Soft Seconds, Are They Illiegal?
I have looked at some property that I am interested in buying as an investment. While discussing my offer with the real estate agent I have been told that soft second sells are illegal.
A soft second is when the buyer offers low because they can be approved for only 80% of the asking price. So, with no down payment the buyer can be approved for the 80% and the seller writes up the asking price for more than the property is sold for. This is so the buyer can get the loan, ex. the asking price is $100,000 so the loan would be $80,000 and the seller would either forgive the other $20,000 at closing or they can transfer $20,000 to the buyer and the buyer can give that $20,000 as a down payment.
Anyway, how is this illegal, if the seller and the buyer, and the mortgage company or bank, and the lender know about this, and it is all contractual, if the property does appraise for $100,000 why would this be illegal? Is it actually illegal? And is the transfer of $20,000 a legitimate way around the legalities?
I would love even an opinioon if anything on this subject from anyone.
Thank you
The mortgage broker may know about it, but the lender will not. The lender is being misled about the true sale price and the down payment, which amounts to loan fraud and possibly conspiracy.
If any signed doc, such as HUD 1, bears ANY false info, no matter what else may exist anywhere else, then it IS Federal felony.
Lender has full knowledge?
Right!
And pigs routinely fly!
And too many mtg brokers LIE.
Had this happen to me, on a very nice lakeside condo I bought a few years back, where allegedly the lender had full knowledge of the deal, loan was fully assumable, etc...but the deal was escrowed by the mtg broker/owner who sold me his condo.
His lender had NO knowledge of the deal and would have called the loan in a flash. Was days of much higher interest and his mtg was in no way assumable or even wrappable and would have been called in a flash.
So I made one pmt while I was trying to remarket it, retail, to flip with profit, but in end I notified the guy that I was giving it back to him all at his cost...and any argument or resistance would find us both before local DA, or grand jury.
Since I had some inside knowledge that the guy had done some time earlier, I felt, correctly, that the con-man seller would jump through some hoops to make it (and me) go away.
I guessed right. He did, and he gave me a full release in return for the key within a day or so of my rescission notice.
[addsig]
What if the seller did give the buyer the money for the down payment. In that situaion the down payment was made at the closing and the lender should no about it, since it is written up in the closing, Right?
Most lenders won't allow the down payment to be gifted (although there are some nonprofit programs that are acceptable in some cases).