Mechanics Lien /Contract For Sale Question
We have a deal cooking for a home that will be worth approx $250k after $10k in repairs and we have agreed to purchase it for $200k. The seller is carrying back a $100k mortgage for a max of 120 days (long enough to flip or keep and put a mortgage on it). I am putting $50k cash into it and a HML is also putting $50k into it. Problem is there is a mechanics lien just placed on the home for some roof work that the seller wants to fight....not because of the money, but for the principle (a concept I completely understand) It will take him about another 60 days to fight the lien. Meanwhile he is 300 miles away and the home is vacant. He called me today and said if I gave him $50k cash, he would give me the keys and we can begin work while he fights the lien. In a couple of months, we cam then close escrow and I will owe him the other $50k and interest will start accruing on the $100k he is carrying. He said of course all this would be in writing to protect everyone. My question is, would this be a Contract for Sale type of situation? What do I need to do to protect my $50k and any fix-up we do? What are the risks? My understanding is that in a Contract for Sale, I would receive equitiable interest, but he would retain title until such time he gets the mechanics lien taken care of so we can close escrow and then I would receive full title....is that correct? My devils advocate asks, "what happens if the poor guy gets hit by a bus a week after I pay him the $50k?" 
[addsig]
C'mon guys! There's gotta be someone out there that can answer this question!!??
[addsig]
I would not put any money into the house, until I was on title. The seller has to pay for the lien or somehow remove the lien before selling this house to you (or it can be done at the closing). The seller cannot have a cake and eat it too.
until the lien has been cleared, I wouldn't give him any money. What would happen to your money if they never settle it? How much money are they fighting about? If it's affordable, deduct it from the purchase price and then you be responsible for it. Perhaps, as a 3rd party you could negotiate it down and therefore make more $$$.
Good luck and make $$$
Tom
Use a standard real estate purchase contract including seller financing with an addendum. Have your real estate attorney put it in writing that the sale of the home is conditional upon the owner clearing up the mechanic's lien by a certain date. The 50K must be put into an escrow account where nobody can touch it until the lien is cleared or the time is up. Also have it in writing that if the sale falls through the owner is responsible to pay you XX amount of dollars per hour plus materials for the work you have done on the property. Keep meticulous records!!
Good luck!
Shirley,
I'm a newbie, but huge red flashing lights and klaxons are sounding in my living room as I read your post. I'm sure that perhaps the seller is honest, but I'm having serious doubts about you forking over 50k without closing on this property. Even if you enter a contract for sale, this seller has already demonstrated his unwillingness to honor his word with the roofer. Also, if he's dealing with a reputable roofing firm, his work should be guaranteed for a certain length of time. Remember, without clear title, he could easily tie this up in court for months if not years. Your attorney's fees could easily reach multiple thousands of dollars, with no guarantee that you'd get your money back. Most likely, by then the seller would have either spent or moved your cash to a legal entity out of your reach via a lawsuit. How much is the lein for? Can you negotiate a payment to the roofer at a discount? Proceed very cautiously. Personally, I'd keep this deal going, but don't hand over the cash without closing on a clear title. Your max profit is only 40k, and I've not yet included closing or holding, or RE agent commission. Shoot, 6% of 250 is 15k by itself. That's almost half the anticipated profit in this deal. And all those figures are at a full price offer.
Of course, the most prudent thing is to enter into a contract now for $200k with the cash and other expenses to begin once the Mechanic's Lien issue has been setttled.
The agreement should also stipulated that if the suit does not reach resolution within say 120 days , at your sole discretion, the transaction can be voided by you without further liability. Your escrow money (nominal sum:$1k/$2k) now held with XYZ Title Company will be returned to you promptly..
The interest on the paper the owner will hold and the initiation of the HML would not commence until the Mechanic's Lien is settled. You would not take possession until then. You would not do any repairs.
Here's another scenario. I hesitate to say that if you want to "roll the dice". then you could take possession , do the repairs, and give the owner some money .
You should find out the total amount of the Mechanic"s Lien .Add to that lien interest if any and possiblly attorney fees. Double that amount. That would be the minimum amount you would withhold from the seller, because if he loses (probably) and he doesn't pay you can't get /give clear tiltle. If he doesn't pay then you will at the closing table. The money amount you ultimately agree to give the owner must to be put into escrow not the sellers hands. No exceptions.
With this scenario, the transaction is buttoned up. The owner sees that there is cash in escrow.,There is no interest to the owner, There is no need for a HML. ,You have sufficient cash to do the repairs. You should be able to either get better financing after the property is repaired or have someone who's already/qualified to buy during the time it takes for the owner to stop fiddling on the roof..