Buyin 0 Down, Repair Credit, Taxes - Posted by RalphKaz

Posted by RickG on August 27, 2003 at 20:52:23:

Ralph, first, for the record, it was not and is not currently my intention to accuse you of engaging in criminal or fraudulent activities. I wrote my previous comments and I write this reply with a sincere hope that you will carefully consider all potential ramifications of your actions should you proceed with the arrangment suggested by the buyer. Secondly, all comments are strictly my personal opinion and should not be construed as providing anyone legal advice or a legal opinion. I think you were wise to consult with a lawyer regarding this matter.

For a general article on criminal conspiracy please see:

If you are an experienced REI then you have no doubt developed contacts with the mortgage and finance industry and you should discuss with them what the ramifications of submitting false loan documents can be. Loan documents are commonly and routinely sold by the lendor and the subsequent buyer (often times the Federal Government or an entity financially supported by the Federal Government) will end up with the paper. Inflated house prices in which the amount of the loan was greater than the amount of money that actually changed hands between the buyer and seller is what led to the recent seasoning rules by the FHA and massive financial losses (which in turn has triggered heightened regulatory and enforcement activities). And yes I realize that you personally will not be submitting the loan application to the financial institution; however, do you want to potentially put yourself in a position where you might have to explain to a jury why you, a professional rehabber and REI, put one price on a legal document which you either knew, or should have known, would be submitted to a financial institution and then executed a second document for (in your words) “the sales price of $99k”? Why two different documents? Why couldn’t this arrangment be set out in full detail within the four corners of this one document? I don’t believe the fact that you do not sign the buyers loan application documents will completely insulate you from all future potential legal liabilities from this type of arrangement.

Do you really need to enter into this type of arrangment to sell your house? Just things you might want to think about… I wish you the best.

Buyin 0 Down, Repair Credit, Taxes - Posted by RalphKaz

Posted by RalphKaz on August 21, 2003 at 09:11:39:

I recently rehabbed a 2unit property and I’m selling it to another RE Investor. Sales price is $99k, but the buyers want to put $125k on the contract and have a seperate agreement to credit them $26k after closing. This way they can buy with no money down assuming the property will appraise accordingly. They want the $26k to be written up as a “repairs” credit.

My question - is the $26k fully tax deductible for me? I’m going to be forced to pay over 30% in short term capital gains on this property (profit will be around $45k before taxes) and don’t want to pay taxes on the additional $26k.

Does anyone have any idea’s how to minimize the capital gains tax on this rehab? I need to pull the money out to use it for a personal residence we are building, so lease options wouldn’t work. Can you 1031 into a personal residence - maybe if I titled the new house a certain way?

Thanks in advance for your help.

Re: Buyin 0 Down, Repair Credit, Taxes - Posted by River City

Posted by River City on August 27, 2003 at 13:58:52:

I agree with Rick. Are you prepared to commit fraud and suffer the consequences in the event you get caught? Most lenders have borrowers and sellers sign a statement indicating that there are no other financial agreements between them other than those disclosed to the lender. Committing fraud has severe penalties including money (around $10,000-$20,000) and imprisonment. You are not only committing fraud against the lender, but you are also committing fraud against the U.S. government. I would think more than twice about this. Do it and you might not need the new house. The tax payers might provide one for you. Be sure and post your shirt number once you get settled in your new “home.”

Oh yeah… your wife probably will not be your roommate.

Re: Buyin 0 Down, Repair Credit, Taxes - Posted by RickG

Posted by RickG on August 27, 2003 at 07:04:04:

So the buyers want you to conspire with them to submit false loan documents on this deal so that they can get 100% financing and no money down. Might want to rethink that one me thinks… or you run the risk of your personal residence being somewhere that is not very pleasant.

Re: Buyin 0 Down, Repair Credit, Taxes - Posted by Dave Murray, Ohio CPA

Posted by Dave Murray, Ohio CPA on August 21, 2003 at 14:02:09:

  1. Your realized amount at sale is $99,000. Thus you won’t pay tax on the $26,000.
  2. Based on your fact pattern, I see no way to reduce the tax you will owe. You cannot 1031 into a personal residence, regardless of title.

Re: Buyin 0 Down, Repair Credit, Taxes - Posted by DMD

Posted by DMD on August 27, 2003 at 14:24:32:


Your advice is generally good, but why with those unnecessary remarks? The original poster should get the point and appreciate your advice more without those remarks.

Re: Buyin 0 Down, Repair Credit, Taxes - Posted by RalphKaz

Posted by RalphKaz on August 27, 2003 at 14:34:28:

You guys bring up interesting points…

I’m currently having my attorney review all the paperwork - I’m curious what he will have to say.

I don’t understand how I would be committing fraud though? I’m not going to lie about anything, or sign anything that isn’t true. I wasn’t aware that as the seller I have to sign anything from the buyer’s bank.

I’ll post a follow up when I hear back from my attorney.

p.s. River City - your last few comments were totally tasteless and unnecessary.

Re: Buyin 0 Down, Repair Credit, Taxes - Posted by River City

Posted by River City on August 28, 2003 at 08:13:45:

I apologize if I appeared obnoxious. Although stated in jest, you really should think about the last few sentences, no matter how obnoxious they may seem, only because it could happen.

Yes, you would be breaking the law. And, the lender would not make the loan if they asked you to sign the document and you refused, because then they would know that there was another agreement that they needed to be aware of. You would be violating Title 18, US Code, Sec 1001.

Go to this website to read the code:

After reading the above code, read this one:

The last code is commonly referred to in the mortgage industry as the infamous 1010 language. Lenders take both codes very seriously.

As you can see, when committing fraud upon a lender, the government steps in, because, in the end, the government is involved in the loan, as the loan eventually ends up in the hands of FNMA, FHLMC, or GNMA, all government entities. Or, the loan could sit on a shelf in a bank or thrift, both of which are insured by a government entity, the FDIC.