Defrauding A Lender?
This is hypothetical, of course <grin>...
Let's say there is a home on the market for $350k that needs paint, carpet, etc. It would appraise for $400k easy without those things and $375k "as is." I make an offer for $375k with $20k cash back at closing for "misc repairs and upgrades." An agent told me this was "defrauding a lender" and would have no part of the transaction. Other agents and brokers see no problem as long as it is under the concessions cap the lender has. This particular lender had a 6% cap. Any thoughts? By the way, I am in California...
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I don't see what the problem is? As long as the lender knows whats goingon then I can't see how it is defrauding the lender. If the cap is 6% which would be around 22k. Maybe others can give a better idea why it might be fraud but I don't see it
Joe
Unless there is more to the story than you've told you have not defrauded the lender. You'd be suprized how stupid some realtors are.
Just a few weeks ago I'm negotiating with a broker relative to a commercial piece. We are discussing a clause in my offer where I would have the right to market and show the property for rent during the contract period. "Thats illegal" says the broker, "you cannot market something you do not own." (He is clearly wrong here-- the right to own something via the sales contract is sufficient to allow you to market).
"But my lender really prefers to lend me money on rented buildings than vacant ones. by having the building rented the deal becomes much more viable."
"Oh," says the realtor "if all you need is leases to show the bank I'll be glad to make phony leases for you. How much income would you like the building to show?"
Now that's bank fraud.
Bottom line-- its not fraud if you disclose and tell the truth.
Right. As long as you disclose it to the bank and on the HUD you are okay. There are many deals in which they avoid telling the bank and/or putting it on the HUD. Now thats loan fraud. One was mentioned in this forum earlier.
just curious...what kind of assurance is the bank going to have that you used the money on the fix up. just playing devil's advocate but you could use it for a vacation? How does the bank protect itself?
As stated by others, money exchanged in this deal need to be disclosed on the HUD. If you received $20K back and it was not disclosed to the lender on the HUD, it would be loan fraud, which is a felony.
If he is giving $20K for repairs, by the book it should be placed in a an escrow account and disbused to you as repairs/receipts were completed/presented.
pushcart,
If the seller credit is within the lender's guidelines and the property appraises for the purchase price, the lender wouldn't care. However, what I have done in the past in representing a seller is recommend that funds supposedly needed for repairs (where this is a contested issue) be escrowed at closing--not just subtracted from the buyer's side of the HUD-1. And that the funds be disbursed to the buyer subsequent to closing if, as and when the buyer produces evidence that the work was actually done.
Nancy
Quote:
On 2004-06-15 12:13, pushcart wrote:
just curious...what kind of assurance is the bank going to have that you used the money on the fix up. just playing devil's advocate but you could use it for a vacation? How does the bank protect itself?
Normally the bank does not release the funds to you. They want to see receipts from contractors. If you claim you did the work yourself they will only pay for materials which have receipts. No changes for labor for your time while doing the work.
With receipts the possibility that the money was not used on the house is greatly reduced. You can still cheat but you are so obviously cheating that if the lender wanted to sue later it is easier to prove. They would just have to show that the materials were not used for the property.
Yes, you could get a crooked contractor to work a deal with you. I would say just stick to the truth and do legal deals.
John
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