice of lender.

Thomas J. Stevens, Loan Officer, Flagstar Bank
Financing in 50 states
0 votes
Gerard Carney, Agent, Spring Hill, FL
Tue May 17, 2011
The bank requires all the money from the sale to cover the lose from the bad loan. This said, the seller may have spent good money on updating appliances in the home, this can be considered private property and well unless stated that they will be added to the sale they can be taken by the seller at time of closing, or the seller may put cheap used appliances in its place. Look at the contract you signed and speak to your Realtor about what items were included in the sale, if the the appliances were not stated in particular, then the seller has the right to ask you buy them as a separate item to the house, and to furthermore pay them in a separate sale since the bank has no right to the sale of these items! Please understand that for the most part the seller will receive nothing in the Short Sale, and if there are products or improvements that they did,m they have the right to gain some of the investment back, it may help them in getting housing upon leaving the home! So do not think you are getting hood winked, you are just up against someone that is losing everything and trying to re coop what they can so they can move on!
0 votes
Tim Moore, Agent, Kitty Hawk, NC
Tue May 17, 2011
I have seen many homes listed as short sales with no appliances, no faucets, no toilets, no nothing. Is this legal, probably not but the seller is pulling out anything of value in the home at the last minute. This is a violation of the terms of the mortgage - BUT he ain't paying it anyway and has long ago violated it. Is the bank going to sue him for this too after loosing money in the short sale? Obviously they don't very often, so it happens. It's almost extortion and I assume your sellers want money under the table and outside the HUD form otherwise it would go to the bank.

Speak to your lawyer ASAP.
0 votes
Louis Wolfs…, Agent, Needham, MA
Tue May 17, 2011

The only major appliances that could be made on a side deal would be washer/dryers, and the fridge (if it is not built in) All other appliances should be included in the sales price. That said your offer could also include the washer/dryer and the fridge as well in your purchase price.

Louis Wolfson
Web Reference:
0 votes
Search Advice
Ask our community a question

Email me when…

Learn more