A creative deal is this OK and legal?? - Posted by Karl

Posted by Mark-NC on January 24, 2000 at 15:05:12:

In the lenders eyes it’s not legal(fraud). In the sellers wallet it,s going to hurt him tax time. In the buyers perspective it,s “a good deal”.

It’s good to keep those creative jucies flowing though, don’t stop thinking.


A creative deal is this OK and legal?? - Posted by Karl

Posted by Karl on January 24, 2000 at 14:56:19:

Try this: I buy a house $100,000. I put down 10% ($10,000) and get a lender to loan me 90% I have the seller sign a IOU to me for $10,000. payable at closing or 1 day after. End result I bought the house No monet down! Is this good or bad.

How about this then? - Posted by GL

Posted by GL on January 24, 2000 at 17:08:56:

  1. Buyer purchases house for $100,000 with $90,000 first and $10,000 cash down

  2. Seller credits buyer with $10,000 abatement on closing for necessary repairs.

I have heard of this being done, but not for the full down payment.

Some would argue … - Posted by Michael Morrongiello

Posted by Michael Morrongiello on January 24, 2000 at 15:31:26:

If that lender made and approved that 90% LTV loan based upon you the buyer having 10% real equity and cash into the property But you have really circumvented that by having the seller return those funds to you and either taking back a 2nd lien mortgage or an unsecured IOU. Then you have created what is many times called a “Silent 2nd lien” mortgage. It is a 2nd lien created in a covert fashion as far as the 1st lien lender is concerned.

Is it legal? …Well I had an attorney in New Jersey once advise his clients to construct the sale of their property this way. When I uncovered what really went down and inquired of him he said that this was “creative financing…”

Myself and many lenders would call it something tantamount to LENDER FRAUD !!

I would not advocate doing a deal like this unless the 1st lien lender new of the 2nd lien and the fact that this was really a NO MONEY DOWN purchase with 100% financing.

Michael Morrongielllo