Cash Back At Closing - Legal Or Illegal
Hey guys, I am a new agent and deal mostly with investors. Now, I have a deal where in the investor wants to pull cash out at the table. Pull some equity out w/o having to refi. Is it legal for me to allow this type of transaction, am I liable in anyway if this is not legal. If this is not legal am I legally obligated to report this type of transaction. I often find that the average person will say something is illegal because they do not know the correct/legal way of doing something. Please, fill me in on what I as an agent should do?
Why would it be illegal? It will appear on the HUD-1 as "CASH TO BUYER."
In this scenerio - SmileyFace explains this to be mortgage fraud
quote:
Well, what im doing, is buying a house worth 430, for 350, getting 25k back at closing, so on paper im buying it for 375. and yes, its being paid by a loan
Reply:
Seller is selling this property to you for 350, but lender think you are buying the prop for 375. That is ilegal. That means you have two different contracts. If $25000 is for repairs, it has to be specified in the contract. However, if you do that, most lenders will not approve it, since there are too much deferred maintenance involved.
There are legal ways around it. You are licensed correct?
Yes sir, I am. Would u please clarify how this should be handled.
I hope you get some replies w/some details.
Why don't you post the specifics of the deal that your client wants to offer.
He is not asking to create 2 contracts, is he?
You are right about avg.person stating things are illegal just because they don't know/understand!
Smiley was being specific to a posting, btw.
Exactly that, there is a house price at 200k and appraisel is 280. My buyer wants the seller to cash him out 45k. The seller has agreed. So they want to put the purchase price at 245k of which the seller is getting 200k and the buyer is cashing out 45k... Ways that people do this.
1 - Enter a lien against the property for 45k. - legal or ilegal
2 - Give check to buyer at closing or other entity that buyer controls/owns.
(e.g., joe smith (buyer), joe, smith, & sons auto repair receives check for 45k)
Please help me understand this stuff.
As licensed agent you are not required to police all aspects of a deal. You are not representing the lender. If you were to disclose things that are borderline you might find that your actions broken the law towards you client. It could be argued that you are not qualified to police the loan aspects of the transaction.
Litmus test. If someone is legally pulling cash out of the deal then it should mean the lender is fully aware that the buyer is getting cash back and the lender is fine with it.
If the buyer and seller work together to create a situation where the buyer receives cash but the fact is intentionally hidden from the lender (creating a lien that the lender does not know benefits the buyer) you likely have loan fraud. Likely but not proof exactly.
People do cash out deals legally and others do cash out deals illegally. It does not mean the guilty get caught. It does not mean that because someone did it that they understand they might have broken the law.
John
[addsig]
I would talk to your broker, if I were you. I hear about real estate agents, real estate brokers, mortgage brokers, loan officers, sellers, buyers, and attorneys going to jail or fined a couple of times a year. You don't want to end up like that. Don't think that you can act ignorant since you are new in the industry. Ignorance will not be your defence when it comes down to that.
I am not sure what you are talking about lien??? Whose lien to whom? Please explain.
Ok guys, got a deal a million dollar deal structured to find out that my broker doesn't recommend that I do it. Because it might be mortgage fraud.
The seller is selling below market.
They buyer wants to pull equity and put into a land trust.
Seller is SP is 1.1
Buyer want SP for 2.1
Closing HUD 1 shall read 1.1 to seller
1mill to land trust.
The purchase and sale contract will state where the money is being allocated the addtl. 1 mill to the land trust. The investor doesn't plan on immediatley selling the home or anything like that. Please advise, because I don't want to lose out on a million dollar deal because my broker thinks it might b mortgage fraud.
the situation the original poster showed is considered fraud. As an agent, you should receive a publication from your state quarterly, in almost all of our professional quarterlys here in Iowa, there is always an article on fraudulent acts by artificially inflating purchase prices...I think fannie mae and HUD each have things on their websites about artificially inflating prices
Ok, I understand to give any exchange of money from the seller to the buyer is Illegal. That much is clear. But if the money is going to a land trust, and it is clearly stated on the HUD 1 and the lender still approves the loan. I don't know who is being defrauded in this scenerio.
There is nothing illegal about a buyer getting money back from the seller as long as all parties are aware of it. You can't hide it from the lender or anyone else, that would be fraud. Of course the lender then has the option to do it or not. Some will some won't.
Another way to do this, may be to get a rehab loan. They are just starting up here and I am just learning about it, but I would talk to your local lenders and see if they offer anything like this.