Escrow money - what is the point? Buyer is a Fraud - Seller not protected at all!

[jimj]

Hammy, you might want to consider a small claims case for lost rent due to his fraud. Given the evidence you have and the losses you have and the low cost of a small claims case it might just get you the justice/closure you seek.

Just a thought...

[Koale]

Originally Posted by hammy5

So this is going to be long so I apologize.


We own a short-term vacation rental that we are in the process of selling. About 3 weeks in we got a full price offer and was told by the buyers agent it was going to be a cash offer. That this guy is a millionaire investor. Well the offer comes in and it is full price, but now he wants financing through a private lender. We were kind of annoyed but it was still a full price offer and with some back and forth on a few things we signed the offer. In-between this time my agent received the buyers "proof of funds" in the form of a signed bank account (signed by the bank) statement from a company that the buyers agent says his client owns. There is 995,000 in this bank account. Closing is set for July 14th. This all happened the beginning of June. We are also told by buyers agent that if lending takes to long he plans to just pay cash and be done with it. We were told this several times.


We are asked to hold the home open so the buyer can do an inspection and an appraisal and we also stop taking future reservations for the home because we are selling. We also move a friend out of the house for a future booking and pay for her to move to another home because she is a zero revenue booking and don't feel that would be right to do to the buyer.


During this last month my agent kept asking about the status of lending because we have not heard anything and have not been provided with any lender information. We keep being told everything is good and still on track for closing. Well, Tuesday morning (a week before closing) my agent gets a notice from the buyers agent that he wants to cancel the contract because he cannot come to terms with the lender and expects his full escrow money back. My agent pushes this agent and tells him that she has no denial letter from any lender saying he cannot get lending and so we will be fighting for the escrow money.


That night we do some digging into this buyer and find out several things.


1. the proof of funds he submitted is from a company the he does not own, and further more a company he has never even worked for. It is a company in another state (that seems very shady itself). So this guy and his agent presented this bank account and HIS company and this was HIS money.


2. After some more digging we find him on an investor website saying he has a contract on a vacation rental that is fully turn key (MY HOUSE) and is asking for people to give him money so he can buy this house.


3. Facebook is a magical thing and we found him. He is not a millionaire investor. He is an unemployed single guy in his 40's who lives in his parents basement. And no, I am not making this part up.




His agent is claiming that he has every right to this escrow money because he could not get lending and according to the contract he is allowed to cancel if this is the case. He also lets it slip that he was denied for THREE loans for this house. We were provided no lender information for any of these lenders and still have no denial letter from any lender and it has been 48 hours now since the wanted to cancel. He says his client is "working" on getting the letter. My guess is he is doctoring up some letter because he is clearly a fraud.


The part that makes me the most mad is that I am pretty much being told there is nothing I can do here and that he will most likely get all his money back. I spoke with several agents who said it is not the agents job to make sure that his client is telling the truth. I have the email from the buyers agent with the proof of funds and the agent wrote this "here is the POF for my buyer, he owns this LLC". So that is how it was presented to us.


So now I am out thousands of dollars because I had to pay to move my friend to a new rental, I lost rental income keeping the home open for inspections and appraisals and I lost rental income by not taking anymore reservations. And it seems this fraud is going to walk away with all his escrow money and probably turn around and do this to someone else. I honestly do not understand how this guy cannot be in breach of contract by producing fraudulent information! And my agent is STILL trying to get the lender contact information from the agent so she can call them herself and he just keeps telling her that the buyer is working on it. Which in the contract it states he is supposed to provide my agent with lender information and keep us up to date on what is going on with the loan. We asked several times about the loan and were always told everything was moving along well and on track for closing. NEVER were we told he was turned down 3 times by 3 different lenders. So that to me is again, deceitful! If I would have been told once this guy was turned down for a loan I would have immediately wondered how a person with a million dollars in the bank is being turned down for a $154,000 loan. And I would have canceled the contract immediately because something would have seemed off.


So honestly - why even bother with escrow money? It does not protect the seller in the least! I am just so frustrated and I appreciate everything who made it to the end of this!

sorry for the long post...do you have an attorney?
Koale

[oldtrader]

Lets look at a few things.

From what the OP has told us about the buyer, there is no way that he could have gotten financing on an income property. He simply could not have qualified for a loan. As an investment real estate broker from 1072 till I finally retired, I am very familiar with who can get a loan, and who cannot when purchasing income property. Someone living in his parents basement, and has no employment is not qualified for loans. So you can assume, that if he applied for a loan to 100 places they would all have turned him down. When he claims he tried for 3 loans and they turned him down, really means that if he applied for an investment property mortgage, they told him no at time he tried to apply and there would be no letter turning him down.

The loan he turned down was probably with a co-signer such as his parents and they were not going to sign for him, so he turned down the loan as he could not get the co-signer.

As to who gets the deposit, it depends on the wording of he purchase contract. Unfortunately if there is a loan commitment requirement and the seller to get the money back if he cannot get a loan, it may very well be the buyer that gets the money.

Fact: A large percentage of real estate contracts fail and do not close.

Fact: The smaller the deposit, the more apt they are to not close.

Fact: For such a small amount, it is not worth trying to sue to keep it, as it will cost more in attorney's fees than the amount of the deposit.

Fact: Some say to sue for specific performance. Foolish move. The buyer does not have any assets, and cannot qualify for financing, etc. Just a waste of the OP's money. It would cost him thousands for no return.

Fact: It is often to the sellers advantage to just give the buyer their money back, and move on. Reason: They cannot sell the property to someone else, as long as they are holding the deposit trying to get it released to themselves.

All the years I was in the investment real estate business, I never took on someone like this person who was unqualified to invest. I only took on clients, that had money and could easily qualify for financing. The only sale that ever fell through, was a 3 way transaction, and the one property owner was trying to pull a fraud, and fled the country for England when I cancelled the purchase of her property (office building/and top floor apartments).