Return the money to the 401K immediately and stop the deal. You are not ready for homw ownership if you need to rob your 401K --- NEVER touch it again.

Um, thank you, but this will be our 4th home purchase, I have been a homeowner for over ten years and also have investment properties. We have money in other places, taking the 401K money was the best move because it was supposed to come without tax penalties. 

I appreciate your feedback and advice, but that's not really what I was asking

I don't have a lot of knowledge about this but I am not sure what your options are. You can't pay their liens off and until the liens are dealt with you won't get a clear title, right? I imagine it would take a lawyer, a lot of money, and a lot of work to get those liens removed and placed somewhere else (their tax refunds, maybe). If they aren't going to budge then I don't know what else you can do but walk away, return the money to the 401k until you find another home, and probably shed a few tears over the loss of the home. My guess is that they will have to foreclose eventually if they are going to be like this with all buyers.

In the contract, it probably stated any earnest money would be returned to you (buyer) if the seller cannot provide clear title etc. I would walk away with the earnest money and find another house. The inspection funds will most likely be lost, happened to us. The seller shouldn't be selling the house in 1st place if he/she doesn't plan to clear the liens, he/she will have this issue with every buyer/offer. You cannot do much at this point, it is the homeowner's responsibility, both seller and buyer can back out up until the last day, does contract have terms regarding the fines incurred if one back outs? 

I know we will get earnest money back, that at least is good news. The listing agent tells me they plan to relist with the contingency that the new buyer pay off the liens. We just don't think it's fair/ethical for them to push us out and try again for a better deal when we have a signed purchase agreement that makes it very clear that the seller is responsible for liens. 

We are going to try to sue for specific performance for breach of contract. Seeing an attorney on Monday to see if this is an option.The home will prob go into foreclosure before a judge sees it, but the threat may be enough for them to get things straight. Either way, out of principle, we will be seeking to recoup our out-of-pocket costs. May be fruitless, but I feel better at least trying then letting try to sneak out of the deal without consequence.

UGH! 

I know you're emotionally involved, but I really think you are wasting your time and money. Plus you are just stressing yourself out even more. You need to just walk away. The seller is obviously going through a short sale because they don't have the money. Threatening to sue isn't going to scare anyone if they don't have anything to collect upon. 

Have a good cry and get over it. It sucks, I know, but another house is always out there. We went through a similar story with an unscrupulous sellers agent that was double dipping.

On another note, PP Sis is right. You should NEVER EVER borrow from your 401k. Find the money somewhere else. I don't know who you got your information from but you will pay double taxation from the money you borrow. Because you don't pay taxes on the money you put in your 401k, you will pay back the loan (15 years when you buy a home)  with money you have already paid taxes on. Then when you retire and take the money out again you end up paying taxes on it a second time.  And what happens if you lose your job or quit? That money would be due immediately and subject to taxes and a 10% penalty. I would put the money back and seriously reconsider this.

 

We had a similar situation... and there is nothing you can do. The house we were under contract under was trying to be sold without becoming a short sale... Unfortunately the seller didn't know about a lien and couldn't get rid of it. We ended up walking away and the house went into forclosure. You've invested enough time, energy and money into this one to try to fight something that isn't worth anymore. I would have to imagine this is the tip of the iceburg on this one and there will be more issues the further you get in. Count your losses and walk away. The right one will come around, everything happens for a reason. Good Luck!

You're not really seeing the forest for the trees.  It's a short sale.  The seller is broke.  Ever heard the expression blood from a turnip?  That's where you are. 

Sure, you could throw a hissy fit about having a contract and how they've got to perform, but it is literally impossible for them to do so. You could hire an attorney, pay a few thousand dollars to take them to court, and wait 3-4 months for a judge's docket to open up.  But when that judge's docket does open up, he'll look at you (for suing in the first place) and the attorney (for accepting such a ridiculous case) like you both have screws loose.  The seller is broke.  Your only choice is to accept that fact and move on and find another house.

Remember this is a business transaction.  Sometimes business deals don't work out.  Sometimes you lose a little skin you have in the game.  Short sales are risky and you accepted the risk of the deal not going through when you made an offer.  It happens and you shrug it off.  You're out $1500 for inspections - you would have been out $1500 if the house had failed the inspections and you walked then.

I agree that robbing your 401(k) was foolish.  You'll have to chalk up whatever penalties and fees as the cost of doing business and learning lessons.

We just went through this on a house that we bought to flip. In the end, the bank ended up paying the liens because they didn't want it on their books. We paid cash which apparently was helpful in our situation. 

I would see if you can get the buyers agent's manager involved. Our agent was AMAZING and was able to navigate this for us. Your agent should be able to do the same. If you are going to continue with the transaction, I would start with the agent's manager so you have someone who knows what's happening behind the scenes.

Also, the seller signed the contract. It really is their problem if they don't have the money to deal with this.  I know you probably don't want to wait any longer, but you can just keep holding out. We ended up closing over a month after our first date!

emily1004:

I know you're emotionally involved, but I really think you are wasting your time and money. Plus you are just stressing yourself out even more. You need to just walk away. The seller is obviously going through a short sale because they don't have the money. Threatening to sue isn't going to scare anyone if they don't have anything to collect upon. 

Have a good cry and get over it. It sucks, I know, but another house is always out there. We went through a similar story with an unscrupulous sellers agent that was double dipping.

On another note, PP Sis is right. You should NEVER EVER borrow from your 401k. Find the money somewhere else. I don't know who you got your information from but you will pay double taxation from the money you borrow. Because you don't pay taxes on the money you put in your 401k, you will pay back the loan (15 years when you buy a home)  with money you have already paid taxes on. Then when you retire and take the money out again you end up paying taxes on it a second time.  And what happens if you lose your job or quit? That money would be due immediately and subject to taxes and a 10% penalty. I would put the money back and seriously reconsider this.

 

I'm not going to say it is a good idea to borrow from a 401K - each person's specific situation is different, but the bolded is not true.

oneplusoneistwo:

emily1004:

I know you're emotionally involved, but I really think you are wasting your time and money. Plus you are just stressing yourself out even more. You need to just walk away. The seller is obviously going through a short sale because they don't have the money. Threatening to sue isn't going to scare anyone if they don't have anything to collect upon. 

Have a good cry and get over it. It sucks, I know, but another house is always out there. We went through a similar story with an unscrupulous sellers agent that was double dipping.

On another note, PP Sis is right. You should NEVER EVER borrow from your 401k. Find the money somewhere else. I don't know who you got your information from but you will pay double taxation from the money you borrow. Because you don't pay taxes on the money you put in your 401k, you will pay back the loan (15 years when you buy a home)  with money you have already paid taxes on. Then when you retire and take the money out again you end up paying taxes on it a second time.  And what happens if you lose your job or quit? That money would be due immediately and subject to taxes and a 10% penalty. I would put the money back and seriously reconsider this.

 

I'm not going to say it is a good idea to borrow from a 401K - each person's specific situation is different, but the bolded is not true.

How is that not true? The money you put in your 401k to begin with is done before taxes.  The first tax is the money you pay the loan back with. Taxes have already been taken out once. Then when you retire and take it out, you pay a tax again. 

When you borrow money from a 401K it is not taxed when you get the proceeds of the loan.  So for example, you put money in pre-tax, say you take out a loan for $10K, you get $10K, you pay $10K back (plus interest) it is not taxed if it is a loan.  It doesn't matter what money you pay it back with because you are paying what you were given (plus interest).  You are not double taxed in this instance...that's one of the biggest myths out there.

oneplusone and others You pay back the loan with after tax dollars = tax #1 You pay taxes on the money when withdrawn in retirement = tax #2 You loose time and compounding $s while the money is not invested in the 401K = additional loss. If you lose your job, the money must be paid in full immediately OR you pay taxes on the money withdrawn plus a penalty for early withdrawal. This is an option that should only be avialable for true emergencies as a last resort - not financing a house.

Tax #1 does not exist because the money you are getting out = the money you are putting back in.  If your proceeds of the loan were taxed, then yes, but they are not.  It does not matter that you are paying it back with "after tax" dollars because you are paying back exactly the proceeds of the loan.  There is no magical tax there...I don't know why people think this.

I am not advocating that this is how you should finance a down payment on a house at all, I am just correcting the misinformation that the money is double taxed...it is not...Also, it depends on your plan whether or not you have to pay it back in full if you lose/quit your job...not all plans make you do that - the terms of the loan and whether or not you have to pay it back are plan specific.

oneplusoneistwo:

Tax #1 does not exist because the money you are getting out = the money you are putting back in.  If your proceeds of the loan were taxed, then yes, but they are not.  It does not matter that you are paying it back with "after tax" dollars because you are paying back exactly the proceeds of the loan.  There is no magical tax there...I don't know why people think this.

I am not advocating that this is how you should finance a down payment on a house at all, I am just correcting the misinformation that the money is double taxed...it is not...Also, it depends on your plan whether or not you have to pay it back in full if you lose/quit your job...not all plans make you do that - the terms of the loan and whether or not you have to pay it back are plan specific.

IT is not a separate tax - it is the fact you pay back the loan from the 401K with dollars you earn that are taxed. Ex: Withdraw 10K from the 401K in loan form Pay back 10K However to get the 10K to pay the money back- you need to earn MORE than 10K AND pay taxes on it. So yes, it does matter that you pay back401K loan money that was initially put in tax free with after tax dollars. Then there is the fact that you do not "make money" while the money is out of the 401K.

Sisugal:

oneplusoneistwo:

Tax #1 does not exist because the money you are getting out = the money you are putting back in.  If your proceeds of the loan were taxed, then yes, but they are not.  It does not matter that you are paying it back with "after tax" dollars because you are paying back exactly the proceeds of the loan.  There is no magical tax there...I don't know why people think this.

I am not advocating that this is how you should finance a down payment on a house at all, I am just correcting the misinformation that the money is double taxed...it is not...Also, it depends on your plan whether or not you have to pay it back in full if you lose/quit your job...not all plans make you do that - the terms of the loan and whether or not you have to pay it back are plan specific.

IT is not a separate tax - it is the fact you pay back the loan from the 401K with dollars you earn that are taxed. Ex: Withdraw 10K from the 401K in loan form Pay back 10K However to get the 10K to pay the money back- you need to earn MORE than 10K AND pay taxes on it. So yes, it does matter that you pay back401K loan money that was initially put in tax free with after tax dollars. Then there is the fact that you do not "make money" while the money is out of the 401K.

Just looking at it from a principal loan taxation point - you are looking at it as if you are having to make that money to pay back the loan, whereas, what you are really doing, is making that post-tax money to pay whatever it was that you needed the loan for (the loan is an advance for something for which you will then get the money to pay for over time).  Net net, the tax situation is no different than you borrowing money from your bank to pay for whatever it is you need the loan for. 

For example:  You take a $10K loan from your 401K, you have a savings account with $10K in it.  The next day, you take your money from your savings account, and pay off the loan.  Did you pay taxes by taking out and repaying that loan?  No, because the $10K from your 401K loan was pre-tax and was not taxed when taken out.  You paid it back with post tax dollars, but the new $10K you have from the loan is pre-tax dollars.  You are creating a double tax in a situation where it is tax neutral.  The only double tax that truly does exist is on the interest you pay, which is minimal.

Sisugal - you are very smart and I enjoy reading your posts here and in MM, but I just can't agree with you on this one.  It is mathematically incorrect.

Sisugal:

Return the money to the 401K immediately and stop the deal. You are not ready for homw ownership if you need to rob your 401K --- NEVER touch it again.

Yes, this. THIS TIMES 100!!!!!

Sisugal is right.  when you talk about using 10,000 from a savings account that has already been taxed...you only use that money one time and thus you pay taxes only once.  when you take 10000 out of retirement and put it back with after tax dollars you pay the same tax you would have paid on the above money for the mo.ey you made in savings. then you put the money back and draw it out later...taxed again.

 

lets say tax is %10 you made 11000 after your 10% tax you have $9900 to put in savings and use for a down payment.  you take that 9900 and spend it...it gone never to be used again.

 

now you take an 9900 loan from your retirement. never had any taxes taken out. so you must now pay that loan back...so you need to make 11,000 to pay that back.  equal to the above figure. so your money is back in your retirement and its time to take it out again so you must now pay a 10% tax when you withdraw your funs at retirement. so thats taking 990 again.   leaving you with 8910 to spend instead of the original 9900.  this is the double tax.

zzbb:

Sisugal is right.  when you talk about using 10,000 from a savings account that has already been taxed...you only use that money one time and thus you pay taxes only once.  when you take 10000 out of retirement and put it back with after tax dollars you pay the same tax you would have paid on the above money for the mo.ey you made in savings. then you put the money back and draw it out later...taxed again.

 

lets say tax is %10 you made 11000 after your 10% tax you have $9900 to put in savings and use for a down payment.  you take that 9900 and spend it...it gone never to be used again.

 

now you take an 9900 loan from your retirement. never had any taxes taken out. so you must now pay that loan back...so you need to make 11,000 to pay that back.  equal to the above figure. so your money is back in your retirement and its time to take it out again so you must now pay a 10% tax when you withdraw your funs at retirement. so thats taking 990 again.   leaving you with 8910 to spend instead of the original 9900.  this is the double tax.

Ok, before I bash my head against the wall...let me try this one more time.

Say you borrow $10K out of your 401K to buy a car.  Does it make more sense to say, I bought a car with pre-tax money and then was double taxed on the principle of my 401K loan?  Or, to buy that car, it cost me the after tax dollars (that I repaid the loan with - same as it would have been if I had saved for that car instead of taking the 401K loan)?  It's actually a pretty simple concept if you just stop for a minute and think about it.  You aren't buying items with pre-tax money, you are tax affecting those purchases when you repay the loan.  Your tax situation would be no different had you taken out a bank loan for that car.  

 

you are correct you paid the same tax amount on the car when you repaid it back to your 401 k with after tax dollars.  what you dont mention is the retaxation of those same dollars when you later withdraw that borrowed/repaid money for retirement.  

zzbb:

you are correct you paid the same tax amount on the car when you repaid it back to your 401 k with after tax dollars.  what you dont mention is the retaxation of those same dollars when you later withdraw that borrowed/repaid money for retirement.  

I give up on explaining this...if you don't get it now, you never will.

I doubt that every financial book, show, and expert are all wrong on this and that you are the only person that knows the truth...maybe you never will get it...if it were dollar for dollar borrowing everyone would be doing it.

I'll leave you with this - be careful of those "experts" you cite - many of them have laughable finance resumes.  Below is from the federal reserve (page 6, section 3.2 tax consideration).

http://www.federalreserve.gov/pubs/feds/2008/200842/200842pap.pdf