Cash At Closing - Legal?
When I agree with the seller to up the price on the agreement of sale 10K$ and the seller gives me a check at closing for $10K after getting 100% financing...
is there a term for this cash at closing?
Is this legal?
has anyone ever neg. this with a realtor or only FSBOs?
thanks for your comments
If you include this in the purchase and sale agreement and it appears on the HUD statement you should be fine. Of course the bank will have to agree to it in their underwriting.
how and where do you put it on the hud-1?
how do you state it in the deal and is it still something you need to work out with the seller?
thanks!
It should be in your purchase contrcact, the closing agent will put it on the HUD-1.
That said all lenders will look very closely at you getting cash back. Most will not allow it at all. This is why so many people do it off the HUD-1 which is not koser.
You should really consult your legal counsel, agree with Wiz this is considered loan fraud in many states.
good luck
If you get the lender to agree it would seem o.k., but I have never had a lender agree to overloan a property just so you can get cash back. If you have legit appraisal and you get the money when you buy it then it would seem to be legal.
[addsig]
From what I understand this is illegal. If you have a rea license you could go to jail for this.
What matters is if it was part of the contract and/or addendum that was provided to the lender for a decision on the loan(s). That should be what the hud 1 is made up of. If it is all above board, it is legal. (We have done several creative deals this year). You must remember that the HUD-1 is the clear, concise accounting part of the deal. It is reportable to the IRS, your state, the lenders, county taxes, etc. etc.
We did a deal that we gave both 20K cosmetic allowance and 3% closing. This was possible because w/the stale market we knew the house would appraise for 260K+ but we had it on the market for 235K and were still willing to give closing help. So the contract raised the offer price to 254K w/20K cosmetic allowance and 3% closing help. No problems.
But NO WAY would we have given her anything outside of the contract; then we would have been a part of loan fraud. [ Edited by ceinvests on Date 01/24/2007 ]
as long as it is on the HUD-1 and the lender approves of the HUD-1 is should be fine.
Also, make note that it should NOT EVER go back to the buyer....
i would like to know more about this and probably should.
I know that lenders may allow up to 106% loan amount, to allow sellr concession to pay for closing cost. Now as far as the bank allowingyou to get back additional money for anything else at close, I have not heard of (unless done illegally with buyer and seller working together, but a lot of trust with buyer on seller re cutting check)
how was the 20K for cosmetics done?
I recently did a deal where the seller issued a credit to the buyer for appliances to be paid after escrow closed. The title company held the cash and then reimbursed for submitted receipts.
On my own purchase, I was anticipating doing some major repairs on my property which the seller gave me a $25K credit. The title company held the money for 30 days then sent me a check. It was on the HUD-1, so no fraud.
It all depends on how its handled.
oops....look up a company called Payout One. There are probably others like it.....They charge a fee to facilitate a cash out transaction. The home must have true equity in it. You should have a good appraiser that does not push value.
1. The Real Estate Settlement Procedures Act (RESPA) has clearly established that receiving or giving anything of value for the referral of settlement service related business would violate the Act.
2. RESPA Section 8 and Regulation X prohibit a person from paying or receiving “anything of value” pursuant to any “agreement or understanding” that business incident to a “settlement service” shall be referred. With limited exceptions, Regulation X provides that “any referral of a settlement service is not a compensable service.”
3. RESPA and Regulation X also prohibit a person from giving or accepting any portion, split or percentage of a charge made or received for rendering of a settlement service other than for services actually performed.
4. Regulation X states: “A charge by a person for which no or nominal services are performed or for which duplicative fees are charged is an unearned fee and violates this section. The source of the payment does not determine whether or not a service is compensable.”
5. Regulation X defines how HUD will evaluate fees: “If the payment of a thing of value bears no reasonable relationship to the market value of the goods or services provided, then the excess is not for services or goods actually performed or provided.
Be careful out there.
_________________
I am not a lawyer. You are encouraged to seek independent legal, accounting,
and real estate agency advice.[ Edited by mtnwizard on Date 02/18/2007 ]
Thanks everyone for the comments! I love this site!
I asked the question orginally because I remember first hearing about it in a book I was skimming thru in B&N. If MtnWizard is right then there is a author/guru sugesting you break the law to make money in real estate. I think it was one of those NO MOney Down clowns.
It does seem a way you can legally take out equity but its a equity loan basically right? Or do you have a 80 and 20 loan you owe or 3 loans when you do a HUD-1?
Seller concessions are also common in our area. Generally the lender will not allow a very large percentage, and some will want it in an escrow account to be used only for repairs. Seller paying closing costs is a common concession.
A look at the MLS sold listings will reveal any number of properties that were sold at a contract price higher than the listing price, with substantial seller concessions. The problem with this approach is that taxes are based on the contract price, so a 10% increase in the contract price means a 10% increase in the taxes- which you will continue to pay until you sell the property yourself. A high price for that borrowed money- over 6% forever, no principal reduction possible. On top of the usual interest.
Chris
Wells Fargo told me that they can do 106% mortgage if you have a 640 Fico.