Needing to sell your home fast feels incredibly vulnerable. People are often pushed for a fast sale if they need to sell a house in a divorce, because of a job relocation, or due to an inheritance. Even people who must sell a house due to foreclosure feel burdened by the process of selling their home.
This is where home investors come in. A real estate investor should help a seller get out from under their house and allow them to move on to the next phase of life. They will make it a painless process and take on all the work that makes selling a house a headache.
Unfortunately, shady, and inexperienced investors have entered the scene. They are dangerous to vulnerable people and have made a bad name for real estate investors. Instead, find a reputable, experienced investor who will look out for you. In your search for quick cash homebuyers, keep an eye out for these increasingly common scams:
“Subject To” Sales
A dangerous way that unreliable investors take advantage of sellers is by conducting a sale “subject to.” If you see that phrase anywhere on your sales documents, that is your sign to exit the deal immediately. The investor is putting the deed to the house in their name, subject to keeping the existing mortgage in place with your name on it. They promise to take on all future mortgage payments, but you are legally on the hook if they stop.
Sometimes, an “investor” without the cash on hand to buy your house outright will use this tactic. Other times, it is a scam. The worst-case scenario involves an “investor” offering to buy your home. They promise you it is the easiest way. They might even offer a large cash payment to entice you into the deal. But once the deal is complete, things go south. They take possession of your home and don’t make a single payment on your mortgage. They’ll rent out the house to make money. By the time the bank serves you a foreclosure notice, they have pockets full of cash and are never to be seen again.
If you think you have found a trustworthy investor who suggests a “Subject To” sale, you need to get a real estate attorney involved. While these offers are rarely a good idea, an attorney can protect you if you decide to proceed.
What’s so Bad about “Subject To” Sales?
If you accept a “Subject To” sale, the mortgage is still in your name. This has many dangerous implications. Here’s a list of a few issues you may not consider at first glance:
- Your credit history will continue to reflect the mortgage. This could impact financing for future homes, your debt-to-income ratio, and your credit score.
- You could end up with less appealing loan and credit options due to the impact this could have on your credit score. Creditors will see the debt as a huge liability and offer you loans with alarming interest rates.
- If the investor ever stops making payments, whatever the reason, you are suddenly responsible for the debt.
- You no longer have a sizeable asset (the home) to offset the burden of the debt. You have signed the rights away, so if something goes wrong, you must pay the debt but won’t have the house to sell to come up with the cash.
- If the buyer defaults on the loan, you take the hit. Your credit score will take years to recover; it could lead to costly lawsuits from your mortgage company and even force you into bankruptcy.
- Mortgages often contain a clause stipulating that anytime ownership changes, they have the right to demand the entire loan balance. Once your bank catches wind of the deal, they may ask for immediate settlement of your loan, which nobody has the cash to pay.
Hidden Fee Scams
Another tactic that shady investors use is to hit you with unexpected fees. These companies imitate investors who buy your home for cash, but it’s all a front for their scams. These scam artists pretend to move forward with a cash offer but charge you “fees” before they can move forward to the next phase of the sale. After getting hit with multiple illegitimate fees, the investor disappears with your cash, and the sale never happens.
Legitimate investors have the cash to buy your home and don’t need to charge you fees until closing. Some legitimate fees will come from your profits at the time of the home’s closing. Contact a real estate attorney for professional advice if you have any concerns about your sale to an investor.
Getting swindled out of the precious cash you need to move on to the next phase of life can be devastating. To avoid hidden fee scams, you can verify the validity of the investor who has offered to buy your home. A great place to start is by visiting the Better Business Bureau website to check their ratings.
Reverse Mortgage Scams
People may also approach you by offering an alternative to a traditional sale. Reverse mortgages offer you the chance to borrow against the equity in your home, with the balance being due at the time of your death. You get payments from your loan provider, and when you sell your home or pass away, your estate will pay the loan in full. Reverse mortgages are a reasonable option for a specific demographic.
The problem comes when someone uses a reverse mortgage as a scam. Posing as an investor, they suggest using your lump sum payment for shady investments. These scams often end with the criminal taking the equity you have worked so hard to build, leaving you with nothing.
If someone is selling you a reverse mortgage, be aware of the potential for fraud. If anyone tells you that it is free income, encourages you to keep it a secret from your spouse or children, or suggests you finance upgrades to your home with reverse mortgage payments, it is time to pause the deal. And by all means, never sign something you don’t understand.
Selling your home to an investor can be a wonderful thing. You will encounter professionals who will genuinely care about you during the deal. They will help set you up for your next move and respect you during the process. If you are ready to sell your home, hold out until you find an investor that you really trust.