I have been approached by an organization offering to "take over my payments". Is this a total scam?

Asked by Mt, 55805 Fri Oct 17, 2008

I have a home for sale, and this organization claims to be able to "take over my payments", and eventually purchase my home. It was explained like this "We would be purchasing your house just as anyone else would, the only difference being that we are using your existing financing. Once we close, you can walk away and forget about this house, you’ll never hear from anyone regarding this house again until the day that someone gets new financing to pay yours off. At that point you would get a notice stating that the loan had been paid off."

So what happens to the small amount of equity (only about $15,000, half of which I expect to pay in broker fees) that I have in my home?

My house has been on the market for over 120 days (with a realtor), and I need to get it sold soon (I move into my new home in about 2 weeks). Should I run screaming from someone like this, or in this depressed market, is this really my only option?

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Alan May, Agent, Evanston, IL
Wed Feb 18, 2009
Do not sign anything, without first consulting a real estate attorney.

Scott is correct... if the mortgage is still in your name, you are still on the hook for the entire home, loan and all, regardless of what the new people do to it.

If they were truly "assuming" your loan... that would effectively remove you from the loan. So they are NOT doing that.

Sorry, this doesn't pass the "sniff test". It smells too good to be true.... my guess is, ... it IS too good to be true.
3 votes
Dp2, , Virginia
Wed Feb 18, 2009
Although this possibly could be a scam, it might not be.

Some of the advice that you've received thus far is good, and some of it is incorrect. Alan is correct that you probably should consult with a real-estate attorney--one who is also a real-estate investor. Several people have already stated correctly that many lenders have structured their contracts either to prohibit loan assumption (without its permission), or to allow it only if the lender gets to qualify the new buyer.

However, provided that buyer is legitimate, there are several other legal ways to handle the sale which imply assumption--but technically are different. For example, ask your realtor to give you a blank copy of your state approved purchase and sale agreement. Take a look at all of the financing options: you should see at least one option that allows you to purchase another property "subject to" any pre-existing liens. This transaction goes by a few names: subject-to mortgage, wrap, and all-inclusive trust deed. Although it's true that the lender could accelerate the repayment of the loan, this typically doesn't happen--as long as the mortgage keeps getting paid.

Another variant of this transaction is a wrap with a balloon payment. You could sell your property to that buyer with a wrap with a 1-year balloon--which means that buyer would have to refinance to pay you off within a year.

Some other ways to handle that sale might be using a land contract, land trust, and lease-option. Another creative way to handle the sale is to set up a LLC, quit claim your title to the LLC, and sell that LLC to the buyer. Again, all of these techniques imply loan assumption, but technically aren't the same as loan assumption.

To ensure that the payments are made or that you're notified when they're not (so that you can foreclose on that buyer if it comes to that), you should set up an escrow service account to process the payments. This will protect you and the buyer, and it will make sure that everything gets set up properly.
2 votes
Peter Curtis, Agent, Roseville, CA
Tue Apr 14, 2009
The LLC's and Land Trusts work well.
A lot of good answers here.
Believe it or not being honest with the bank often works very well.
One other option, I know a subject too investor. He has 28 properties and does this quite often. the homeowner gives constructive notice to the bank. Where the seller writes the lender a letter letting them know that they are in a position to no longer pay the mortgage and they are giving constructive notice that they are giving the property interest to another party and submit the letter with the check and send it certified mail and verify that it was received. Often the bank will acknowledge that even though the due on sale clause is in the note, they ignore it and allow the new owner to assume the loan anyway and often document this on paper to the new owner.
Bottom line.
The lender wants the income and a performing note and they do not care who pays even though it says differently on the note.
1 vote
Tom Psillas, Both Buyer And Seller, Hartford, CT
Wed Feb 18, 2009
These types of deals are becoming more common as homeowners become more desparate to sell.
Yes. These deals can be a godsend, if all goes according to plan.
However, if another deal that this company is assuming goes bad (seller or buyer files bankruptcy), the company/investor may now have a negative cash flow on that property. The company could lose all the equity they built on that property that went bad.
Meanwhile, if the company ends up with more than 1 bad deal, they may start pocketing the lease purchase rental income, but not pay the mortgages. This could create a major problem for all sellers who SOLD to this company.
The rules change when things suddenly go bad for these types of companies. These company owners go to seminars, like Rich Dad Poor Dad, paying upwards of $10K to over $100K. Many of these folks mortgaged their home to buy the seminars on how to buy homes, using creative assumptions. So, in many ways, they feel like they need to recoup their investment. The problem is if they do not, they may be prone to just collect the rentals, hide the cash in a shell corporation, and then file bankruptcy.
Since, you are most likely dealing with a corporation, with no personal liabliity of the owners, there is little incentive to help you out, when things go wrong. YOU end up holding the bag, my friend.
Just so you know, I am doing these types of deals. However, I only deal with buyers, who I know make high income, but have no documented history of income (cash businesses, 1099 consultants, etc.).
So bottom line is:
The deal is as legitimate as YOU and the COMPANY you are dealing with. Understanding this, I think you can now make an educated decision, knowing the possible outcomes.
Web Reference:  http://www.linktomeet.com
0 votes
Mt, Home Seller, 55805
Fri Oct 31, 2008
Interesting twist... I asked a LOT of questions, and the person I was working with said he hadn't had a chance to actually run my numbers yet, and he would get back to me. That was 2 weeks ago. I guess I scared him off!
0 votes
Scott Hutchi…, Agent, Lakeville, MN
Thu Oct 30, 2008
Why would you even consider signing over "all" of the interest of your house to someone, but still be obligated for the mortgage and the promissory note (that you previously signed when you bought the house)? This is a complete scam. I have run into this a lot lately.....a lot of times they will even offer you a few grand for the quitclaim deed.
0 votes
Aaron Dickin…, Agent, Champlin, MN
Mon Oct 20, 2008
Your agent will not be equipped to answer this for you... this is too much into the realm of the legal profession. If you are considering this at all you need to contact an attorney. After all the additional detail you've added I still don't feel right about it,,, I actually feel worse. I would still prompt them to put ALL of this into writing and see if they are willing to do it...

You could also call the Minnesota Department of Commerce of Attorney General and seek assistance through those routes.
0 votes
Mt, Home Seller, 55805
Mon Oct 20, 2008
Hi, home seller here again. Thanks for all of your responses, any bit of advice helps. Here's a little bit more information. I had a conversation with the organization in question, and although they spoke in only general terms (they haven't had a chance to "run the numbers" officially yet), they answered some of my questions.

My mortgage does have a "due on sale" clause, I checked. I mentioned this to "Joe" (the person I have been speaking with), and he said that they work with these all the time, and the process involves "putting the home into a trust" and transferring that way. He said "everything is fine and legal" and "we do this all the time". Big red flag for me there. It's getting into "legal-eeeze" that I no longer can follow. I hate to spend the money on an attorney, but I guess it's the right thing to do if I want to protect myself. I have not mentioned any of this to my Realtor yet. Do Realtors have any training or information about this kind of legal stuff? I am guessing not.

So according to my conversation with Joe, it works like this: Joe's organization finds "good people who have fallen on bad times," who need housing. They get them into a house (like mine), charging these people "rent", on a rent-to-own plan, which equals about $100 more than the mortgage payment (therefore Joe makes $100/month on these people). These people agree to pay Joe's company, for example, $130,000 for this house they are currently living in and renting. Joe agrees to pay me $120,000 for the house. Joe's company works with these people to help them clean up their credit, then works with lenders to get them some "traditional" financing. When the people get their financing and buy the house from Joe, he makes his $10,000 and pays off my mortgage. At that time I get a check for the equity in my home (this process could take years, as you can imagine).

This sounds "too good to be true". I have already resigned the fact that I won't be getting a big fat check when I sell my house, if I have to keep dropping the price in this depressed market. But, I have a 15 year mortgage currently, and I "earn" about $500 every month in equity. If this process takes a year, that's $6000 more in equity, or less I owe, on my mortgage. Assuming I can live without my equity right now (which I can), this seems to be an outstanding option for me. The longer it takes, the more profit I make, as someone else pays down my mortgage. What am I missing, because this is just too easy.

And Keith, I am, if you read my original post, already represented by a Realtor. My home is listed in the Duluth Area Associaton of Realtors MLS, on the local and national Coldwell Banker websites (as well as Trulia and Zillow), in the local newspaper on the front cover of the Homes section every week, and my Realtor holds open houses at least twice a month. It is TOTALLY listed. I ended up speaking with "Joe" by searching on-line trying to find help with my situation (i.e. I own two homes right now).

According to the Better Business Bureau, the organization has been in business since November 2005, and
"based on BBB files, this company has a satisfactory record, does not have an unusual volume of complaints, or any government actions involving its marketplace conduct. The BBB understands and has no concerns about the company's products, services and type of business. The BBB processed a total of 0 complaints about this company in the last 36 months, our standard reporting period." That's mildly reassurring.

Any other bits of insight?
0 votes
Maria Morton, Agent, Kansas City, MO
Fri Oct 17, 2008
Mt, I have heard of scams that start out like this. Now I'm not saying that this is a scam; I don't know.
I do know that you will want to be very careful about entering into an agreement with someone who is going to assume your mortgage.

Before doing anything else, try talking to your realtor and your mortgage lender to get their take on the situation. These are people who are already working with you. Both will be able to give you specific and accurate information about how the assumption could occur. They are also in a position to help you check out these mystery people.

Regarding allowing someone to assume the loan without your lender's knowledge: That is unethical, in violation of the agreement, perhaps illegal, and definitely risky for you. Wlithout the proper documentation, someone could end up ruining your credit and who knows what else.
Web Reference:  http://www.mariatmorton.com
0 votes
Aaron Dickin…, Agent, Champlin, MN
Fri Oct 17, 2008

Maybe you misread the seller's post... This seller states that he/she is already represented by a REALTOR. Though you do not work our local area, you are still in fact soliciting a client already under a representation contract. This violates our Code of Ethics.
0 votes
Keith Sorem, Agent, Glendale, CA
Fri Oct 17, 2008
Unless your loan is assumable I don't think that will work.. At any rate, I would run them through the Minnesota Consumer Affairs Dept, and the Better Business Bureau.

Now, to really help you, here are some suggestions:

You probably are not going to want to hear this, but it's probably the truth:
Your home has not been on the market. You have a For Sale Sign up. Your home will not sell because it is not listed.

My recommendation is for you to interview three Realtors. I will even refer you a top Realtor at no charge to you. Compare their proposals. Then you make the call.

Don't feel bad. 85% of home owners eventually list with a Realtor. Only 10% actually sell to a private party.

Good luck~
0 votes
Aaron Dickin…, Agent, Champlin, MN
Fri Oct 17, 2008
This kind of offer has been associated with scams in the past. It doesn't sound right to me at all. If you tell them you need to see the paperwork so you can have your attorney review it and they run off, that'll give you your answer.

Methinks it is a scam.
0 votes
Other/Just L…, , Fleming Fitch Grant, Holly Hill, FL
Fri Oct 17, 2008
Lending answer:

First point: Scott is correct. There is a significant risk in the offer, especially if the mortgage is not transfered from you to the buyer.

Second point: You are correct. Unless your loan is a Govie (ie FHA, VA, or US RDA) it is highly unlikely that it may be assumed by another borrower. You mention the "Due on Sale" clause. If you read your Mortgage agreement, you will find a clause titled either "Due on Sale" or "Acceleration". This clause is triggered if you transfer your ownership to someone else.

Assumable loans contain a clause titled "Assumption" or "Novation"

Furthermore, you CANNOT properly convey ownership to this outfit without first paying off all liens aganist the home.

Your research into the Assumption agreement is correct. If your loan is not currently assumable, you must obtain an agreement from your lender to modify your loan. The lender may or may not be able to do so depending upon how your loan was securitized (ie sold to investors).

If the lender is able to modify the loan to incorporate the Assumption clause, the buyer will have to meet all of the lender's qualification requirements as if he/she/they were applying for a brand new mortgage (which essentially they would be doing).

If your buyer assumes the existing Mortgage and Note, you are surrendering all of your equity to them.

Here's one clue to spot a scam: If this outfit suggests adding them to the title/deed of your home via a Quit Claim Deed... that is a RED FLAG for a scam. A Quit Claim Deed in of itself is not a bad thing, but like any other legal instrument it can be abused. The proper way to convey ownership is via a Warranty Deed - the "Warrant" means he seller has clear title and that all prior claims against the property have been satsified. A Quit Claim conveys no Warranty, which means the title to the property is no longer clear and marketable. Down the road this oculd create significant problems in selling the property.

As James advises, you need a real estate attorney to help you properly assess the risk and legality of the offer. I can't emphasize enough the importance of legal counsel in this matter.

Your attorney may also be able to help you obtain the modification you need to make an assumption possible. If I were in your shoes, I'd rely on a free consultation to determine the validity of the offer, then insist on the buyer paying the legal expenses to modify your loan.

The Federal Trade Commission and many state Attorney Generals are pursuing many companies now for running equity stripping scams. Be careful. It may be a good offer, but the only way to be sure is with the advice of a local Real Estate attorney.
0 votes
James Joseph, , 06281
Fri Oct 17, 2008

Get some legal advice from a good local attorney.

All the best,
0 votes
Mt, Home Seller, 55805
Fri Oct 17, 2008
Hi, this is the home seller again. I have been reading about "mortgage assumption", which is what I think is the suggestion here. It is perfectly legal, in certain cases. According to what I have read, my mortgage (which is not an FHA or VA), is probably NOT assumable (although I will have to go find it and check the fine print to be sure). The information out there says that if my mortgage has a "due on sale" clause, it means that if I try to do this "under the table", without telling my lender, then the lender can demand payment in full when they find out.

I have also read that some lenders will sign a "Assumption Agreement of Deed of Trust and Release of Original Mortgagors contract", whereby the new purchasers of the property (i.e. this mystery organization) assumes and agrees to pay the debt to the lender, and the lender releases the original mortgagors (i.e. me and my husband) from any future liability on the loan.

I would love to hear some feedback from lenders out there, or realtors with experience in assumed mortgages. Is this a good idea for a seller, assuming the offer from this organization is a reasonable one? It will be the only offer thus far on my property. I really NEED to sell this house soon.

For what it's worth, my payments are current, I am not in foreclosure, and I can afford to wait a month or two (but not much longer) to make a decision.
0 votes
Susan Hoffla…, Agent, Shoreview, MN
Fri Oct 17, 2008
Scott makes very good points. What every buyer and seller needs to assess when they are entering in to any kind of transaction is the risks vs. the rewards. if the risks outweigh the rewards, it's not worth. So, before you go in to anything with anyone, make sure you know what the worst case scenarios are so you can make and educated decision.

It would be great of some mortgage people would chime in here, but I believe there are some restrictions on mortgages that wouldn't allow you to sell your house unless you pay off the mortgage in full. So, these people cannot just start making your mortgage payments for you and relieve you of any responsibility. Your lender still holds you liable for any problems that happen while you still have a mortgage with your current lender.
0 votes
Scott Godzyk, Agent, Manchester, NH
Fri Oct 17, 2008
Yes and no. some are and some may be legitimate but more of a concern for you is that if someone takes over payments you are still on the hook for the mortgage. if they default you are responsible and it goes on your credit. If teh house burns, is damaged or if they strip it, you are responsible for the damage. my advise is to stay away from this kind of proposal. it is not worth the all the negatives that can happen. goo dluck with your sale.
Web Reference:  http://www.ScottSellsNH.com
0 votes
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