Inflated sales price -not the way to go - Posted by Michael Morrongiello
Posted by Michael Morrongiello on February 18, 2001 at 14:00:13:
We have bought thousands of seller financed mortgages (trust deeds, contracts, etc.) over the years in just about every state in the Union including Hawaii and Alaska. We review, underwrite, and fund deals principally.
If one is selling a home that appraises for $100,000.00 (regardless of WHO appraises it) for in reality an inflated $107,200.00 sales price to a prospective buyer and then induces a note investor to come in and purchase the seller financed $90K 1st lien based upon the buyer having 10% “REAL EQUITY” into the property by virtue of their cash down payment, when in reality that buyer has NEGATIVE equity in the property, if this is NOT fully disclosed to the parties buying the paper then I would consider this scenario tantamount to committing lender fraud.
Additionally, very few investors in seller financed paper will look favorably upon buying a 1st lien note where the buyer has a property over encumbered with debt. They owe more against the home than the property is actually worth.
Down the road, when that debtor wakes up and trys to either sell or refinance their property and it dawns upon them that there is NO equity that exists in the property, there is little incentive for them to keep paying on the debt and often this is a prescription for default.
Depending on your marketplace when you sell property and offer to finance it, you SHOULD get TOP “Retail” dollar for your property as its sales price. However TOP DOLLAR does not mean an INFLATED “retail plus” sales price.
There are so many ways to make deals happen. I would cautiously consider putting together a deal that is not above board and “safe” for the payor on the mortgage(s), the property seller, and the note investor. To operate any other way “Your candle may burn bright for awhile, but it won’t burn very long…”
To your success,