Phantom Second/Seller Carryback Question... - Posted by Daniel Bernal

Posted by Ken on November 24, 1999 at 18:01:39:

Two steps. That’s correct.

Phantom Second/Seller Carryback Question… - Posted by Daniel Bernal

Posted by Daniel Bernal on November 22, 1999 at 16:42:26:

A couple months ago I posted a question on a transaction where the funds I had to close on a deal fell through. Someone suggested to do a phantom second, i.e., write up the contract so that the LTV covers the actual price that the seller agrees to. I was not able to close that deal in time but now I am in a similar situation where I am in the process of trying to buy a home for $295K but the property is well worth over $350K. I am in the process of trying to convince the seller to do a seller carryback for 10% and then file a “Release of Lien” on the 10% after closing. The purchase contract would be written for $330K with a 10% seller carryback. This would net the seller $297K. I figured on giving him an additional $2K for the trouble. Problem is that he and his realtor are a skeptical of the legalities. Just curious on how I can assure them that there is nothing illegal about this.

Any advice is greatly appreciated.



Re: Phantom Second/Seller Carryback Question… - Posted by Tim (Atlanta)

Posted by Tim (Atlanta) on November 23, 1999 at 06:27:00:

I agree with Joe here. There is NO phantom second that is legal. I have REI friends of mine that went this route to sell some townhouses they owned. After doing about a dozen of these deals, someone found out about it at the mortgage company and called the feds. They are now facing fraud and perjury charges and could get fines of up to $50,000 per charge, or time in jail. Also the mortgage companies immediately called the loans due and foreclosed on the properties, causing the buyers to be out of a place to live. Several of the buyers have filed civil suits against the seller.

Perhaps I am a little too conservative on this, but I will not engage in an activity that may land me in jail. But that’s just me.

Re: Phantom Second/Seller Carryback Question… - Posted by Ken

Posted by Ken on November 22, 1999 at 20:27:33:

Although there is nothing illegal “per se” about the proposed phantom second lien, at closing, the buyer (and sometimes the seller) will likely be required to sign a document under oath stating that no such undisclosed 2nd liens or other concessions or kickbacks are involved in the transaction. Signing such a document would submit you (and possibly the seller) to prosecution for perjury.
It is possible that the 100% financing you are seeking can be accomplished without perjury. I know of no reasonable sources of 100% financing at loan amounts of more than $250,000.

Utilizing the “two-step” procedure described by Bill M in a previous posting to another inquiry is a possible solution to your situation.

Get preapproved for the permanent mortgage at $305,000 based on a “refinance” utilizing the appraised value to determine max LTV. Then convince the seller to finance 100% ($297,000) understanding that you’ll refinance within a week. The refinance will utilize the appraised value. OR you can take the permanent loan commitment to a bank and sometimes obtain 100% interim financing. (Some banks might require cross collateralizing the interim loan with additional collateral such as other property or CD.)

Problem … Although this type of two-step loan is permitted on conforming loan limits (under $240,000 in most areas), most jumbo lenders require “seasoning” to use the appraised value to determin max LTV. This means you have to own the property for a year or more to use the appraised value to determine your maximum loan amount. I know of somewhat rare sources that do not require seasoning on jumbo loans. These are at competitive rates. Call for more info.
Ken 800-735-6767

hire a RE lawyer - Posted by RRSmith

Posted by RRSmith on November 22, 1999 at 19:41:00:

Have the seller hire a RE lawyer and pay for it(the first $7-800 anyway). Hire your own RE lawyer to give you advice in the future, since you sound like the RE agent has shaken you up somewhat. Sounds like you are up against a good case of “not invented here” or don’t believe it exists
cause “I never seen it.”

Loan types as described - Posted by RRSmith

Posted by RRSmith on November 23, 1999 at 18:47:15:

What is the name of this “two-step loan (which)is permitted on conforming loan limits”? From my reading in the orginal post it sounded like a whole new second was being made.

Re: Loan types as described - Posted by Dave T

Posted by Dave T on November 23, 1999 at 21:26:54:

I believe Ken is describing a two step process – not a two step loan.

Step 1 in the process: Get the seller to carry back 100% financing.

Step 2 in the process: Immediately get a conventional loan to refinance the property and payoff the original seller.