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My son has stumbled up on a house being offered in a nicer middle-class neighborhood which would be a minimal amount down. It is a $109K 1800 sf brick and siding in North Little Rock, 3 BR/2BA, LR, den, FP, eat in kitchen - the entire house has been re-worked, with new wood floors and a complete kitchen and both baths re-done. Currently under termite contract.
$109K - $3K down which includes the first month's payment of $940, PITI. 10 year note with early option to purchase but re-fi in 10 years regardless with $2K + $75/mo. going toward principal...meaning he would owe roughly $99K in 10 years, as opposed to $88K on a standard loan (and he's a newly graduated student with about a gazillion dollars in student loans and could never qualify in a million years). He and his brother would split it....central H/AC, roof, water heater less than 3 years old - large fenced lot. They are actually not bound to buy it, I don't guess....from what I understand, if they want to walk away in 8 years, no harm, no foul, I guess it would have turned into a rental situation at that point and they would just lose their $2K.
It is owned by a group of investors with a real estate company in central Arkansas - I have never personally heard of them, but they are listed with the Pulaski County Board of Realtors.
I'm having a gut glitch moment - I practically insisted that my sons be able to pay into escrow so that everyone is accountable for what gets paid, although I do not think the company owes a mortgage on it (which I supposed would come out in a title search - do they do title searches on a FSBO like this?). The company said they don't do the escrow thing, their reputation is their bond. My radar went up, but this may be common practice...can I get a Realtor's advice on this? We've bought and sold FSBO but never owner financed, so I'm not sure what's normal and what isn't. Are we missing something big here?
I'm going to reply to my own post because I think there are some important things that played out here - maybe it will help someone down the road. We still aren't sure of the legal implications or the actual disclosure responsibility of the RE agency doing this, but there was something mighty wrong.
My son decided to pass on this house for a myriad of reasons but told his friend about it. Friend goes out to see it, likes it, wants it, and there is where everything went over the cliff and into the gully.
D met the realty company's secretary there. He had another friend with him who was there to look at the structural integrity of the house, which appeared fine. However, when D decided to start closing the deal, he asked for a copy of the paperwork to be faxed to my son, who is an attorney. At that point the secretary bailed out and surrendered him to one of the member/owners of the realty company, but only after she'd mentioned that this house had been "bought" and foreclosed on THREE times in the past two years.
The Realtor spoke with D and told him he would not send the papers to my son, the attorney ("this is cookie cutter stuff, we do it every day, you don't need an attorney").
They refused to provide him a disclosure on the house in writing ("we've told you what you need to know").
They refused to do escrow ("we will trust you to make your payments on time, you need to trust us that we will send you an interest statement at the end of the year and that the taxes and insurance will be paid. Our word is our bond"). Also told D he didn't need a copy of the insurance papers since they were insuring the structure itself and he would need to buy contents insurance only....that would fly except that the insurance was part of the monthly payment, so he couldn't tell if he was getting gouged or not. Also said it "didn't matter" what the interest rate was.
They refused to supply any paperwork regarding the upgrades such as new plumbing, paperwork proving when the roof had been put on, the new AC, etc. "you can see the roof is new. If you knew anything at all about AC and water heaters you could tell when it was manufactured").
D asked if there had ever been any insurance claims against the house ("none of your business, if there were, that was then and this is now"). Also asked if there was a lien on the property and received the same response ("not your concern.") ?????
In the meantime, I was scurrying in the background to look on Realtor.com for any houses in this area that were currently listed, since I'm unfamiliar with the area. Of course I couldn't find sales, but I found a bunch of listings and this house was being sold at about $20/sq. ft. more than anything else for MILES and was no different than any other home in the neighborhood. In addition, I had brought up the Secretary of State's corporate check website only to find that the realty management portion of this particular business quit being stated as such in 2000, and that their corporate status as XX Realty Co. was shown as revoked on December 31, 2006, by the SOS office.
My son ended up calling and talking - make that attempted to talk - with the Realtor in an effort to clarify this mess. This man went OFF on him and told my son he wasn't playing any stupid legal games, they don't "do" escrow, and that if he continued to be "harrassed" by questions that D would not be allowed to buy the house. I think it got a little ugly after that.
Long and the short is that my son and his friends learned some valuable lessons from this one - if there is ANY hesitancy on the part of the seller to allow the documents to be reviewed, to disclose on pointed questions, or if defensiveness is the first thing you hear - bail out. Something is terribly wrong here but we aren't sure what. Long and short is that they take your $3K up front and pray you default, and from the sound of things you don't have a normal period of time to get current like you would with a standard mortgage.
So there's the answer to our own question.....the gut glitch was correct on my part even though I couldn't put a finger on it. Now the question is to figure out who to report this to, or if there is anything to be reported at all. At the very least this firm is banking on your failure - at the very worst it is violating a bunch of ethical rules and perhaps legal rules as well, as we have a usury law in effect in Arkansas that has recently gone to the Supreme Court on an owner finance.
Let the buyer beware - and if you do a FSBO, get legal advice or get an agent involved BEFORE you sign on the dotted line, and be prepared to compensate them for their time. It will certainly pay off in the long run.
A good, ethical Realtor would have seen through this sham in a moment and would have been worth their weight in gold. My son doesn't do property law and was going to have a partner in his firm who deals in property law review the documents - if you go through a lawyer, make sure it's someone who knows the ins and outs. Not every lawyer does every thing - this is why God made professionals for the world.
I must say here - my son and his friends learned a lot through this short adventure...a LOT...they will be more informed consumers, and thankfully they didn't have to suffer to learn a few lessons. However, everyone has agreed now that a real estate professional is the way to go and they won't be leaving themselves hanging for another bad deal. Hats off to you who are professional and work the magic every day and protect your client's interests. I know you work under a lot of rules that make it difficult to advise a client - I also know the really good ones find a way to get any negatives in front of the buyer without doing anyone a disservice. I have to believe a good, solid agent would have told D to run and not walk away from this deal....maybe not in those words, but the message probably would have been there.
Thank you for your time and the standard of conduct that you present and know it is appreciated. Our Realtor is worth every penny we've ever paid her and I'm thankful to have her running front for us in every deal.
sam,,,thanx for sharing, this is a prime example, of why a buyers broker is invaluable,
also, this is why a (respectable) listing agent, is valuable, concerning disclosures, it is against the law for any real estate agent to hide, or not disclose material facts. and also a god case in point about building inspections,,always have one, especially on fsbos.
and it was a good question about encumbrances(liens) on the property, any buyer has a right to know. (along with easements, etc,)
im glad your son didnt get caught up in this mess!!
when i have a buyers client, looking at specific property, i immediately check the history of that property on the mls. if it has been bought and sold many times in the past few years,,,or listed with four different r.e. companies and still hasnt sold,,it does raise some red flags,,
also it shows, what the house sold for.(if it did recently)this can be extremely important and can definitely work to the advantage of the buyer.
often buyers want to low-ball an offer,,well this can offend the sellers very easily,,and place you in an unfavorable position in multiple offers(even if you offer more)
now say the house/property was being sold by investors, or professional "flippers" well, yes, if they put many upgrades in the house, then yes, they can sell for much more, but ive seen the flippers, buy a place,,hold on to it,,6 months later,try to sell it themselves for a 50-80 k profit..more power to them,,if they can,,,however,,if i have a buyer looking at that house,,i will scrutinize twice as much as if it were listed with all the disclosures,,and again ,,look up what the previous owners paid for it,,(the flippers)
should what the previous owners paid for the property have much bearing on the worth today?? maybe not,(depends on time of occupancy, and improvements),but thier price tolerance, may be much more flexible)
SamIam, I am shocked and glad your son and his friend walked away. For who to contact: If they represented themselves as "realtors" I would lodge a complaint the state realtor association. I would call the better business bureau, and I would even call the city district attorney (sounds like a scam artist to me).
Definately file a complaint with the local and state authorities. That means the city attorney and the state attorney general, the local realtors association and the state association. It will land those people in jail where they should be.
We intend to. I am sure it will boil down to our word against theirs, but unless the secretary of state hasn't updated their records, they are at the very least operating as a corporation without a corporate filing. I find it hard to believe they are members in good standing with the county board of realtors, but unless that site is also behind the times, they are.
All in all, I think it was a great learning experience for the 25-30 year age group, and a good lesson in why there are Realtors in addition to lawyers and credit card fraud investigators, etc. A professional in who is reputable in their field is an invaluable asset. It also reinforced to these young men just why integrity is so important....your reputation is the best advertising you can have, and bad will follow you around. Giving your word as your bond is only good for a certain number of situations - having the integrity to back it up with documentation is paramount.
I thought it interesting that this group has allegedly been involved in real estate for quite some period of time, but none of the attorneys that my son contacted or works with who deal in real estate property law had ever heard of them. Little Rock isn't a huge town; you'd have thought someone would have crossed paths sooner.
Thank you for the comments. We will be following up this week and filing complaints, because somewhere out there is a desperate, uninformed consumer who is going to get screwed if we don't.
Not to rain on your parade Sam-I-Am but I am not sure anything they are doing is illegal.
You might be able to get at them via the Realtor Board...but I doubt anything else is going to fly.
And even if you find a violated statute I still think you will find no one willing to pursue it. Nobody lost anything. The evidence is all "he said she said" and prosecutors dislike these cases because the defendants will put on an able defense forcing the prosecutor to spend a lot of money.
The only thing that ever works in such cases is a civil case and that works only if there is significant money involved.
I had a good friend in Orange County who lost a few hundred thousand on an RE deal involving a new building. The managing partner was obviously guilty of fraud...basically admitted it. But the prosecutor declined. Said effectively "I got better things to do than waste my office's money chasing a guy for a bunch of millionaires". They settled it and let the managing partner walk.
Oh, we don't intend to pursue any legal angles - but we do intend to at least report it. Thankfully, no money at all was lost, even though they pressured for the $3K down. As you said, this is all civil and unfortunately, in today's litigious society, not worth pursuing to the end of the race. Since my kid is a lawyer and even he wouldn't waste the time on it, it sort of shows the legal climate these days.
Since it is a family owned business, nothing will happen - we are aware of that - but if we voice our displeasure to the BBB and the Board of Realtors, at least we're on record as saying they were cruddy to work with.
Not to rain on your parade Sam-I-Am but I am not sure anything they are doing is illegal.
Isn't refusing disclosure illegal?
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