If you have the credit power to buy this at $200k, wouldn’t it be
simpler to go ahead and buy it at the $160 the seller is willing to
accept, and then, after you own it, take out a home equity line of
credit to pull out the $40K? Equity lender should be happy to do
that, especially if you agree to pay off your other debt at closing.
Just a thought.
OK, here is a clean way to ensure you get the excess funds from
the seller in the $200K purchase scenario: Before you buy, create
a loan to the seller for the $40K, secured against his property.
Use an entity other than your own name as lender on this loan, or
the new lender won’t touch this. You’ll (your entity) get payed off
the $40K from closing when you buy the prop.
I am assuming that the real value of the property is actually
$200K. If not, you would definitely be committing serious fraud,
IMHO. Beware of brokers that have appraisers that will inflate the
value. Yes, it happens, all too often.
What I would like to do is buy a home at approx. 70% LTV, and walk away with a check at closing.
Here are the numbers:
Appraised value: 200K
Price I can buy for 160K - from Seller
I wanted to buy this, and walk out with a check at closing for 40K basically to payoff some debts.
Here is what my mortgage broker proposes:
Purchase contract to reflect purchase price of 200K
Separate contract with seller so that Seller nets 160K.
This does not sound OK to me - based on past things I’ve read here, but I wanted to confirm with knowledgeable REI here. Thanks in advance.
The mortgage broker’s statement:
Here is what they told me:
In other words, the purchase contract must reflect that adjusted purchase price of $200,000 and an addendum stating that 3rd party will be brought in to facilitate the closing. We will have a separate set of contracts that state that seller will payback $$$ advanced to you plus the 3rd party fee from the loan proceeds, which otherwise will go to him if 3rd party is not brought in. We will calculate it so that seller nets $160,000.
Re: Creative vs. Something Different - Posted by StayingAnon
Posted by StayingAnon on February 19, 2004 at 23:36:28:
joe,
If you have a purchase contract for $200k and the property value is $200k, as long as you fully disclose to the lender that you will be receiving 20% of the purchase price, or $40k, from the seller after closing, you’ll be fine.
Good luck getting it funded.
If, however, the lender is presented with a stated purchase price of $200k, and they aren’t aware of an outside agreement providing you with $40k after funding, that falls in the realm of something different.
Most RE transactions involve two principal parties, a buyer and seller. When third parties are involved, as payees on a HUD-1, flags are likely to be raised.
Posted by B.L.Renfrow on February 19, 2004 at 15:51:33:
While I am no lawyer, I’m having a hard time seeing how what you describe would constitute fraud or anything unethical.
As long as the appraisal is not falsely inflated, and the property truly supports the $200k price, I don’t see a problem.
The seller is certainly free to do whatever he wants with his profit, including giving some of it to you after closing. That would be none of the lender’s concern.
Where these types of deals enter the realm of fraud is when there is an under-the-table agreement to forgive a second mortgage or something, or where the appraisal is jacked, or the borrower is providing false information to the lender.
I don’t see where any of those apply here.
Of course, you’d have to trust the seller that he’s really going to give you the money after closing and not take off for Bimini with it.
Again, no lawyer here, but just my 10 second opinion…
That happens all the time, but usually not for $40K. If the mortgage broker is open to that, then it’s ok. AS LONG AS THE HOME APPRAISES FOR THE ASKING PRICE!
Will the lender know about the" separate set of contracts that state that seller will payback $$$ advanced to you plus the 3rd party fee from the loan proceeds"
just curious… I would like to learn how to do this as well…
thanks
Jorge
Re: This loan doesn’t sound right to me… - Posted by Randy (SD)
Posted by Randy (SD) on February 19, 2004 at 11:21:28:
If the lender allows the third party fee, you have no problem. I am familiar with this type of transaction the key is that it comes out of the “sellers proceeds” much like any other debt. It cannot go to the buyer directly from the HUD 1 as that’s proceeds of the loan, but when it comes from the sellers net proceeds-that’s allowed.
You are right. I talked with another experienced REI, and they raised red flags also.
I think the key problem is the use of third-party hip-pocket deals - and the fact that things are agreed to be done after closing.
Doesn’t sound right to me - and I just told the mortgage broker I’m not interested - and won’t be interested in working with them in the future either.
Those are some of my concerns. I would absolutely not do it if it was not OK with the lender.
In this case, the Seller told me has has an appraisal done previously for the 200K price. I would likely have to do a new one - but have asked for a copy of the one done approx. 1 year ago after a remodel and upgrade - and he has agreed to get me the copy.
The issue of the Seller taking off with the money to
Bimini - hmmmmmmm - that is a big issue also!
If this is not done in the closing - but only “agreed on after” - how can I know that I will not now own a place worth 200K, with a 200K mortgage - but with no recourse to get my new equity “find” out?
Posted by B.L.Renfrow on February 19, 2004 at 18:13:59:
Is this really any different from the following situation?
Say you buy a car at the local Ford dealer for $20k. You have good credit, so you go to your bank and borrow the $20k, which is what the car is worth. Part of the deal is, the manufacturer or dealer agrees to give you a $2k rebate after you buy. You take title, they send you the check a few weeks later. Does the bank know? Doubtful? Do they care? Nope. What the dealer or carmaker does with its profit is its business.
So in your proposed deal, you’re simply getting a rebate from the seller. Any different? I don’t see how.
Posted by B.L.Renfrow on February 19, 2004 at 16:53:30:
I would be willing to bet that if the lender knows about it, they are going to back out. Typically, a lender will lend on the lower of appraisal or purchase price. If they see you are getting $40k back at closing, they are probably going to get very nervous and suspicious that you are trying to pull something on them.
By the way, the lender will order their own appraisal, so there’s no sense in you paying for another one now.
I still don’t think what you are proposing is improper…but as I say, if you are getting the cash back at closing, I’ll bet the lender is going to balk.
However, if it’s done AFTER closing, what business is it of the lender what the seller chooses to do with his profits?
If you do go this route, I’d be looking for a way to secure that $40k the seller has promised you. While he may well be on the up-and-up, the older I get, the more cynical I become, so I’d want it secured somehow…maybe a mortgage against other property belonging to the seller?
If you do go forward with this, please come back here and let us know what happens.
Re: would it be open for all to see though - Posted by Randy (SD)
Posted by Randy (SD) on February 19, 2004 at 15:40:16:
Jorge…long time no see. Properly structured yes the lender will have no problem with this. It’s important to understand with this is not something simply written on the sales contract but rather a separate set of contracts between the third party and the seller.