Does Your Sugar Daddy Issue a W-2?

I recently had the unfortunate situation where a “pre-approved” buyer ultimately could not get financing. The bank that did the pre-qualification for a mortgage of about $200,000 apparently never got legal proof of the buyer’s salaried income. (Some facts have been changed to protect both the innocent and the guilty.) 

When it came time to apply for the actual mortgage the buyer’s debt-to-income ratio (the percentage of a consumer's monthly gross income that goes toward paying debts) was too great. Not only was it too great for the bank that gave her the pre-approval, it was too great for every other lender.

When this “buyer” made her offer, it sounded too good to be true. It made me uncomfortable as the Realtor representing the seller and I advised against it. This particular buyer was putting down in cash about two-thirds of the selling price. How the money was being paid made me further suspicious. Where was it coming from? And even if it was legitimately earned by the buyer moonlighting after her day job, the “presumed” scenario, would it be sustainable? So instead of having the closing that we hoped for this month, the house is back on the market and at a lower selling price.

So now when I get a “pre-approved” prospect, I not only ask to see evidence of this I ask to see—or at least have on the ready—copies of their tax returns for the past two years. I’m not being nosey; I just don’t want to waste a seller’s or landlord’s time, a buyer’s or renter’s time, or my time. There are just too many people out there with champagne taste on beer budgets. And, fortunately, the days of wine and roses during which banks would seemingly lend money to anyone who had a pulse are over with. I’m all for the American Dream of owning a home if that’s what a buyer wants. But some wannabe buyers first have to take baby steps. Get out of the cramped apartment and move into a bigger place in the burbs—but initially as a tenant. 

There are houses available that are listed as “rent with an option to buy.” For this sort of agreement you need a good solid legal document with clear-cut terms so that neither the landlord-to-seller nor the tenant-to-buyer is left with any surprises when it comes time to make the change in status. Don’t try to negotiate the terms on your own and don’t use the personal injury attorney who handled your slip and fall lawsuit to draw up the documents! Hire a COMPETENT real estate attorney! There are plenty out there. You also want to avoid the scenarios of two other cases with which I am involved. In both cases neither attorney retained to review the terms of a lease or arbitrate a Small Claims Court hearing had any business negotiating real estate contracts.

This leads me to another discussion: There is untold and often unforeseeable value in entering into an exclusive agreement with a single real estate agent. It costs you nothing more and, in fact, it will likely save you time, at the very least, and possibly money, in the long-run.  Stay tuned!

Rob Seitz is a New York State licensed real estate agent with active membership in the Hudson Gateway Multiple Listing Service. His experience includes both commercial and residential real estate transactions. He is also a veteran marketing communications consultant—skills that he brings to the table in representing landlords and sellers. He can be reached directly at 914-393-6144 or via e-mail: rseitz@stetsonrealestate.com.