The Contract for Deed Scam

A $19,000 house was found, perfect for a sober living home, and yay, the out of state owner is up for a Contract for Deed! She said she wanted me to look at it first, though, before talking turkey.

Fair enough. I got the door code from her, and drove back to inspect it. It was pretty good. I mean, not great, but for the price, not too bad at all.

I could see that we'd need to pull the carpets and paint the walls. Probably need a new water heater. But the siding was no more than 10 years old and the roof had to be less than five years old.

I was excited. I was supposed to be. Wait for it.

I called her back and asked what down she'd like, she named a reasonable number. $1,500. Wow.

I asked what payment per month she'd like, she named a - well, it seemed like too reasonable a number. I mean, $350 per month, with a slightly less than 10% down?

This could really be it, this could be the just the affordable fixer upper my wife and I needed for our third sober living home!

I asked, "For how many months?"

She said brightly, "Oh, just 180!"

Oh, of course, I thought. When it's too good to be true...

Me: "180 months?"

Her: "Yes."

Me: "Or put another way, fifteen years?"

Her, warily: "Yesss...."

I was silent. She said, "The house is worth $34,000..."

I said, "It would be worth that to me, true. But apparently the interest is to be...$29,000?"

She said, "It's not for everyone. For cash, I can do $19,000."

I said, "I understand. Thank you anyway."

The house is worth more than $19,000. Not much more, but a bit more. Maybe $25,000 - tops. And there were probably pitfalls in the house that would have manifested themselves, making it worth just that $19,000.

But best case scenario? Possibly $34,000 would be a fair price to ask total, for paying that over time, if the house truly had no other troubles than I could guess at.

But $63,000 paid out over 15 years? With you liable for all the taxes and insurance and repairs and upkeep?

This is the "trick poor people into thinking they get to own a house" scam.

You get the poor couple - it's always a poor couple, usually with a kid or two - excited about a halfway reasonable house that is just barely plausible to be offered for what appears, to the innumerate, to be a song,

You "qualify" them with an application - which I did get a copy of - and make sure they've a barely plausible renting history and currently paying job.

You get the down first, before even signing over to them the right to move in. They'll never see that again. You've won even if they catch on now.

Then you charge an upfront of another thousand or so, to cover anticipated insurance and taxes. They probably didn't quite expect it to be around $1,500, but that's what the fine print does add up to.

They can gulp, swallow hard and scrape that up, or lose that first $1,500 they already gave you.

Now, $3,000 into it - and still $63,000 to go - they can move in to the "as is" house that won't have their name on it for enough years for their toddler to enlist in the Army.

If even then.

Yes, you took then $350 from their account that you have total access to. But you also took the monthly fee for taxes and insurance. Yes, that's charged monthly, and it's insured through...well, some dummy corp that if I dug deep enough into it would lead back to you insuring yourself.

They're surprised that it was $500 instead of $350, since they had thought this would be cheaper than the $500 in rent they used to pay. But what are they going to do? Walk away from $3,000 of the money the saved, scrimped, pawned for and borrowed?

So they pay - no choice, you just took it. They could cancel their account so you couldn't again, but then they'd be evicted.

And next month, they have another $500 took out. And next month, it was a bit short, so it bounced. $5 short in that account means the bank fee of $30.

And the fee that you charge. So $525. That $65 total fine means they're a bit short next month. So that happens again. With a massive effort, they get past that, and have $500 in the month after that.

But you don't mind. You either get paid more than three times what that crap house was worth or they almost inevitably default in a year or two tops.

Then, pocketing $15,000 - which is probably more than you paid for that $19,000 house - you "sell" it again to the net sucker.

And can probably sell it for more.

After all, they were basically paying rent on a place that when anything broke, they had to fix it. And they already had to fix the electrical, install a new water heater, tear out those carpets, sand and stain the floor and paint the whole place when they moved in.

Oh, the lower classes being the lower classes they probably sold the fridge and stove out from under you, and there'll be a fist sized whole in a wall from that time when the buyer figured out how bad you screwed them.

But nothing that they didn't more than cover with that $15,000 you got from them in two years. Which worked out to $625 per month rent for those suckers.

And a fixed up house for you.

Wash, rinse, repeat.