Posted by Linda Simms on July 29, 2003 at 10:41:42:
Sue. That last post was not mine. If you look you will see it was Brenda. Your explanations are confusing to me as I cannot tell who is going to get what and who is going to pay for it. What you are doing may or may not be OK. I am not familiar with Canadian law, but in the U.S. who gets what and how much of the mortgage funds go to the seller or any that go to the buyer without full disclosure to the mortgage lender can be construed as fraud and illegal. If it is the case that you as the buyer are going to end up with any of the lending institutions funds, without their knowledge, I would say it’s taking too much of a chance — and I say the same thing to Lyal.
Hi, sue here.
I’m buying a house through a mtg broker, I’m inflating what the seller wants by 10% so that I can get 100% financing. The house is in a beautiful location and would appraise up. The seller wants to get back what he put into the house because he had to relocate after he bought the house. The seller only occupied the house for 2 months. I helped him out of a scrape as he had lost his job and could not keep up the mtg. payments. I have been here on a lease option in this house for 2+ yrs. This is a great person and we’d be helping each other out. Is there anything wrong with this arrangement. What is the problem if everyone is getting paid. I feel its illegal, but what harm is there in this.
sue
From what you say, I think there may be a LEGITIMATE way to go here.
If you were on a lease option for two years, could you make the statement with a straight face that you paid MORE than market rent? And that the additional amount you paid each month was a build-up of your down-payment funds to the seller, saved up in advance?
Under such circumstances, there are probably lenders who will gladly loan you the money for a 90% loan amount, your 10% down payment already paid out to the seller.
Re: 100% bank financing-Question Sue? - Posted by Linda Simms
Posted by Linda Simms on July 26, 2003 at 19:52:55:
Sue. Before I belabor Lyal again, rightly or wrongly, we need some more details. Who is going to get the funds from the 10 % you are inflating? Will the contract price include the amount of the 10% inflation. Will the mortgage company be aware of the actual price including the 10% inflation and will that amount or some multiple thereof be borrowed from the mortgage company, with or without their knowledge of the actual facts? Or are your just agreeing to a higher purchase price by 10% and writing the contract on the higher price? Will you get any of the excess funds? Thanks. Linda.
Sue, Linda is right? that may be considered loan fraud (in the manor you described your intentions). You answered your own question when you wrote ?I FEEL its ILLEGAL?. There are legitimate way?s to get 100% financing, email me offline if you wish.
Linda,
How do you get “Federal Fraud” out of this? If the house honestly appraises high enough, the documents state the actual price (whether it’s 10% more than what was originally planned or not), and there is no “silent second” mortgage that is quietly forgiven after the sale, ie: no concealed agreement and everything is disclosed to all parties, there is no problem here.
Lyal
Posted by Linda Simms on July 25, 2003 at 09:03:54:
This is the kind of convoluted thinking that led to several mortgage scandles several years ago by inflating prices and appraisals that put a number of people in Jail. If the higher price of the house is valid and is on the contract and it will appraise for that and the mortgage company will loan the required amount, you probably have a vaild deal with no intent to defraud. However the close relationship between the Mortgage Broker the seller and the buyer described and who gets what part of the funds, may make it questionable. The devil may be in the details and the details are not stated. Careful!
James,
Yep, I agree it’s rare. I have been able to find a lender (small local bank) that I’ve been working with for the past year or so who will lend 80% of appraisal regardless of purchase price. I’ve walked out of each closing with some cash. Won’t last forever, I know and all my deals are now subject to the next level of review because of the volume I’ve done, but it’s fun while it lasts.
All the best, Lyal
Linda,
I just re-read my post. Nothing convoluted at all in what I said. If everything is disclosed and the property will honestly appraise at the value, there is no fraud, especially “Federal” fraud which would be limited to mistatements to obtain funding via a federally funded or guaranteed program.
If you are an attorney, and can give us statutes or some case law, please do. Otherwise, please knock off the Chicken Little routine, Next you’ll be telling us that flipping is illegal.
Lyal
Posted by Linda Simms on July 25, 2003 at 14:03:21:
LYal. If you can’t understand it, go right ahead, be my guest. I just telling you my opinion, as an investors with over 25 years experience. Prudence I am, chicken little I am not. Let us know the visiting hours!
Linda,
I don’t want to draw this out any more but Randy doesn’t offer any specifics or reasons. “It might be illegal” doesn’t mean much to me any more than your “Federal Fraud” comment without something to back it up. Granted I don’t have the experience you do but I’ve done similar transactions using the most reputable title company in the area and they have no problem with it (no smirk and wink there either). The are absolute “straight arrows” and would not be associated with any transaction that was even the least bit across the line of ethical or illegal behavior.
Can you point me to any case law that supports your statement?
Lyal
Linda, hi, Sue here to answer your questions. The 10% funds are going to the seller. He actually did have work done on the house that cost roughly that amount of money. He only lived in the house for 2 months, lost his job and had to move away fast(could’nt pay the mtg). I don’t have the 10% downpayment. I suppose I could have gotten the house for what he purchased it for but I don’t think I would have qualified. Initially, the seller and I agreed that he would give me a letter of having paid up faithfully and having been on time with the payments. I took care of all the maintenance expenses as well as property and water tax plus fire insurance. I am writing the contract for the higher price minus the 10%. When the 10% comes off, there will be just enough for the seller to pay off the old mtg and whats left over will be his out of pocket money which he can then put back into his pocket. I will have(hopefully) created a new mtg. The house will appraise up because I have done some fix-up myself. Ultimately, I have got to pay that money back, I live in Canada where it’s very hard to do business with the banks, if your small potatoes, they frown upon landlords or landladys investing in realestate. If you have rental income of $1000.00 they will only give you $500.00 of that income. The bank says it’s not dependable income(what a crock). I don’t wish to defraud anyone but I have found that I’ve got to make my own luck. I will not get any money in pocket from this sale but I do intend to sell it again by whatever means will get me a paycheque on the back end. Who is being left holding the bag here. I don’t think there is anyone. Thanks for responding.
Sue
Re: 100% bank financing–P.S. - Posted by Linda Simms
Posted by Linda Simms on July 28, 2003 at 14:08:40:
Sue. I think I understand that you are just increasing the contract price by 10% and the seller gets all the net proceeds? How will doing this get you 100% financing, since you say you have no down payment money? If the lender lends on the contract amount, will he lend 100% of the increased contract price?
Hi Linda. I’ll try and explain; the seller bought the house for 170,000 put 20k downpayment so that leaves the seller owing the bank 150k plus he did upgrades to the house for 10k+, this amounts to a total of 30k out of pocket. The seller is selling the house to me for the same price he paid for it, so I’ll go to the mtg company with the price tag on the house at approx 205k I’m saying to the mtg people that I need a mtg of 185k or thereabouts which will be 90% of the asking price. That will give the seller his origional out of pocket money back. If he had to make a quick sale after just buying the house, he would have lost out on some of his money. Now, I know I could have squeezed him out of his money, but that is not kosher. The way I see it is I’ll be paying back the money I’m getting from the mtg company eventually. Please forgive me if I appear bold but I am a woman alone in the jungle trying to survive. I have no money but I have galvanized testicles(a successful real estate investor said that to me once). Believe you me, the banks will not lose out. Within reason, I set my own rules, I have to. I really don’t see that I’m hurting anyone or weaseling any money from any person. Linda, I hope I’ve explained it so that it makes some sense to you. Please reply back as I am interested to hear the pros and cons. I really, at this point, don’t know any other way to effect this mtg for myself. thanks Linda.
Regards
Sue
Galvanized testicles! I knew I was missing something. This is very interesting, I’d like to see where it goes… it seems a little like weasling out of the 10% down usually required by lenders, and if there isn’t anything wrong with it, why isn’t everyone doing it to get out of an out-of-pocket 10% down payment? Banks dont’even want you to borrow for a down payment, such as, on a credit card. Wouldn’t a lender check this out?