Question On Legality Of Cash Back Addendums
Hi I switched this post to the law and legal forum I thought it would get better response here
OK I have been reading some things here about getting cash back at close or after close and basically I have found two different answers and I need to know which one is right. The first one comes from a post saying this:
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Anytime the lender is not completely informed of the FULL conditions of the purchase, it can be considered loan fraud. The attorney would have to know to be able to properly disperse the funds. Of course, if he knows that the lender doesn't have the full story, he probably won't close the deal either. |
Which seems to me this is saying that you can’t use addendums to give cash back after the sale of the house.
The second post says this:
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1st post: Hi. I'm about to make an offer on a 3 unit property which needs some work--mostly cosmetic. I've told the agent I'm working with that I want to make a higher offer with $25k back at settlement for repairs and closing costs. The mortgage broker/lenders I've been talking to told me to put the closing credit in an addendum, so that it's not on the HUD sheets. My agent says that we can't do that--it's illegal. |
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Answer: I'd get a different mortgage company AND a different realtor. There is absolutely no problem getting a credit at settlement, except that some mortgage companies limit how much you can get back. (many have a 6%max) Even so, there is absolutely nothing illegal about writing an addendum and having the seller cut you a check after closing. Your only concern should be, that the property appraises at 25K more. |
So this one seems to be saying that it is ok to have a seperate addendum that doesn't show up on the HUD to give cash back after the closing is settled
OK so which one is right? and why or why not? I am confused
Thanks
Joe
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With any RE transaction, you cannot hide anything material to its terms - price, cash back, etc. This would be fraud. A previous post is correct that it would be best to find an agent, and mortgage broker that will allow you to cash out $ AT closing. Don't rely on AFTER the closing. What incentive does the seller have to write a check after the closing? This what escrow is for - each party to receive their portion of the contract. Seller gets $, Buyer get the deed, Bank get a mortgage, old lender get paid off, liens get paid, etc. Have your agent write an addendum stating that you are to receive $25K at closing to provide needed repairs, etc. It all comes down to the bank. If you go broke, can they sell the property and come out ahead? The appraisal is the banks method of establishing value and evaluating risk. In short, it's not illegal to receive $ after closing as long all of the parties are informed. But why risk having to sue the seller to receive your money AFTER closing. The RE contract has been fulfilled. I would think that the Escrow Officer would not let you collect $ after closing - they have no control over the closing, that's what you pay them for and they have a legal responsiblity to execute the terms of the RE contract.
Ok thanks todd, You are saying the 1st person is correct or the second person is correct? the question I have about the addendum at closing is how do I get around the fact that lenders don't like to allow more than 6% back? What I am trying to do is this. I am the seller. I have houses that I am trying to get investors into that are rentals. My part is that I want to get them into the deal with no money out of thier pocket. I am willing to pay the closing costs and the down ayment, but I want to do it legally and not under the table. I figured that I could have the buyer pay the down payment and then credit it back to him after the sale unless that is illegal. Is it possible to do this at closing?
Thanks
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If you do what you have always done, you will get what you have always gotten. Success can't occur whithout taking risks, just be sure to take calculated, informed risks![ Edited by joefm26 on Date 06/01/2004 ]
another question, you said it isn't illegal to recieve money after close as long as all parties are informed. All parties meaning the lender too?
The first party is correct. It must be disclosed to the lender, and on the HUD form. That is not saying that folks aren't getting cash back and using addendums. Many do, and many are unwittingly committing loan fraud, a felony.
Hi. I'm the person who posted the original question to the group. My (new) real estate attorney advised me that there is nothing wrong with addendums as long as it states on the HUD sheet that there are, in fact, addendums. Your loan "person" (broker, banker, etc) should be aware of the addendum and the credits going in so that there are no surprises when things get down to the wire. The lenders I have been dealing with had no problem with the credits I am getting, as long as they're held in escrow by a reputable attorney.
I agree with 64Ford. Seller credits are to be listed on the HUD-1, not hidden from the lender. I just pulled a HUD-1 at random from my files. Here's the warning printed on the bottom of the HUD-1:
"WARNING: It is a crime to knowingly make false statements to the United States on this or any similar form. Penalties upon conviction can include a fine and imprisonment. For details see Title 18 US Code Section 1001 and Section 1010."
Lynneann, What kind of credts are you getting and what lenders are you using if you don't mind me asking. I hear about lenders that allow unlimited seller credits but I have not talked to a broker yet who has access to one?
Thanks
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