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.