Brainstorming - Posted by Shenesa

Posted by jadair on November 29, 2000 at 16:43:33:

If the buyer and seller’s intentions are “And maybe in 3 years, the note be reduced?” and the bank doesn’t know…anyway you slice it, it’s fraud. Maybe the seller could hold a 23K note at .000001% for 720 months. It would only add $31.94 to the buyer’s monthly debt service. I’ve never heard of 60 year terms though and I’m not sure if the 1st position would look at this cross-eyed or not!!! Hopefully someone else will jump in here and give some suggestions.

Brainstorming - Posted by Shenesa

Posted by Shenesa on November 29, 2000 at 14:34:02:

I want to run this by you guys to see if this is ethical. Lets say you have a couple who is interested in one of your properties. However, they do not have money for the down payment and they are rebuilding their credit. they have already been pre-approved. You have a house that fits their needs and you would like to sell it to them for 115k, worth 130. But you would create a second for the down payment but then forgive the second. You get what you really want and they get what they want, a house.

115k sell price
23k dwn payment w/ second note created(note forgiven at closing)
92k left for them to finance
75,750K pay off seller
16k profit for you ,give or take with closing cost

Your thoughts
Shenesa, NY

Re: Brainstorming - Posted by HT

Posted by HT on November 30, 2000 at 16:30:49:


I believe you are making the right decision looking for another means of completing this deal.

I faced an identical situation and also pitched it to the investors on this forum. I receiveed similar feed back and after reviewing it, quickly realized they were right.

Wish I could provide you with the magic answer, but I’m still racking my brain on a solution myself. I believe I’m just going to have to find another buyer. The delay may cut into my profit margin, but at least I will be doing the deal within the parameters of the law.

Best of luck with you future deals.


Loan Fraud - Posted by Tom

Posted by Tom on November 29, 2000 at 20:53:03:

Here’s what the papers on a loan that we closed on yesterday say:

“I/We certify that all the information is true and correct. I/We made no misrepresentations and did not omit any pertinent information.”

“I/We fully understand that under the provisions of Title 18, United States Code, Section 1014 it is a Federal crime punishable by fine or imprisionment, or both, to knowingly make false statements when appling for this mortgage.”

Saying that you are going to carry a second and then not doing so is making a false statement. Maybe you can get by with it, maybe not. It’s your call, after all people do it all the time, who’s it going to hurt?

Personally, I’ve been in business for over 25 years and I care about what people are going to say and think about me. I would never put my business or reputation at risk for a couple of dollars.

It’s Called Loan Fraud nt. - Posted by phil fernandez

Posted by phil fernandez on November 29, 2000 at 20:23:03:


Re: Brainstorming - Posted by Jim IL

Posted by Jim IL on November 29, 2000 at 17:22:38:

Basically what you are proposing to do here is LOAN FRAUD!
There are people who are currently doing time for this very thing.
See, when you goto closing there are statements that you will be required to sign that say there are no outside agreements.
EVERYTHING between the parties is right in the contract and at the closing table.
So, if you tell the buyers that you will be taking back a second and later forgiving or reducing it, this is an agreement outside what is disclosed to the lender.
That is your LOAN FRAUD!
When the underwriters review a transaction in order to approve a loan or not, they are looking at the risk involved and what all is involved with the transaction is what they base that decision on.
By taking this second and forgiving it, you are basically saying that the underwriters are allowing the loan to proceed based on half truths.
This would basically be lying to the lender.
Would you want something like this to happen to you if you were the seller or lender?

I didn’t think so.
As was stated, there may be some lenders out there that will allow you to carry back paper in order to compensate for a lack of upfront funds from your buyer.
So, go ahead and carry a note if you need to, and if the additional payments to you right now will hinder the buyer, then set the note for NO PAYMENTS with a balloon in several years.
Write the second, and keep it in your mind, with out sharing it with others that you may find kindness in your heart and discount the note or forgive it all together later.
Just make that happen far enough off (like years), so that no one looks at this as FRAUD!!

Jim IL

Re: Brainstorming - Posted by eric-fl

Posted by eric-fl on November 29, 2000 at 15:54:37:

Just because you allow a second doesn’t mean the lender of the first will use that as down payment. Lending requirements are set by the lender. Yes, you may be lowering the LTV, but the lender still may want to see some cash out of pocket on behalf of the buyer - verified by a phone call to the bank to verify funds, of course. As to the fraud debate, why throw away the note? Why not just set a long term balloon on it, like 5 or 10 years? Or perhaps balloon it so that payments don’t start for several years.

Re: Brainstorming - Posted by jadair

Posted by jadair on November 29, 2000 at 15:09:43:

“23k dwn payment w/ second note created(note forgiven at closing)” = LOAN FRAUD

Besides, why would you walk away from 38K?

Re: Loan Fraud - Posted by Shenesa

Posted by Shenesa on November 30, 2000 at 07:35:57:

Thanks for your response.

I too care about my reputation. All I wanted was for someone to explain to me why its considered FRAUD. Now I know. I will not go that way.

Shenesa, NY

Re: Brainstorming - Posted by Shenesa

Posted by Shenesa on November 30, 2000 at 07:32:40:

Thanks for explaining it and not just telling me it’s FRAUD. I think sometimes we have a tendency to go off without answering the question stated.

Thanks again for breaking it down to a newbie.


Re: Brainstorming - Posted by Shenesa

Posted by Shenesa on November 29, 2000 at 15:15:47:

Please explain how it is LOAN FRAUD. As far as walking away from 38k is concerned all I want is the property to move quickly.
I hear plenty of times on this site that one can purchase a home with no dwn payment. Thats why I do not understand how this can be FRAUD. The bank doesn’t have to know what you are doing with your note created. Its your note.


Re: Brainstorming - Posted by dewCO

Posted by dewCO on November 29, 2000 at 23:06:57:

The bank needs to know from the buyers what the WHOLE deal is, because the buyers are promising to tell the lender the whole truth about the deal in order to qualify for the first. IF the buyer has NONE of their money into the deal the lender rates this a more risky deal. Why don’t they just get a 100% loan.

Re: Brainstorming - Posted by jadair

Posted by jadair on November 29, 2000 at 15:30:16:

If the bank is not aware that the note is being tossed in the dumpster, it’s fraud.

Don’t do it!

Re: Brainstorming - Posted by Shenesa

Posted by Shenesa on November 30, 2000 at 07:41:01:

Thanks for your response. I will have to think of something more creative and legal to do for them. The reason why they cannot qualify for 100% loan is bad credit. The wife filed bankruptcy a few years back and the husbands credit isn’t all that great either. They are now in the process of rebuilding their credit.

Again, Thanks.


How long would one have to - Posted by IB (NJ)

Posted by IB (NJ) on November 29, 2000 at 15:49:59:

hold on to the note before he/she can forgive it? Can it be set up where the note is not paid until say 5 years from now? And maybe in 3 years, the note be reduced? Just trying to see if there are any LEGAL ways around the down payment issue.