Buyer to Place Mortgage Proceeds in 2 Year Trust? - Posted by John J.
Posted by John J. on November 08, 2000 at 12:46:02:
Just received an offer on my house: 30% down, 70% new conventional financing. The addendum to the offer has the following clauses:
- All parties agree to a Capital Placement Agreement.
- Seller will deposit $[amount of new mortgage] into a trust account of the Law Office of [their lawyer, where they also want to do the closing], Trustee for a period of two years and one day.
- Buyer to pay $[35% of purchase price] plus 8% interest on the 12 month plus one day anniversary of closing and $[35% of purchase price] plus 8% interest on the 24 month plus one day anniversary of closing as payment in full.
They have verbally told me that the amount in trust will be invested through a large national bank and the proceeds of this investment will be used to pay me off.
I have never heard of this sort of arrangement and need to assess what my risks are. How common are Capital Placement Agreements? I do not have a copy of their proposed agreement yet, but which clauses should I include if I want to proceed with this?
Have others had experience with this? Is this a scam, as the buyer seems to take control of the mortgage proceeds and all kinds of things can go wrong with the trust’s investment?
Another issue is that their downpayment will cover less than half of the balance of the underlying mortgage, which will need to pay off. I’ll deal with that issue separately, if I feel comfortable with the trust arrangement.