Posted by StevenS(CPA) on July 24, 2007 at 20:19:01:
Can you email me how you do this. I am in a kind of same situation now. Any extra tips would be very helpful.
cash-back at closing - Posted by Holly
Posted by Holly on July 23, 2007 at 15:26:52:
While shopping for a house here in Denver, my husband and I can’t help noticing real estate ads on Craigslist and the newspaper classifieds with houses for sale with “cash-back at closing”. A RE broker family member from another state tells me those are illegal. Is this true? It shocks me sellers are getting away advertising something that can land us in jail! If it’s legal, how exactly does it work? I suppose it wouldn’t be a bad thing to pick up some cash buying a house.
Re: cash-back at closing - Posted by Matthew
Posted by Matthew on July 24, 2007 at 12:08:32:
Holly-
Let me save my associate by saying that essentially "cash back’ is a private agreement outside of the financing between the seller and buyer.
Re: cash-back at closing - Posted by James
Posted by James on July 24, 2007 at 05:38:50:
Holly,
You know, you could make millions suing those people in the news paper…with all those RESPA laws they’re breaking and I’m sure there’s a few state laws too…
Anyway, your broker friend has no idea what he’s talking about. It’s not illegal - usually. It’s illegal when it’s NOT included on the HUD statement.
Many of my end buyers get money at closing by me for moving in. Yes, I’m the reason the sub-prime market crashed. I get them a couple thousand to move in under ‘redecorating expenses’ and things like that.
I also give them 6 months free utility bills and a big frakin plasma TV too.
Someone pays the taxes on it though and it’s disclosed.
No breakin the law here my friend.
Why don’t you print this out for your buddy who knows it all? I’m sure he’ll have a good reason to why it’s still illegal - I’ll be laughing all the way to the bank…
James
Re: cash-back at closing - Posted by Holly
Posted by Holly on July 24, 2007 at 07:33:47:
So basically, this is coming out of the seller agent’s commission. I see. Thank you for your input, James.
Re: cash-back at closing - Posted by James
Posted by James on July 24, 2007 at 09:13:21:
Ummm…I didn’t say anything about that did I?
I’m only saying there ARE ways to LEGALLY (creative) get money out of a property when you buy.
It will (almost) ALWAYS depend on the appraisal vs. purchase price. Example:
Seller MUST have: $50,000
Buyer NEEDS: $3000 cash to move (has no down payment $$)
Appraisal of house: $75,000
Closing costs $4,000
20% Downpayment (80% mortgage)
50k + 4K + 3K = $57,000
20% downpayment = $13,000
TOTAL COST TO PURCHASE TO BUYER: $70,000
So, considering the numbers, this is an easy task.
Purchase price of house is now = to $70,000
Now, you’re going to wonder how in the world the seller has the 13,000 to use as the downpayment. Let’s just say some relative or business partner (me) ‘gives’/brings in that money for them. Problem solved - as I get the money back at closing.
Did I mention anything about the seller’s agent? Nope. It’s all a wash in the end and everyone is happy. There are creative ways to do these houses without screwing people all over the place.
James
PS - Your brother needs to call me. I’ll charge him $5,000 to teach him the ropes…it’s a little more detailed than this, but you get the idea.
PS - Everything is subject to the appraisal versus the seller’s ROCK BOTTOM price on the property. If I’m that seller, I’ll be happy to make 5-10k and sell a perfect house to someone who really needs it and can afford it.
Re: cash-back at closing - Posted by BigV
Posted by BigV on July 24, 2007 at 10:24:48:
“Let’s just say some relative or business partner (me) ‘gives’/brings in that money for them. Problem solved - as I get the money back at closing.”
Are you disclosing this subtle fact to the lender as well, James?
At any rate, I think you’ll have a hard time finding a lender that will consent to more than 6% cash-back
Re: cash-back at closing - Posted by James
Posted by James on July 24, 2007 at 13:06:27:
Everything is disclosed.
We put a ‘twist’ on the process that ensures the lender participation. Yes, they don’t love the terms, but thems the terms. I’m not going to disclose how we do this exactly, but everything is accounted for on the HUD.
Typically its only a few thousand dollars instead of the 3k I mentioned, but that was made for quick reference.
James
Re: cash-back at closing - Posted by BigV
Posted by BigV on July 25, 2007 at 07:44:58:
If the lender is OK with your setup, they probably don’t completely understand what you are doing.
Some people create LLC’s, which cloud the title and get paid off during the closing. These LLC’s, unknown to the lender, are actually buyer’s or other interested parties, so the buyer gets a cash back at closing through an LLC and it’s technically disclosed, BUT not in an honest way (in my opinion).