using earnest money to pay taxes

[patb]

I’m looking to bid a place, it’s f&*cked. Foreclosed estate, they had to evict
drug addicted family members, who tore out the pipes on the way out the door.

So it’s behind on the taxes, and HELOC,

The Estate attorney wants permission to use my earnest money
to pay the taxes and catch up the secured debt.

This sounds very weird to me, what do you all think of this?

[CA renter]

I know very little about RE law and am not a realtor or broker, but this sounds very shady to me.

Have them sell it to you, first, then you can pay off any liens. Just my 2 cents.

Good luck to you! Be careful!

[Coronita]

Run, don’t walk out of the deal..

[spdrun]

Debts get paid off by the escrow firm, at closing or just before. Until they’re ready to close, earnest money does not get used.

[UCGal]

Earnest money is to be used at closing. If they use it before closing, and the deal falls through – you’re screwed.

Don’t do it.

[Jazzman]

Seems like your choice really. You could always borrow the money from the lender/owner, default, and claim you’ve been paying them 2008.

[patb]

A week ago the seller gave me 8 hours to accept her counter-offer or she’d walk
I told her to shove off. Now she’s still talking.

The only reason I like this deal is it appraises for $480 and the
price i’ve offered is $300K.

I’m tempted to tell the seller, I’ll offer $200 KCash, they carry back a100K note
and we close fast.

or maybe i should drop my offer down to $280

[NotCranky]

Besides the issue with the earnest money use, I would be very careful about title on this one.

Is a court supposed to sign off on it? Any pending law suits?

[patb]

That’s kind of my take, it’s an estate and the Attorney for the seller claims
“You would be paid as an administrative cost as a first tier creditor”
but, seems to me just layered with risk.

The whole smash could go pear-shaped and i could find myself
hosed for 18 months.

[patb]

it’s littered with pending litigation.

My take is the title insurance should cover that and the estate is in
administration under a court, so if we get court approval to the sales price,
that should constitute some judicial cover, but, i’m real real uneasy
with them using my earnest money,

i’d rather put money down, carry a note back from the estate and
then clear them once i get more long term finance.

[livinincali]

[quote=patb]it’s littered with pending litigation.

My take is the title insurance should cover that and the estate is in
administration under a court, so if we get court approval to the sales price,
that should constitute some judicial cover, but, i’m real real uneasy
with them using my earnest money,

i’d rather put money down, carry a note back from the estate and
then clear them once i get more long term finance.[/quote]

It might be tough to get title insurance if there’s pending litigation issues. It’s kind of like trying to buy home owners insurance and announcing you plan to set fire to the house.

There’s always the saying no risk, no reward but this is starting to look like if it’s too good to be true it’s probably not true. You probably aren’t the lucky one that’s going to get a $480K house for $300K.

[CA renter]

Have you talked with an attorney, especially one who specializes in RE transactions?

I wouldn’t recommending doing anything with this transaction without a lawyer on your side.

[patb]

well i’m halfway past the walk away point at this point.

The estate attorney has been jacking me around

[bearishgurl]

patb, I’ve now had a chance to look over this thread.

[quote=livinincali][quote=patb]it’s littered with pending litigation….[/quote]It might be tough to get title insurance if there’s pending litigation issues. It’s kind of like trying to buy home owners insurance and announcing you plan to set fire to the house.

There’s always the saying no risk, no reward but this is starting to look like if it’s too good to be true it’s probably not true. You probably aren’t the lucky one that’s going to get a $480K house for $300K.[/quote]

livinincali, there is no “lucky one” in this transaction. In a situation like this, it will sell for whatever the market will bear – all cash. Whatever the heirs/executor THINK they need from the sale is immaterial.

The probate court will, if they haven’t already done so, issue an order to sell real property. The actual sale (usually but not always) must be approved by the court, who will look over an offer/counter offers agreed to by the executor and the buyer and decide if the estate can actually perform and if so, approve the sale. Since I don’t have much experience in probate matters, I am uncertain if a preliminary title report is customarily made available to the court in the application for order. In any case, the estate can transmit to you a quitclaim deed at closing (and usually do in CA), and, as long as you have an up-to-the minute preliminary title report on the day of closing (showing all of the exceptions on the time and date it was prepared), including any lender(s) demands and an up-to-the-minute tax bill from the estate’s attorney (you might even be able to get an updated tax bill from the county assessor the day of closing or day before closing yourself) giving you a very close ballpark figure of the total of encumbrances owed, you can use your earnest money (NOT before closing, PLEASE) plus more cash to close and this (HELOC?) lender and the tax assessor will be satisfied in escrow (or by the atty handling the details of the sale, depending on your jurisdiction).

If the estate’s lawyer in your case has to go back to court to get different sale terms approved (by the same buyer – you) due to your contractor/engineer findings or preliminary title report findings, then so be it. Then he will have knowledge of these findings, can’t fix them and will have to disclose them to every prospective buyer after you. They are what they are and probate sale properties are usually “as-is.” The $100K (HELOC?) is presumably there and that can’t be changed. The outstanding tax bill can’t be changed (taxing authorities don’t have to place liens for delinquent taxes – they are always first in priority by operation of law). If there are no lis pendens on title, then the $100K mortgage and back taxes might be the only title exceptions (except for already-established public and private easements).

The estate’s creditors and squabbling heirs MUST deal with the executor/administrator who has a lawyer. None of them could individually place a lis pendens on title here unless they had a separate civil suit with the decedent/former owner and filed it prior to his/her death and those lis pendens have not yet been removed. If any of those pending civil cases were not properly dismissed, they should be (a decedent can’t be a party to suit) and likewise, those lis pendens should have been released. Those otherwise aggrieved family members/business partners of the decedent (who were NOT heirs but feel they should be) must now file a creditor’s claim on the decedent’s estate in order to pursue any monies they feel the decedent owed them. Whatever liquid assets are left in the estate at the time of final distribution (incl the proceeds from the sale of this real property) will be divided up among legitimate, court-approved creditors first and then any heirs. Whatever each creditor/heir ends up receiving is exactly what they get and they can’t come back after the probate is closed and place any liens against the decedent.

You might just be hearing a lot of talk from the estate’s RE broker and “background noise” from the estate attorney about how much money they need to satisfy all the players but this “noise” may not have anything to do with the actual condition of the title. It may be in better condition than you think. You don’t CARE whether all the estate’s creditors and heirs are satisfied and it is none of your business.

PLEASE DO NOT PERFORM YOUR OWN TITLE SEARCH HERE!!

You already know you will not be able to secure an insurance binder until at least some of the needed work is done. This is not an issue that would hold up the sale unless you are seeking a purchase-money mortgage. If the property is not located in the woods (fire danger) and you are okay with this temporary problem and can work fast to get the property approved for a binder for your take-out loan transaction (and hope that a bitter former relative/tenant doesn’t try to set the place on fire after you and/or your workers go home for the day), then it is doable. Put up a 6′ high chain link workfence with a locked gate around the structure after you get clear title and possession of the property to prevent any more vandalism from happening. New owner-occupiers who begin rehab at the time of closing and professional flippers do this all the time, especially if the sidewalk out front is heavily trafficked.

Good luck and DON’T GET IN A HURRY! (It’s not like the masses are lining up flush with cash to deal with this mess.) Before passing “Go” again, I urge you to walk straight to into a local attorney’s office who is VERY experienced in real property transactions and title abstracting if you really want to be successful in getting this property.

Examples:

http://www.vsb.org/site/regulation/upl-guidelines-for-real-estate-settlement-agents

http://www.premiumtitlellc.com/about.html

http://federaltitle.com/staff

http://www.manta.com/c/mmsk3hd/randy-a-weiss-attorney

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