Skirting Downpayment Requirement. - Posted by Jeff(MA)

Real Estate Investing Real Estate Law
#1

Posted by John Behle on October 26, 1998 at 16:16:28:

I am a strong believer in not making a commitment to buy a property that I have no intention - or capability - to close on. Yet, any time you are in any way dependent on anyone else, you need to plan for that contingency.

Any time you are depending on bank or investor financing, you always have the chance they will back out. Even if you had a pre-approved loan with an institution, they may still back out. For example, we had a funding source we were brokering to (as a mortgage company) that declined a loan they had pre-liminary approval on. Two thirds of their company had left to form a new one and the “executives” were all of a sudden in charge of the underwriting and they just dumped us.

With private investors, they can change their minds or their criteria. I even called one with a deal a few years back to find he had just introduced his plane very abruptly to a mountain top.

So, unless you have cash in hand, you generally have “contingency clauses” to protect you. If you are dependent on a bank for financing, then you should have a contingency clause that allows you to get out of the deal if the financing falls through.

Many standard offer forms have that clause built in. I couldn’t tell if your question was hypothetical or if there is some current situation that you are in. If there is not a “financing” contingency clause, you may want to carefully examine the offer to see if there are any other clauses that might let you out.

If it is a current situation, give us some more details and maybe we can help. If not, make sure you have contingencies in your offers.

#2

Skirting Downpayment Requirement. - Posted by Jeff(MA)

Posted by Jeff(MA) on October 23, 1998 at 09:24:35:

I’m able to obtain the downpayment from the seller, at very reasonable terms, of a “no money down” deal I’m working.

But my mortgage lender is asking to see the statement of the account my downpayment funds will be taken from.

Has anyone been able to get around the fact that bank’s want to see proof that downpayment funds are available before they will make the loan?

#3

Re: Skirting Downpayment Requirement. - Posted by Geff

Posted by Geff on October 26, 1998 at 21:49:54:

You know what.?. If you are working with a lender (receiving a loan from them) there is no way to get around the downpayment. That’s just the way it is. The downpayment is pretty much dictated by the secondary mortgage market. Fannie Mae, Freddie Mac, FNMA, etc. set the standards that the lender must follow if he wants to get his loan sold on the secondary market. (which most lenders do)

Bottom line, you are going to have to come up with the necessary downpayment, or do some creative financing and have the current seller hold the mortgage.

Geff

#4

Re: Skirting Downpayment Requirement. - Posted by Jennifer(NH)

Posted by Jennifer(NH) on October 23, 1998 at 11:11:13:

If you’ve have funds in an IRA or a Mutual fund you could indicate that the funds were coming from there. I’ve done this and the lender didn’t require proof that the IRA or Mutual Fund was being liquidated.

Good Luck

#5

Re: Skirting Downpayment Requirement. - Posted by Ron

Posted by Ron on October 23, 1998 at 10:39:50:

I ran into that problem while purchasing the house I’m living in now. This is what we did. The seller provided me with a letter stating that I already had made a down payment to her some months before as part of a lease/option or lease/purchase agreement. It was a cash payment… no cancelled checks to produce. There may be other reasons why you’d have turned over money if the
L/O or L/P isn’t reasonable in your case. But this did work in ours.

#6

Not again! - Posted by John Behle

Posted by John Behle on October 23, 1998 at 15:06:58:

I really don’t want to visit this issue again, but, I will not be quiet when dangerous or illegal strategies are discussed. Any time you are trying to pull one over on the lender you are in the realm of “loan fraud”. Portraying an exchange of downpayment funds that did not take place is crossing the line.

I didn’t make the laws, so don’t get upset with me about it. Any false statement on a loan application to an instution that is in any way connected with the U.S. Government (about 98%), can result in as much as a million dollar fine, 30 years in jail and even forfeiture of the property.

Don’t play games with loan applications or the process - even if the loan officer, Realtor or someone else suggests it. It isn’t worth the risk. I know several that have gone to jail. Be as honest as possible in your dealings.

There are hundreds of ways to make profitable deals in real estate that do not involve deceiving lenders. If someone teaches it, they are wrong. If someone advocates it as the only way or best way to go, they are just naive and under-educated.

Sorry to be so blunt, but it must be said.

#7

Re: Not again! - Posted by Bill Gatten

Posted by Bill Gatten on October 31, 1998 at 14:39:28:

In response to Ron’s rather emotional plea, may I say that to skirt a lender’s requirement is one thing, but to come up with a legitimate way to get what you want, and still comply with it, is another. Having been in the banking, financing and real estate consulting business for many years, and having written several books on such issues, may I first reiterate Ron’s admonition, that defrauding a lender is serious business for sure, whether they are affiliated with the Government or not (its simply the difference between going to jail for “bank fraud” or going to jail for “government bank fraud” (and if its a GNAMAm FNMA, VA, FHA, or FHLMB loan, you got government insurance fraud to contend with as well).

Let me offer this, however(and I’ve done it at least 200 times and had it done 200 times): Simply ask the lender (the underwriter, or the lender’s representative) if a “Gift Letter” is acceptable. If so, find someone in your family who is willing to write the bank a certified letter on your behalf, indicating that they will in fact give you the money you need for your down payment…when it is needed. Just be certain that the donee’s bank account would support such a gift, in the event it were to be checked. When your Escrow closes, obviously the money won’t be needed and the donee is not at risk; but the letter is none the less authentic and legitimate and the bank is happy that they made the loan, their LTV ratio hasn’t been compromised, and that they haven’t been lied to, or had to lie to their investors. If your bank won’t accept a Gift Letter, just find one that will (a local mortgage broker can do that for you).

Sheeeeez! Relax a little, Ron, there’s a beautiful world out there in Creative Fiancing Land.

#8

Re: Not again! - Posted by Interested party

Posted by Interested party on October 24, 1998 at 23:39:10:

I was reading everyones responses and was intrigued by yours. So how would one get out of the situation legally if he does not have the funds but has come to an agreement with the seller.