Shared Top Border
sdcia_head3.jpg (14795 bytes)
SDCIA Message Board
Register Latest Topics
 
 
 


Reply
  Author   Comment  
Tony

Avatar / Picture

Junior Member
Registered:
Posts: 31
Reply with quote  #1 

An investor (buyer) overbid a residential listing of mine by $95,000 and then asked in the purchase agreement that the Seller credit him back the $95,000 at close of escrow. His agent claims that the $95,000 is to be used to re-hab the property once in his possession.  Our brokerage's legal council cautioned me that this was possibly a scam.  Has anyone on SDCIA run across this particular scenario?  I would appreciate any feedback you could send my way.

mike

Senior Member
Registered:
Posts: 607
Reply with quote  #2 
Quote:
Originally Posted by Tony

An investor (buyer) overbid a residential listing of mine by $95,000 and then asked in the purchase agreement that the Seller credit him back the $95,000 at close of escrow. His agent claims that the $95,000 is to be used to re-hab the property once in his possession.  Our brokerage's legal council cautioned me that this was possibly a scam.  Has anyone on SDCIA run across this particular scenario?  I would appreciate any feedback you could send my way.

It sounds like loan fraud. the lender thinks the house (assuming it somehow passes appraisal) is worth 95k more than it is. The buyer is basically doing a cashout refi type of thing, but not telling the lender. I do not know if it could work as how do they get the appraisal? Not unless they will get a buddy to do it somehow. Sounds like a scan that is not completely thought out as there seems to be too many variables to get a hold of or it's a really good scam team...

Mike

 

sdlocal619

Senior Member
Registered:
Posts: 520
Reply with quote  #3 

Mortgage Fraud is what it is. This was happening quite a bit back in the good years, but they are cracking down on it. I've heard they come down on the buyers, who get that money back, but also go after the seller if they find they were "willing" to do it, i.e. they knew you were "helping out".  Dont do it, could get ya in big trouble.

dansimo

Avatar / Picture

Senior Member
Registered:
Posts: 623
Reply with quote  #4 
Even if they do get a pocket appraisal, how does the inflated appraisal get through underwriting?

I assume at a lower amount it may not be a red flag, but $95k?


__________________

"The harder I work, the luckier I get"
rlc

Senior Member
Registered:
Posts: 1,084
Reply with quote  #5 

Any reputable lender will see this as a joke. They will discount the purchase price buy the "credit by the seller". Net result, the before inflated price to lend on.

 

Now, this is Southern California. Possibly it could happen in Kansas or Tennessee. 

dansimo

Avatar / Picture

Senior Member
Registered:
Posts: 623
Reply with quote  #6 
my question was more along the lines of:

I know this happens. I know some people that have done it on both sides, buyer and seller.
So, my question was specifically to those in lending or knowledgable about lenders/underwriting that know how this could happen?


__________________

"The harder I work, the luckier I get"
rlc

Senior Member
Registered:
Posts: 1,084
Reply with quote  #7 

Bottom line, NO, in Southern CA it doesn't happen.

 

However, it depends on where you go for the loan. If the lender is a "banker" and in need of flow, you might get this by. But 99.99999999999 %. I don't think so. But, you can always give it a try!

 

(you know, maybe I should have been a attorney)

BenJones

Junior Member
Registered:
Posts: 32
Reply with quote  #8 

It's one of the oldest scams in the book and, yes, it happens all the time - even in CA.  The cash back is put in a "side agreement" or "addendum" that is never disclosed to anyone.

The result is that the lender is fraudulently induced into over-financing the property.  All parties would be considered complicit, including the seller, of violating federal law.

 

http://www.usdoj.gov/usao/eousa/foia_reading_room/usam/title9/crm00814.htm

Tony

Avatar / Picture

Junior Member
Registered:
Posts: 31
Reply with quote  #9 

Thanks to all who replied ... your information was tremendously helpful.

FYI ... the lender involved rescinded their offer to loan the money. 

They claimed that too many people were asking too many questions about the deal.  Go figure!

biophase

Senior Member
Registered:
Posts: 332
Reply with quote  #10 

In your original post you said that this $95k cash back was written in the contract right?  If so, the lender would be aware of it.

 

I think that $95k is a little too much to be asking for.  They are many lenders that will allow up to 6% cashback at closing.  So if this were a $500k house, the buyer could still get $30k back at closing legally.

taddyangle

Avatar / Picture

Senior Member
Registered:
Posts: 2,044
Reply with quote  #11 

Google real estate cash back scam. 

 

 

Cash Back at Closing: Appealing Arrangement or Sinister Scam
by Ralph Roberts

Cash back deals are stitched into the very fabric of the U.S. economy. Manufacturers promote their products with cash rebates. Credit card companies offer cash-back on purchases. Even banks dangle cash-back deals to attract new customers. Now, home buyers and con artists are jumping on the cash-back bandwagon, and plenty of our own people -- real estate professionals -- are tripping over themselves to cater to them.

On its surface, cash back at closing seems like a win-win situation. The buyer simply pays a little more for a property than it's worth, and the seller agrees to kick back the surplus cash to the buyer.

For buyers, it can be a savvy financial move, allowing them to pay off outstanding credit card debt or use the extra cash for home repairs and renovations. The seller unloads his house at close to or better than his asking price. The real estate agent gets a bigger commission. The loan officer chalks up another successful loan. And the lender scores a larger loan and stands to earn more interest over the life of the loan. If anything seemed like a win-win situation, cash back at closing is it!

Unfortunately, as with most deals that seem too good to be true, cash back at closing schemes are just another way of scamming someone -- in this case, the lender, who's fooled into making a risky loan.

But lenders aren't the only losers. Buyers are often tricked into buying more house than they can afford. Housing values in the area are artificially inflated, making housing less affordable and raising property taxes. Honest real estate agents lose business to dishonest agents who offer cash back deals. And neighborhoods begin to buckle when homeowners default on the inflated loans and their properties end up in foreclosure. Perhaps that's why cash back at closing schemes are illegal.

Illegal?! Yep.

When I tell colleagues that cash back at closing schemes are illegal, a surprising number of them are incredulous. Agents frequently approach me and describe cash back deals that they were convinced were legitimate.

I was recently talking with a top selling agent in Florida who listed a house for $600,000. A broker who wasn't from the area had a buyer interested in purchasing the property. Although the broker and buyer had never seen the property, they submitted an offer of $695,000 -- $95,000 more than the asking price! The only hitch was that the buyer wanted the seller to kick back the extra $95,000 to the buyer at closing. The seller just wanted to sell the house, so he had no problem with it. When the agent asked what I thought, I immediately recognized the scam and informed her that the deal was illegal. She explained that the seller really needed to sell the house and that the seller's attorney had informed the seller that nothing was wrong with such a transaction. Unfortunately, the lawyer was under-informed.

The law that governs these transactions is referenced on the 1003, Uniform Residential Loan Application, that every buyer signs when he applies for a loan--Title 18, United States Code, Section 1001. It's part of the small print that lawyers always tell you to read closely before signing anything. To paraphrase Title 18, section 1001, you can't lie on a loan application or any other document related to the transaction. When a buyer, appraiser, agent, loan officer, or another party provides a false statement of the property's value on the 1003 or any other document, they're lying. They're breaking the law.

As real estate professionals, our job is to know the law, act in accordance with it, and abort any deals designed to dupe anyone involved in the transaction. That means we have to shut down cash back at closing scams before they close. The warning signs are readily evident:

  • The buyer places an offer on the property that's significantly more than the asking price on the condition that the seller kicks back all or some of the extra money.

  • The appraisal is obviously inflated.

  • Neither the buyer nor the buyer's agent has ever seen the property.

  • The buyer wants to use a different title company than the one that the seller's agent has chosen.

  • The buyer or buyer's agent claims that the extra money will be used for home repairs or renovations or paid to a contracting company to handle the repairs or renovations.

The logistics of cash back at closing scams vary, so the warning signs tend to morph over time, but the underlying law that's being broken remains the same. According to real estate lawyer, Rachel Dollar, "Whether it be through seller kickbacks, inflated purchase prices or 'repair' costs, the common thread in these deals is that the lender is not informed of the true nature of the transaction."

Whenever the lender is not informed, in writing, of the true nature of the transaction, the transaction is illegal. And if you go along with the scheme, you become an accomplice, subject to prosecution. So, what should you do when you smell something fishy?

Put a stop to it! Inform all parties that cash back at closing schemes are illegal, and then call the lender immediately. The lender's phone number is on the closing papers, and, believe me, they'll be eager to hear of any pending deals that call for them to loan more money than a property is worth.


__________________
------
rlc

Senior Member
Registered:
Posts: 1,084
Reply with quote  #12 

Lets throw a curve in here.

 

What if the buyer is paying fair market value with a 100% loan, yet the seller (in trouble and wants a quick out) has agreed to sell at below market (lets say 85%) House is worth $600,000.

Seller gives buyer $90,000 back. Not on Hud-1. As to the lender, he has lent 111%. Fraud? I still think so. Lender never intended buyer to receive cashback and never intended to lend purchase money (net) to 111%

 

Thoughts?

dansimo

Avatar / Picture

Senior Member
Registered:
Posts: 623
Reply with quote  #13 
not necessarily arguing the issue of legality but just your example:

doesn't the fact that the fmv is $600k make the 111% not accurate...or does the lender then see the fmv as only $510k (the 85%)?


__________________

"The harder I work, the luckier I get"
rlc

Senior Member
Registered:
Posts: 1,084
Reply with quote  #14 

Lenders normally lend on FMV or purchase price; whichever is lower.

Previous Topic | Next Topic
Print
Reply

Quick Navigation:

Easily create a Forum Website with Website Toolbox.

Policy