Mortgage Fraud Loopholes
Hi all,
Can someone figure this out for me?
I want to legally purchase a 1.7 million dollar primary residence for $1,060,000 and have the owners carry $640,000 for seven years.
Assuming the current owners would do this, is there a legal way to make the HUD 1 purchase price show only $1,060,000?
I need to figure out how to handle the extra $640,000 I would owe them. If I did it as a second with a balloon note, I would have to show a purchase price of $1.7 mill. Thus killing me on property tax. If I did it as unsecured, even though it does not show against the property, wouldn’t it be fraud?
So bottom line: How can I buy it for $1,060,000 and make an additional $640k due in seven, without committing mortgage fraud?
Common sense says I can’t, anyone out there think I can?
Thanks, Brian
You would have to get the owners to agree to take 1,060,000. On the positive side, at least you are protected in CA by Prop. 13, so your assessed value cannot increase by more then 2% per year and property taxes are a deductible expense on your taxes.
Thats what I thought.
Thanks, Finn
Any other ideas out there?
One other comment, in CA, there are many things that are based on the sales price that you sign under penalty of pergery that is accurate. Some of these include the transfer taxes, property tax base, sales commision to RE agents, appraisals, etc. I know you want to save the property taxes, but you might want to think this through.
There is ONE thing I can think of that could help you on the property tax side. If you are over 55, you can transfer your CURRENT property tax value on your existing house to your new house in CA IF the house you are moving from is worth greater then or equal to the house you are moving into AND you are moving within the same county (a few counties allow a transfer, but not many). This is a once in a life time allowance. If you qualify for this, post a response and I can post additional details and where you can find more info.
Xchange and Glover, thank you for your responses.
I am leaning towards the L/O type of deal or maybe a subject to.
Glover, they might carry the 640k off the books or put it spread it over some other property I own, but I think that takes me back to the fraud issue.
Brian
Brian - whatever is the ultimate sales price MUST be reported to the assessors office. Even if you were to structure something so that the sellers would still ultimately get $1.7 million, you are required under the state statutes of CA to report the accurate amount to the assessor. So I think you are treading on shaky ground if you plan on deceiving the county for property and transfer tax purposes. The penalties for this are not good.
I think Finnigaps has a point. There are two things for certain inlife: Death and taxes!!!
Here in Florida, the property taxes are not based on purchase price...although many of us like to think that it does. We have the save our homes which prevents our taxes from going up more than 2-3% each year. It is pointless for the assessor to evaluate the house each year because they can only increase our taxes 2-3% regardless eventhough the house has appreciated >6%. When there is a change in title...it basically alerts them that they can reassess that properties value without the limitation of Save our homes. I would imagine it is similar in may states.
Again, I am still a newbie (incidentally, if you guys can help me answer some questions in my other posts I wold appreciate it) but here are my thoughts:
- A 1031 will save you from paying taxes on some gains. Might not save you from being taxed on the whole 640K
- A lease hold land. You only need one deed right, so perhaps yuo can buy the house with an agreement for deed and lease hold the land. It will at least allow you to depreciate the entire value of the house for a while.
Substitution of Collateral- Basically your offering them a 640K house as collaterall in exchange for a $1.06M price tag (instead of 1.7M)
- Land Trusts: I am still a little sketchy on land trusts, which is why I need some help with my questions. I have read that If the sellers are still on the land trust for a while (>10% interest) it will prevent any red flags from being raised with regards to the due on sale clause and the tax assessors office.