Selling Home to Mortgage Company

Q: We have a lot of high debt and just one income at this time. We fell behind on our mortgage for the home we bought two years ago. The home has lots of problems we did not know about, including a bad septic system.
 

Because of our bad credit, we can’t get money from the house to pay off our high debt. We’ve tried to sell the property, but haven’t had an offer.

Now, we’ve just received an offer to buy our house from a mortgage company. Here’s the deal we’ve been offered. We pay up the mortgage for those 6 months that went unpaid and pay down our debt with the cash. In 6 months, we buy our home back from the mortgage company.

We’re told that the interest rate for the 6 months that they have the house would be 9 percent. In the end we buy back the house and all that it costs us is interest we owe them and the fees we would be charged.

I never heard of a company buying someone’s home and in 6 months you can buy it back. If you don’t pay up, they keep the house. They said it’s on the up and up. It seems too good do be true. Is this a scam?

A: It could be a scam, but it seems likely that the scenario you have portrayed will cost you your home. From your letter, it appears that you have equity in the property.

Let’s look at what the mortgage company is offering. They are not offering to finance your home with a new loan. They are offering to buy it outright from you. When you convey title to them, you will have lost all control over the home.

If your credit is poor now and you don’t get a handle on your debts fast, your credit will be as bad – or worse -- in six months. You may not be able to find a lender that will finance the purchase of your home and you will be out of luck.

If you would even consider selling the home to this company, you would need to investigate what your home is worth. You say you can’t sell it because of the problems with the home. But even troubled homes can sell. With proper disclosure to buyers and even with estimates that you could obtain to determine what it would cost to correct the homes problems, you should be able to market and sell the home.

You may find that the sales price you get from putting the house on the market nets you more money to pay off your existing lender on your home and all of your other debts and still give you some extra money. You might have to rent for a while, but when your credit improves, you could once again buy a home.

Have you tried getting a home equity loan or home equity line of credit to pay off your high interest debt? There are plenty of quality mortgage lenders that have sub-prime divisions for people with less than perfect credit. Working with one of these top lenders (you can find a list of the top mortgage lenders at JDPower.com) will ensure that you at least have some recourse if something goes wrong with your loan package.

NOTE: This column is distributed by Real Estate Matters Syndicate, PO Box 366, Glencoe, Illinois, 60022. This column may not be resold, reprinted, resyndicated or redistributed without written permission from the publisher.