Real Estate: Should we be glad to bid farewell to “Seller Assist”?

Posted By Cliff Tuttle | August 21, 2008

Posted by Cliff Tuttle

According to Bankrate.com’s “Mortgage and Real Estate News”, those “seller assist” settlement sheet transfers are to become a thing of the past on October 1, 2008 under the Housing and Recovery Act of 2008. A favorite or real estate agents, seller assist hasn’t been around so long that it isn’t still news to a few people who haven’t transacted a house sale/purchase for a decade or more.

In case you are one of the above, here’s how the deal comes down. The seller indicates that a certain price, lets say $200,000.00, is acceptable. So the agent says, lets make that $207,000.00 and you give back $7,000.00 on the settlement sheet as a credit to the buyer’s settlement costs. (These numbers are for illustration purposes only.) Of course, there will be a little more realty transfer tax, but not so much as to kill the deal. And the agent, bless her soul, will even forgo collecting commission on the extra $7,000.

In this market, the seller is happy to have a deal at all. The suggestion meets little resistance. If thats what the buyer wants to do, what difference does it make?

But to the buyer, it can make a big difference. The property will probably appraise for the full amount of the inflated sales price. The buyer is thus able to borrow more money. As a consequence of this and a few more little tricks (like simultaneous first and second mortgages), the buyer comes away with very little equity, often no equity, in the property on the day of closing.

If the plan is to keep the house and mortgage(s) for 20 years, things might turn out all right. But too often, adjustable rate financing was sold as an intermediate stop on the way to fixed rate financing at a lower rate. Pay on time for twelve consecutive months, the loan broker told the buyer, and I’ll put you in an A mortgage with a low fixed rate. For some, that day never came.

Another unintended consequence: escalating tax assessments. The tax assessors can’t tell whether a selling price has been inflated by seller assistance. And neither can anyone else.

The article indicates that there is a chance that even newer legislation will rescue seller assist from the ash bin. To read what Bankrate.com has to say about it, click here.

Welcome

CLIFF TUTTLE has been a Pennsylvania lawyer for over 45 years and (inter alia) is a real estate litigator and legal writer. The posts in this blog are intended to provide general information about legal topics of interest to lawyers and consumers with a Pittsburgh and Western Pennsylvania focus. However, this information does not constitute legal advice and there is no lawyer-client relationship created when you read this blog. You are encouraged to leave comments but be aware that posted comments can be read by others. If you wish to contact me in privacy, please use the Contact Form located immediately below this message. I will reply promptly and in strict confidence.

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