Posted by River City on May 24, 2004 at 11:44:56:
I agree with John Boy in that if the lender doesn’t know about the 2nd, it is illegal. Most lenders send a statement to closing for the borrower(s) and the seller(s) to sign that states that there are no agreements between them pertaining to the sale that have not been made known to the lender.
It sounds like some under the table stuff is going on.
IS THIS ILLEGAL - Posted by Jamal Bryant
Posted by Jamal Bryant on May 19, 2004 at 14:45:28:
Hi I am trying to close on a house but already 2 lawyers told us the wouldn’t do it because they don’t understand the note buying process. We are creating a note for 120k the folks financing the note will buy it discounted for 92k that will be the first lien. I have to bring $6800 to the table to give the sellers there asking price of 98K. There will be a 2nd lien that we must create and the sellers will forgive after closing. I am running into the problem that the lawyer we choose didn’t want to close the deal because he thought it was illegal and didn’t understand the note process. My questions is this illegal because the next lawyer spoke to the previous lawyer and he doesn’t want to close it either. Are we doing something wrong because it doesn’t seem like it or is this real borderlinish. Thanks
Jamal
Re: IS THIS ILLEGAL - Posted by JohnBoy
Posted by JohnBoy on May 19, 2004 at 20:37:31:
If the asking price is $98k and you are creating a first note for $120k that the note buyer will buy for $92k and you are bringing $6k to the table to make up the difference…then why do you need to create a second note that needs to be forgiven? What is the point and purpose of this?
As far as creating a note that you have a note buyer willing to buy it at a discount at closing goes…no, there is nothing illegal about that. As long as the appraisal is legit and not inflated, and your note buyer is willing, then that is perfectly legal.
Creating a second note that is going to be forgiven is loan fraud if the lender doing the first is not aware of the second being forgiven. As long as this is disclosed to the first lien holder and then don’t have a problem with it, then it should be OK. It’s not OK when you are creating a second to qualify for the first where the lender doing the first is not aware of the second being forgiven. This is usually done to qualify to get the first. If the first knows the second is going to be forgiven they wouldn’t do the first, since the purpose of the second was to qualify for the first.
But why do you need to create a second to be forgiven if you already have a note buyer willing to buy a $120k first that the seller only wants $98k for the property? I assume the property appraises for at least $120k or more if the note buyer is willing to buy a $120k note for $92k?