Victor Hussein is a real estate lawyer here in the Waterloo region. He recently received this question from a client of his and was kind enough to share it with us. Enjoy....
QUESTION: We have been trying to sell our home privately for some time now. Although we have had a few buyers look through, we have not had any serious offers until now. The buyers, however, are having a hard time getting the financing they need and have asked if we would help finance their purchase of our home. Could you give us your thoughts on us lending money to would-be Buyers of our home?
ANSWER: Lending money to your potential Buyers is of course a risk. Beside the obvious fact that you do not know the Buyers well, you should first ask yourself why a lending institution (“bank”) will not finance them for the entire purchase, or worse, will not finance them at all?
Having said that, it is not an uncommon event for a Seller to lend some or all of the money needed to purchase his/her home. This is referred to as a Vendor Take-Back Mortgage. Simply, a Seller lends the necessary amount of money and then places a mortgage on title for that amount.
Depending on the particular situation, the Seller’s mortgage will either be a first mortgage (in the situation where a bank or another lender is not involved), or, a second mortgage (in the situation where there is a bank or another lender involved). A lending Seller’s rights are affected dramatically depending on whether he/she has a first, or, a second, mortgage on title. Legal advice is very important here.
Assuming you wish to lend money to the potential Buyers, below are three factors, amongst others, to consider:
1) Traditional Lender: Why are the Buyers not successful in getting any or all of the financing from a bank? There are a host of possible reasons such as bad credit history, low incomes, not having enough money for a down-payment, just graduated from law school and has not demonstrated a steady income stream and so on.
The reason the Buyers were declined for financing should be a major factor to consider before making your decision to lend money. I would suggest requesting your Buyers provide a written explanation from the banks they have approached delineating why their application for a mortgage was declined. Lenders are more than ready to provide a written explanation.
2) Credit History: Since you probably will not know the Buyers well, it is important to conduct a credit history check. This will provide a picture of the Buyers past behaviour with respect to debts -- do they have a history of late or missed payments, and so on.
The credit report will also be useful by allowing you to confirm if the Buyers have provided you with a complete and full list of their present debt situation. If they have disclosed all of their debts to you, then you should not find any new debts in the credit report. If, however, you find in the credit report a host of undisclosed debts, red lights should come on.
3) Verification: A third important detail is verification of information provided by the Buyers. This entails, amongst other things, verifying the employment record of the Buyers -- how long have they worked for one employer? What is their present income? All this information should be provided to you by the employer on the employer’s letterhead. Request copies of the Buyers tax assessment for the past three years to further confirm their incomes.
This verification process will not only serve to confirm the representations made to you by the Buyers, but will also provide insight as to how honest and up-front the Buyers have been about their financial situation.
Finally, lending money to potential Buyers is extremely risky. At the very least, make sure you have legal assistance to protect your interest. In fact, I do not recommend doing this at all without legal advice and assistance. We are dealing with a lot of money and this should not be the time to take unnecessary chances.
On a side note, in your particular case, I note you have been attempting to sell your home privately. You may want to consider listing your home with a licensed Realtor. By doing so, you will be exposing your home to a much broader market, which could translate into your finding a Buyer who does not require you to finance the transaction, in turn saving you the aggravation and risk of lending and collecting money. You would simply sell the home and move on. Best of Luck! [Victor Hussein is Real Estate Lawyer In KW and Cambridge, 519-744-8585.]
So I got an email yesterday from a past client asking whether a shed is deemed to be a fixture and whether it should be deemed to be included in a real estate transaction or not.
I asked a few more things about her question and she told me that an employee of hers sold their home and decided to take that shed because it was not included in the agreement and in fact, they removed it before the Buyers came back for their “final inspection”, and now the Buyer’s a suing them for over $2,000 for the cost of the shed.
I asked her if the shed was there when the Buyer’s initially viewed the home and made their offer and apparently it was.
So I told her that in my opinion I believe the shed is deemed to be a fixture and should have been left behind but it would have to be up to a Judge. She went onto say that the shed was not actually fastened down to its platform and that the Sellers actually removed the screws which would in turn deem it a chattel rather than a fixture. Furthermore the shed in question was actually only worth $700 and that the claim being made against them is excessive.
At this point it also came out that neither the Seller or the Buyer was represented by a Realtor and that it was a “private transaction”. “For Sale By Owner”
Well well well. Surprise, surprise. Obviously my opinion of this situation is biased but isn’t it interesting when people take the duties and responsibilities of a Realtor so lightly and think that “these buggers” are overpaid and that they can handle the sale and or purchase on their own.
Not only do they have to go through the hassles of going to “Small Claims” court, time off work and the possibility of losing. Did they actually really save any money at all in light of the property not being properly exposed to the market place?
A professional Realtor on either end of this situation could have prevented this entire mess.
It reminds me of the old saying, “If you think the services of professional are expensive, try the services of an amateur.”
Feel free to comment on this article and have yourself a great day!