Protecting Homeowners: A Cautionary Tale on Novation Agreements

Protecting Homeowners: A Cautionary Tale on Novation Agreements

It’s a Scheme

 In a recent transaction, I represented a buyer in which we uncovered a distressing situation where the sellers had fallen victim to what I’m calling an insidious scheme. After doing my best to get them help, I am now on a mission to alert all my clients, as well as every homeowner, about the predatory nature of novation agreements being propagated by “investor influencers” and utilized by their followers.

Novation Agreement Caused Delays

While my intention is to safeguard homeowners from similar misfortune, I also wish to caution prospective buyers to exercise vigilance if they encounter such a scenario. This particular transaction took twice as long as necessary due to the involvement of the novation agreement holder, and with fluctuating interest rates, time is not always on the buyer’s side.

Misleading Beginnings

Initially, everything seemed normal when I scheduled the showing. They had employed an MLS-only service, leading me to believe that I was dealing directly with the owner. However, doubts began to creep in after we submitted an offer. The person I thought was the owner reached out to negotiate, and when I inquired about their interest in the property, their response was unsettling: “The sellers just wanted my help to sell, so I paid to have it listed on the MLS.” It turned out this individual was unlicensed, despite the sellers having the option to hire a legitimate agent without any upfront costs. When I confronted him about this, he sent me a YouTube link that explained what I’m referring to as a scam.

Essentially, this person had secured an accepted offer with the sellers to purchase the property below market value. Additionally, he obtained their Power of Attorney, granting him the authority to list the property and sign contracts with another buyer. The difference between his purchase price and the new buyer’s purchase price would have been his profit.

The Costly Consequences: Sellers’ Financial Losses and Lack of Protection

This unlicensed individual proceeded with agreeing to repairs, set closing dates, and determined move-out dates without considering the sellers’ wishes or concerns. As a result, the sellers ended up paying towards expenses that I believe should have come out of his proceeds. In the end, they likely lost around $15,000 more than if they had hired a full-service agent and paid a commission. Not to mention the peace of mind they lost out on by not having someone protecting their best interest.

Keys and Disarray: Sellers Caught Off-Guard

Tragically, at the conclusion of the transaction, the sellers were caught completely off-guard when I inquired about how they wanted to handle the keys. They had requested from the novation agreement holder that they be granted 30 days to move out after closing. However, this request was not included in the contract or communicated to me until I informed them that the buyer needed access to their newly purchased property.

During a conversation I had with one of the sellers to understand how they found themselves in this predicament, he revealed that they initially thought they were hiring an agent to represent them. However, the person they had planned to hire passed the responsibility to his friend under the guise of wanting to learn the real estate business. It’s important to note that real estate is not an apprentice-type activity – one is either licensed or not. Selling real estate on behalf of someone else for a fee without a license is illegal.

Safeguarding Homeownership: A Commitment to Protecting Against Exploitation

If you or anyone you know encounters a similar situation, please do not hesitate to reach out to me with any questions. I am deeply committed to protecting homeownership and ensuring that no one, especially my clients and their friends and family, fall victim to such exploitation again.