Posted by Christen on March 24, 2005 at 21:46:02:
no, most banks particularly ones that deal with credit challenged buyers are very weary of “flips” so they have seasoning restrictions. They won’t loan on a property that has been owned less than 6-12 months.
help with selling house - Posted by Bill (WI)
Posted by Bill (WI) on March 24, 2005 at 14:47:16:
I have been having very bad luck selling a house the last 5 months. My agent called me today and told me that she has someone wanting to make an offer but that the offer was strange. She said that the buyers were working with a mortgage broker but that they had some credit issues and need to have 20% equity when they purchase. The broker told her that they would over appraise the house by 10%. I said ok no big deal, thats done all the time. Then she said to get the other 10% equity that they would form a fake or bogus note and mortgage to me the seller for 10% and that they would then rip up the note at closing. I have never heard of that. The broker is from out of the state so I am apprehensive but I would love to sell this house. Has anyone heard of this? Can I get in trouble?
Re: Obvious Loan Fraud - Posted by Ehab - Houston, TX
Posted by Ehab - Houston, TX on March 25, 2005 at 12:38:59:
Wow! I’ve only been investing a little over a year and I knew this was loan fraud in a second. Here’s link to a good article on loan fraud.
http://homebuying.about.com/od/mortgagefacts/a/bank_fraud.htm
And yes, fake seconds or secret seconds are a form of loan fraud.
Good Investing!
Ehab
Serve Both Masters… - Posted by Randy (SD)
Posted by Randy (SD) on March 25, 2005 at 12:25:31:
The solution to this dilemma is simple and legal (surprised with all the fervor this post created no one suggested it). First of all get a legitimate appraisal, attempting to inflate the property value by a bogus appraisal is loan fraud, trust me you do not want to go there! You can however increase your sales price because you are offering terms, this is a premium benefit to the buyer and justification for the increased price provided the appraisal will support that price. Your appraisal will show the current MLS listing price "property is currently being offered at $XXX.XX and the agreed-upon “sales price” as well as the owner financing contingency… problem solved.
Create a legitimate second lien at whatever rate and terms you and the buyer can agree on, record that lien as a legitimate second however the rate and terms of that lien could be something as simple as 1.5% interest rate, no payments for the first 60 months, all accrued interest will be waived if the note is paid off in less than 60 months. Include a due on sale clause, this way when your buyers sell or refinance you get a little back end “kicker” for being such a nice guy in helping them qualify. You can of course also satisfy your second lien at any time, for any amount the parties agree to, so 30-60 days past the closing date file a notice of satisfaction for $100 or $1000… whatever you want.
And I would agree with some of the other posters, this Realtor and this mortgage broker are suggesting a fraudulent activity. The lender wants to be in 80% LTV for a reason! The buyers credit will not support a higher loan to value, and while it’s unlikely you as the seller would ever get into any real trouble it’s not a good way to do business especially when there are legitimate ways to accomplish the same outcome.
Re: help with selling house - Posted by Killer Joe
Posted by Killer Joe on March 25, 2005 at 11:15:32:
Bill,
I read all the responses below, and had some thoughts (maybe just fog) feel free to consider this ‘Spew’.
What will the comps show as the sales price after closing?
In the case of your buyer defaulting, what are the ramifications to you?
Are your motivations the same as the Mortgage Brokers motivations?
Are there any tax consequences that haven’t been addressed?
Why would the underwriter accept an appraisal for 10% air, are they so removed they don’t know your market? (typical)
One last thought, is there some outstanding feature of your house that you can mitigate to make it a more desirable piece? I’m a fixer kinda guy, so I tend to see the fixable defects and correct those to add value. Maybe you should put on those glasses for a time and step back and take a good look at your property.
Anyway, good luck, and like I said, it’s OK to consider this spew.
Re: help with selling house - Posted by James
Posted by James on March 25, 2005 at 08:39:07:
I think you are either misinterpreting what the agent is saying or the agent is presenting this wrong.
Normally, in a deal such as this, the lender will loan 80% of the appraised value or selling price whichever is lower. (Using your % amount). Appraisal amount is a nebulous amount and can vary depending on a number of factors. The appraiser has to support these figures in his report and in most instances before an oversight committee.
As to the note. . . I think what they are asking you is to take a note for 20% and which includes the bogus 10% amount and when the terms are successfully satisfied the bogus amount is forgiven. (i.e. payments are made on time for the term of the loan).
At closing when you are signing many disclaimer and disclosure documents, you will be presented with a document that states there are no unknown/undiscloded side agreements. If you are making this loan outside of the title closing, do not sign this document as this would be fraud. Many loan companies accept a structured sale like this, but they are aware of it and it is done at the same time as the other documents are signed and at the title company. It is nearly the same, but not quite, as a person getting a second lien when purchasing a house to avoid PMI.
As an added comment. . Don’t pay real estate commission on this inflated amount. It will take negotiating with the RE agent separately. I normally do not pay commission on the loan amount or, alternatively, defer the agent’s commission on this amount until I am paid as this is “potentially dead money”. If you have a 6% RE commission this inflated amount ($10,000) would cost you an additional $600 in commissions.
This is Nuts! - Posted by FrankIL
Posted by FrankIL on March 24, 2005 at 17:07:29:
I can’t believe some of the advice being given here to your question. In reality, this is not normal and is not done ‘all the time’ as others are stating. Do this business on the ‘up and up’ and not ‘under the table’. Over-appraising a house intentionally to this degree and then creating bogus notes to get the deal through is lender fraud - pure and simple. Don’t believe me? Fine - call the lender and tell them of your plan to us a bogus note and overappraisal on the house and then see what they say. This is similar to other posts I’ve seen on this board where people were advising newbies to get owner-occupied loans for homes they never intended to live in. Argh! Do business the legal and right way or don’t do it.
Re: help with selling house - Posted by Clair-MO
Posted by Clair-MO on March 24, 2005 at 15:35:11:
Bill, There’s nothing illegal about what you mentioned as long the lender knows what is happening. This kind of deal is being done quite often than anyone can imagine and it is legal in doing it. It’s not bank fraud. Otherwise you would be hearing from alot of other investors who were doing it if something goes wrong.
Not true, don’t run - Posted by Christen
Posted by Christen on March 24, 2005 at 15:05:42:
I just did one of these it’s a throw away second. The bank is fully aware of the 2nd mortgage on the home, whether or not you make the buyer pay is up to you and the buyer. If you really want to sell the house you realize you can knock of 10% and probable several thousand in closing costs that might kill the deal for you , my profit on my last deal plumitted, but I took it because the next door neighbor was harassing potential buyers and this guy didn’t care he was just desperate own his own home.
Re: help with selling house - Posted by Jeffery (LCLA)
Posted by Jeffery (LCLA) on March 24, 2005 at 14:55:37:
As much as you want this deal to go through, run away fast and fire your agent. What your agent is suggesting is against the law, specifically, bank fraud. When dealing with a bank you have to be 100% honest, to the best of your knowledge. Even if you did give them a seller carryback for 10%, they still wouldn’t have 20% equity in the home because that note would consume that equity. Run from this deal.
Regards,
Jeffery (LCLA)
Re: Serve Both Masters… - Posted by Bill (WI)
Posted by Bill (WI) on March 25, 2005 at 13:07:20:
Thanks for your time Randy
Are you saying that if the house is listed at $95k we could raise the selling price to say $105K, offering a 2nd for the other $10k. The reason for the price raise would be me offering a premium service to the buyer? Then we could make something really easy to satisfy the 2nd?
Re: help with selling house - Posted by Bill (WI)
Posted by Bill (WI) on March 25, 2005 at 08:50:20:
Thanks James
So am I being asked to carry back 10%? Can you explain how your example might work if I were selling for $95,000?
Re: This is Nuts! - Posted by knk
Posted by knk on March 25, 2005 at 14:27:25:
sounds more like broker fraud as the broker is probably defrauding the lender as well and to disagree slightly, broker fraud runs rampant here in the subprime lending world
Re: This is Nuts! - Posted by James
Posted by James on March 24, 2005 at 17:58:39:
This just confirms the post awhile back where I was saying that there are a couple people posting on this board that have credible information. The other 98% are just spewing advice when they haven’t a clue what they are talking about.
Absolutely Incorrect! - Posted by FrankIL
Posted by FrankIL on March 24, 2005 at 17:10:34:
Clair - I’m sorry but you are way off here. This is lender fraud.
But it is lender fraud - Posted by DaveD (WI)
Posted by DaveD (WI) on March 24, 2005 at 16:27:35:
If it is being appraised for 110% of value, you have an intent to deceive the underwriter of the loan. The mortgage broker and appraiser are primary party to that fraud. And it is hard to prove that Bill is just an innocent bystander.
The underwriter of the loan has good reason to expose himself to only 80% of market value, based on the buyers shaky credit. Pumping up the value may make it look good to the underwriter, but that doesn’t change the fact that a fraud has been committed. Why? Because truthfully he is lending 80% of the value of a bogus amount. Further, the buyer does not have a 20% equity position, if that is the requirement. At best he has 10%, because of the so-called throw-away second of 10%. At the end of the day, the underwriter wants to know how the differance is made up. If he were told it was made up of over-appraisals and throw away funny money, methinks he would reconsider approving the loan.
I take back (non throw-away)second positions all the time on folks who buy with crappy credit. But it is based on rightous numbers, and the lender knows the buyer is bringing some cash to closing.
Re: help with selling house - Posted by Bill (WI)
Posted by Bill (WI) on March 24, 2005 at 15:45:20:
Clair
Thanks for your time. I have a question though. Why would a lender care if the buyer had 20% in it from bogus sources (appraial, note to me)? WOuldnt they know that it wasnt actually the buyers money but just something made up? I think I am missing something here.
Bill
Re: Not true, don’t run - Posted by Bill (WI)
Posted by Bill (WI) on March 24, 2005 at 15:30:05:
Thanks for the reply but you kinda lost me. Is this legal? Can I get in trouble? And what do you mean by “if you really want to sell the house, you can knock off 10% and probably thousands in closing costs”?
thanks again
Re: help with selling house - Posted by Bill (WI)
Posted by Bill (WI) on March 24, 2005 at 15:41:34:
Jeffery
Thanks for your time. You got me thinking. Maybe I misunderstood. Maybe they dont need 20% equity but maybe just 20% of someones elses money to purchase. Because your right, since when is a note and mortgage equity to the buyer.
Bill
Re: Serve Both Masters… - Posted by Randy (SD)
Posted by Randy (SD) on March 25, 2005 at 13:29:12:
Yes, it’s conceivable. Especially if the appraisal would support the sales price of $105k. Since appraisals are simply one person’s interpretation supported by “comparable sales” it’s not difficult. Depending on your market, the recent sales activity and of course this property…