Help -- will this come back to bite me? - Posted by Robert Fraim

Posted by JohnBoy on November 16, 2000 at 15:03:38:

You would be involved with committing loan fraud to the bank and YOU would be paying the taxes on the additional amount and for forgiving the debt.

Tell them if you carry a second, which in that case you WILL expect a higher sales price for giving some terms on the deal, that you WILL expect the buyer to make payments on it, period!

Now you could structure the second to where the buyer would have 0 interest and 0 payments for the first year or two and then have the payments kick in, OR, you could agree to take payments on the second with 0 interest, but you will be taxed based on the full amount of the sale either way.

You could agree to discount the second later for a full payment amount also. Not sure on how the tax situation would work if you discounted a note, although you would be taxed on the full amount of the sale when you sold it.

The way they are proposing to do this is loan fraud since it would be deceiving the lender, requiring the buyer to lie on the loan app. and closing documents.

Help – will this come back to bite me? - Posted by Robert Fraim

Posted by Robert Fraim on November 16, 2000 at 13:27:25:

I’m trying to sell an investment property. Just got a call from an agent (the property is not presently listed, but he happened to know about it) who wants to present an offer. He’s coming by tomorrow (Friday, Nov. 17)

The buyer wants to inflate the selling price and have me take a second mortgage. Then after the deal closes I’m supposed to forgive the note. I haven’t seen all of the particulars and I’m not sure how they are going to word the contract but that’s the basic idea. I’m sure this has to do with wanting to get a larger first mortgage and needing to improve his loan-to-value ratio.

I have two concerns:

  1. If the buyer ever defaulted and the bank had to foreclose, would they take the position that I had been involved in attempting to defraud them somehow – by creating an artificial price?

  2. Since I would be 1099’d for the higher (inflated) price when in fact I’d be getting less if I don’t collect on the note, how do I account for this for taxes? Normally, it seems to me, before you can write off a bad debt you have to show a reasonable attempt to collect it. If I just walk away from it and forgive the debt, I’ve really just given a gift to the guy, not taken a loss on a debt.

I’d be interested in any insights from those here who are certainly more experienced and expert than I. Thanks in advance for your help.