Is this kosher or lender fraud?? - Posted by Judith

Posted by JohnB_NJ on April 27, 2001 at 15:49:26:


My only question is…can this senerio be used for a NOO deal. I know these Non-Profit organization exist but I was under the impression they are for Owner Occuppied purchases.
Is my assumption incorrect? I hope it is…

Thanks for your expertise here and you time to answer posts. Without Ed’s forum, I would be missing out on good deals with bank financing.

The best of success to you.


John Bittel

Is this kosher or lender fraud?? - Posted by Judith

Posted by Judith on April 25, 2001 at 11:29:50:

Need to get financing from bank to buy property. Don’t want to go beyond 80% LTV. Seller’s amenable to working with a higher selling price to satisfy bank’s LTV requirements based on lower of appraised value or purchase price. In reality seller is willing to accept the lower amount in cash. I am thinking of doing this to get around it.

Raise “official” purchase price to appriased value, get 80% LTV financing from bank. Have seller take a note for remaining 20%, but not a mortgage, so the note is not secured. Have lender simultaneously sign a written acknowledgement that the note is paid off or forgiven. After we close, we tear up the original note as if it never happened. I know these things are done but I just wanted to make sure it’s kosher to do this before I actually do it.

Thanks for helpful info (nt) - Posted by Judith

Posted by Judith on April 26, 2001 at 12:43:20:


Re: Is this kosher or lender fraud?? - Posted by NCPaul

Posted by NCPaul on April 26, 2001 at 08:06:30:

Don’t worry about doing this kind of thing, like Ed said there are NINA programs out there for just such an occassion. (There are also no asset programs available if you can prove income.) If you have good credit then the rate won’t even be too bad. (9.5 last time I checked the 90% program with a 660 score.) Washington Mutual has a 75% LTV program but there are other lenders out there with as high as 90-100% LTV loans. All you have to do is look. Don’t be scared by loan fraud, just don’t do it and you won’t have any problems. Chances are if you have a need for a special loan program, like NINA, then there is a lender out there with the program. It’s just a matter of finding them.

Good Hunting

Re: Is this kosher or lender fraud?? - Posted by Nate(DC)

Posted by Nate(DC) on April 25, 2001 at 12:06:38:

It is done, and it IS fraud.


Re: Is this kosher or lender fraud?? - Posted by Jim Upchurch

Posted by Jim Upchurch on April 25, 2001 at 12:06:21:

Although it is done all the time it is still fraud. However, there is a way to structure the deal and remain at 80% LTV by using a ?gift? from a non-profit organization.

E-mail me for details.

Re: Is this kosher or lender fraud?? - Posted by Ed Garcia

Posted by Ed Garcia on April 26, 2001 at 10:24:50:


Thank you, when reading your answering post, I just realized that my post was to Jim Upchurch, and that I never really answered Judith.

Ed Garcia

Re: Is this kosher or lender fraud?? - Posted by Ed Garcia

Posted by Ed Garcia on April 25, 2001 at 15:21:41:


Why do you make your answer a mystery? You don’t have to use a none profit organization to show a down payment. There are lenders that will do these type of loans, it’s just a matter of cost. Many lenders allow you to have a gift letter from a relative or family member. There are also no income no asset loans, such as one at 75% LTV at Washington Mutual for starters. With that loan you don’t have to verify the down payment, or the income. It’s just a matter of cost and lender.

Using a none profit flag to show down payment would have no effect on a lender. It would be interesting to hear what you’re suggesting.

Ed Garcia

Re: Is this kosher or lender fraud?? - Posted by Jim Upchurch

Posted by Jim Upchurch on April 26, 2001 at 15:16:06:

Ed ?

There is no mystery to what I propose. First, let me explain why I asked her to email me for the details.

In a response to a post earlier this month I gave a detailed answer to a question that was asked and ended my post by giving my company name and phone number. In addition, I asked the original ?poster? to call me if I could help. After posting my response, I received an email from you stating my response was not permitted under the rules of this board. In addition, you edited my email by removing my company name and phone number and inserting text resembling something to the effect of ??please email me if you have any questions?? you also suggested I use that ?email me? closing in the future.

Just like you, I am in the mortgage business and earn a living providing financing to qualified buyers. In fear of violating the rules of the board and having my response edited by you again, I took your advice and asked Judith to email me.

Enough of that - let me explain what I was proposing to Judith.

First, after reading her post, I was under the impression she was actually trying to purchase the property with no money down by having a ?fake? seller second. Assume the appraised value is $100,000 but the seller only wants $80,000. Most lenders base the LTV off the lower of the appraised value or the sales price. In this case, assuming the sales price was $80,000, and Judith did not want to go over 80% LTV she would have to come up with 20% of the $80,000 or $16,000. As we both know, this can be in the form of cash, gift from relative, seller second or numerous other ways. Again ? my intention was to get Judith in the property with no money down.

My proposal was for her to purchase the property for $100,000. Knowing the seller only needs $80,000, she will obtain an 80% loan (based on the sales price of $100,000) in the amount of $80,000. For the remaining 20% or $20,000she could use a ?gift? from a non-profit organization such as Nehamiah, Ameridream, HART or The Buyers Fund instead of a ?fake? seller second that would be torn up after closing and is highly illegal. You could use a gift from a relative, but not everyone has a relative with $20,000.

At closing, the down payment assistance company would wire the $20,000 to the closing agent from an existing pool of funds. On the HUD-1, the closing agent would show the down payment as a credit for the borrowers. In addition, the HUD-1 would reflect a debit from the sellers funds for a donation to the down payment assistance company, to replenish the funds for future borrowers, in the amount of $21,000, original $20,000 plus 1% ($1,000) of the sales price as a fee.

In this case, the seller would net $79,000 at closing. By increasing the sales price to approximately $101,000 they would net $80,000 ? I used $100,000 for easy math and to simplify things but I think you will get my point.

This is another example of creative real estate financing. There are several other ways to structure the deal. This way the buyer ends up with 100% financing and it is 100% legal.

As you can see this post is quite long. I could have explained this to Judith on the phone in a fraction of the time it has taken me to post this response but I felt compelled to respond to your post.

Not a mystery ? just trying to save time and conform to the rules of the board.

Thanks again for your response and for providing this forum to share ideas.


Jim Upchurch

If I’m understanding this right,… - Posted by Blane (MI)

Posted by Blane (MI) on May 02, 2001 at 07:12:41:

The downpayment assistance company wires $20K to the seller, then the seller wires back 21K at close? So ultimately only net $1K changes hands and doesn’t come out of buyer’s pocket, but from seller.

Just curious: for the seller, could this also create, as a payment to a non-profit organization, a $21K tax-deductible charitable contribution?


You lost me - Posted by Bud Branstetter

Posted by Bud Branstetter on April 27, 2001 at 17:33:58:

From your explaination it appears the buyer is paying 100K for a property he could have gotten for 80k. So were is she going to get the 21K from just so it is nothing down.

Re: GOOD Post Jim… - Posted by Ed Garcia

Posted by Ed Garcia on April 26, 2001 at 17:39:03:


I want to thank you for your post. I also would like to mention that when I e-mailed you, it was based on Creonline policy and nothing personal. As a matter of fact, personally, I hope you hang around, and appreciate input, such as you’ve made today.

I myself forgot about these programs, especially the HART (Housing Action Resource Trust). So your post was especially interesting to me. I would say that 90% or more of our investors are not aware of such a program. Especially their “Down Payment Assistance Program”.

Ed Garcia

Re: Is this kosher or lender fraud?? - Posted by Judith

Posted by Judith on April 26, 2001 at 15:49:30:


Thanks very much for sharing the info. I’m glad that Ed asked the question in the first place and that you took the time to respond in writing here because I am sure many others will benefit from this little known creative technique that you so kindly shared with us here.

I’m sure we all would rather be above board given the choice and knowledge. I certainly don’t want to do anything illegal, let alone getting the seller to be a reluctant accomplice in a fraud. Eventhough this kind of thing is done all the time and frankly, if the loan is based on an objective appraised value, the lender’s collateral position is not compromised. I really don’t see what the fuss is about. In reality and substance, there is really no difference in the gift technique you suggested and ripping up the bogus second, from the 1st mortgagee’s standpoint. Nonetheless, we should follow the prevailing ground rules.

I’ll be in touch with you directly if and when the seller accepts one of my multiple offers. Thanks again. Judith

Re: Is this kosher or lender fraud?? - Posted by Jim Upchurch

Posted by Jim Upchurch on April 26, 2001 at 16:33:45:

Judith -

Was I correct in assuming your intention was to purchase the property with no money down?

You are correct - there is not much difference between using the “gift” or the “fake” second mortgage except for the legality of it.

The lender gives us the rules and we must play within them whether they make sense or not.

Please email me if I help you further with this or any other transaction. I have funded five purchase transactions like this so far this year.

Good Luck?..

Jim Upchurch

Re: Is this kosher or lender fraud?? - Posted by judith

Posted by judith on April 27, 2001 at 18:29:51:

Yes I am trying to buy the property no money down. As it happens the house is brand new though it has been on the market for a few months. My chances of getting the seller to accept 80% of FMV is not that good. Nonetheless, no harm in trying.
Like John B, I was also wondering whether this gift technique would be available to non-owner occupied buyers?