Question: We are selling our Carefree home. A young man has made us an offer to purchase our Carefree home for $600,000. There will be a down payment of $250,000 cash, and financing by a $350,000 seller carryback loan from us. This $250,000 cash is apparently from the young man’s successful real estate investments, but the young man cannot qualify for a $350,000 mortgage loan. We think that this young man could be a drug dealer. If we sell our Carefree home to this young man and the FBI seizes the home for drug dealing, will we lose our $350,000 seller carryback loan?
Answer: Probably not. An “innocent” mortgage lender is generally protected if a home is seized by the FBI or other governmental agency for drug crimes by the homeowner. This protection for mortgage lenders also protects your $350,000 seller carryback loan. Therefore, if your only reason to believe that this young buyer is a drug dealer is that he has the $250,000 cash down payment, your $350,000 seller carryback loan is probably protected from any seizure by a government entity. This young man may have just been lucky with his real estate investments. As J. Paul Getty once said, “If you get up early and work hard and pay your taxes, you will get ahead if you strike oil!”