IS this LEGAL?...Ed, JohnBoy, Jpiper, Bill...Help? - Posted by AC-Fla

Posted by JPiper on October 26, 2000 at 24:05:40:

This is clearly not an arms length transaction. In actuality, there is a hidden contract between buyer and seller that remains undisclosed to lender. That contract is the agreement that the two parties will split the loan proceeds in some manner.

The result of this is that the borrower is able to obtain financing higher than the purchase price, thus putting cash back into his pocket.

The only reason for this tactic is that most lenders will only lend the lower of purchase price or appraised value. Further, the lender may require seasoning prior to doing a cash-out refi, not to mention that the terms of the cash-out refi may well be different than the terms for what appears to be a new purchase with a down payment.

Disclose this transaction to a lender and it will be turned down. Alternatively, buy a property and get an unseasoned refi based on appraised value, and observe the number of lenders that are willing to do this. There might be a few, but it will be few and far between.

The old rule of thumb, if it looks like a duck, walks like a duck…it’s probably a duck.


IS this LEGAL?..Ed, JohnBoy, Jpiper, Bill…Help? - Posted by AC-Fla

Posted by AC-Fla on October 25, 2000 at 21:43:35:

Two partners decide to purchase investment property and then rent it out.

Partner 1 buys the property from a bank for 50k and closes the deal. He fixes the property up and sells it to partner 2. Partner 2 gets a Non-owner occupied mortgage and buys the house from Partner 1 for full appraised value at 85k (legitimate value). .

The partners split the profit made on the sale between themselfs. They then form a management company that manages that property as a rental and split whatever the monthly rental profit.

  1. Is this legal?
  2. It would seem that this might not be an arms length transaction and therefore not legal according to fannie mae guidlines.
  3. Spliting any money after a sale is considered inducement. I think this is also illegal.

How can i find out the answer to this question?

Or a Penguin that went to duck school… - Posted by Bill Gatten

Posted by Bill Gatten on October 27, 2000 at 21:34:45:


Whats really wrong with this scenario? If the lenders are both well secured and happy with their loans, why is this any different than lying to a lender about their due on sale clause?