Giving Seller huge money back after short sale - Posted by Brian_wa

Posted by lukeNC on June 26, 2007 at 17:28:32:

why I’m still commenting on this… I dont even do short sales…still dont think its fraud but whatever…

What a waste of time…

Whew!

Giving Seller huge money back after short sale - Posted by Brian_wa

Posted by Brian_wa on June 25, 2007 at 18:59:27:

A seller recently contacted me with a house in default. House is worth about 350k. He owes about 245k and would like to get 50k in cash from the sale. I wouldn’t mind buying it such that he would get 50k. However, the house needs some work and I believe that I could get the lender to do a short sale at the price of somewhere close to 225k. This would save me about 25k. The lender is BECU.

What I would like to know is how to go about giving him this 50k gracefully. Any idea?

Brian

Re: Giving Seller huge money back after short sale - Posted by WAREIA

Posted by WAREIA on July 01, 2007 at 17:33:02:

Here is a list of four things you cannot do that were recently published in recent Mortgage Lenders Association article and interiew with the FBI, or it is loan fraud.

  1. Giving ANY money back to the Seller without Lender permission.
  2. The placing of a second lien on the property and then having it forgiven after the sale.
  3. The use and or creation of “allowances” to facilitate the Buyer receiving ANY Funds back at or after closing.
  4. ANY WAY you can think of to “go around”, such as an “Invoice” etc, that the Lender did not give permission for the End Buyer to receive at or after the closing.

Re: Giving Seller huge money back after short sale - Posted by Brian_wa

Posted by Brian_wa on June 27, 2007 at 08:39:38:

thank you all for your input. I have decided to not do the short sale and will find a way to buy from him and give him what he wants. 50k is just too much too hide.

Btw, what would be a reasonably high limit that you would give a seller after a short sale? Some balked at $3k so I want to give them more but would like to find a reasonable way of doing it.

Brian

Re: Giving Seller huge money back after short sale - Posted by John Corey

Posted by John Corey on June 26, 2007 at 16:57:16:

It is it not clear by now…

Mortgage fraud is very much an issue here. If you cross the line then it
can mean jail time as they take mortgage fraud pretty seriously. FBI
likes to poke around. You can not do many deals from jail.

Paying the borrower is generally a no-no. If you get to closing and are
asked to sign are you really going to read everything to make sure the
lender’s documents do not ask?

The borrower messed up and they are not going to get $50K to walk.

Some folks do teach that you can buy a personal item off the seller for
a price that somehow happens to be worth more than the item might
fetch if you were not doing the deal. Technically a violation but much
harder to prove if the payment is close to reasonable. $50K implies
you are buying the person’s car, boat, first born or other things of
value and the value should be obvious.

There is very little room to do the deal legally. Even if you could do so
the possibility that the deal blows up if there is a late change says it
could be a big waste of your time.

There are folks who will offer you 15% of their cash if you help wash it
a few times. Mortgage fraud is in the same category. If the money is
sent electronically there can be further charges that are federal in
nature. Why waste the time and take the risk if you have good deal
flow?

John Corey

I Had To Jump In - Posted by phil fernandez

Posted by phil fernandez on June 26, 2007 at 15:18:10:

Let’s see, about 30 responses. 30 say it’s fraud. 0 say it isn’t. If it smells like fraud, feels like fraud and looks like fraud, I’d definitely say it’s fraud. This one is a no brainer. It is definitely fraud.

You better ask the bank if it is ok to kick back $50,000 to the deadbeat seller. Wonder what their answer will be. And you got some heavy hitters here like michaela, JT and others giving you the skinny.

Re: - Posted by Carey_PA

Posted by Carey_PA on June 26, 2007 at 12:01:09:

That sounds like bank fraud to me. If the lender is willing to do a shortsale the seller can not make a PENNY.

Carey

Re: Giving Seller huge money back after short sale - Posted by Penny

Posted by Penny on June 26, 2007 at 10:47:34:

If my math is correct, $350k - $245k is $105k minus repairs of $5k (let’s say $15k to be conservative). So he has $90k equity minus any other amounts associated with the default minus costs of selling.

Seems like the seller would get his $50k plus maybe more by just selling the place himself or through a realtor. And possibly save his credit.

But that doesn’t leave much of a deal for an investor. So maybe another answer to your question is to gracefully walk away.

Re: Giving Seller huge money back after short sale - Posted by lukeNC

Posted by lukeNC on June 26, 2007 at 03:57:31:

has the bank stated that the seller cannot profit from the deal? Make sure of that first, sometimes the bank will accept a discounted payoff and not care if the HUD shows a profit going to the seller.

You may be pleasantly surprised.

Re: Giving Seller huge money back after short sale - Posted by Jen

Posted by Jen on June 25, 2007 at 20:39:51:

40k as a cash discount in a brown paper bag.

Re: Giving Seller huge money back after short sale - Posted by Rich-CA

Posted by Rich-CA on June 25, 2007 at 20:07:59:

If you defraud a bank or engage in an illegal kickback to the seller at the bank’s expense (i.e., they grant a short sale and you pay more than the difference back to the seller), the word for it is fraud. Be aware that for fraud, jail time is a very real possibility.

Re: Giving Seller huge money back after short sale - Posted by vacationlover

Posted by vacationlover on June 25, 2007 at 19:51:16:

Sorry this seller thinks he needs to graft $50K from the deal after he’s defaulted. Run into this all the time. Answer to him that the bank WILL NOT accept him receiving anything and that doing so IS ILLEGAL.

vacationlover

Re: Giving Seller huge money back after short sale - Posted by michaela-CA

Posted by michaela-CA on June 25, 2007 at 19:34:09:

Brian,
is that really a deal, that you would want to do? Let’s say the bank takes 225K and you put 25K in it and give the seller 50K. Now you’re at 300K for a house worth maybe 350K. You’re at 86%. Doesn’t sound like much of a deal, not even considering that there’s some murky water with the cash back.

Michaela

Re: Giving Seller huge money back after short sale - Posted by IB (NJ)

Posted by IB (NJ) on June 25, 2007 at 19:32:59:

I like brandon’s idea, except it may not be legal. Instead, use his idea and buy the property from the seller (subject approval to the SS) without giving the seller a dime. After the sale, give the owner a mortgage which will be paid off (like brandone suggested) AFTER you sell the place. Not sure if it’s legal so check with your attorney. Don’t want to be accused of defrauding banks later one.

Re: Giving Seller huge money back after short sale - Posted by brandoncbsre

Posted by brandoncbsre on June 25, 2007 at 19:11:38:

By “gracefully” I guess you mean without the bank knowing it, because they would not like that at all. Anyway, I believe in not making the seller’s problem my problem. So with that in mind I would not give him his money until the house is flipped and you get your profit. You could draft an agreement aside from your short/sale purchase agreement that gives you any profit over and above the $50,000 and protects the money that you put in as well. Still not legal I assume.

Re: Giving Seller huge money back after short sale - Posted by Carey_PA

Posted by Carey_PA on June 27, 2007 at 19:37:33:

Brian,

The reasonable amount that I would give a seller after a short sale is ZERO. But that’s just me.

I mean I’m all for trying to give the seller as much money as possible, I even feel weird when I make more on a deal than the seller, BUT when I know the bank is ok’ing a shortsale on the pretense that the seller makes NOTHING well that makes feel obligated to give the seller NOTHING.

Carey_PA

Re: Giving Seller huge money back after short sale - Posted by Dave T

Posted by Dave T on June 27, 2007 at 17:42:33:

Look at your numbers again. You say the loan balance is $245K while the house comps at $350K. There is more than $100K equity in the property. Even though you believed the lender would accept $225K in a short sale, I have my doubts that a short sale would even be considered with this much equity left in the property.

With that said, you seem willing to invest $275K to purchase this property – $225K to the lender and $50K to the seller. If you still want to buy this property for $275K, why not just buy outright for $275K?

The seller’s loan is paid in full and there is $30K left over for the seller. You have an above board transaction with no hint of loan fraud. The lender is happy when the loan is paid in full. The seller gets $30K walking away money. You get a property with $75K equity that you may be able to repair and flip for a $50K profit.

If believe you can get the lender to accept a short sale for $225K, and you are still set on giving the seller something like $3K, then offer to pay the seller’s moving cost up to $3K – paid directly to the moving company.

You got good advice … - Posted by Frank Chin

Posted by Frank Chin on June 27, 2007 at 09:52:51:

Brian:

I read throught all the advice given, and I’m amazed how ethical everyone here is.

Often, two parties are engaged in a transaction, at the expense of a third. Best example is a favorite waiter putting down two drinks on the tab when you in fact had four expecting a bigger tip. The right way is the boss knows about it, and the waiter say to you “can I buy you one”?? That’s full disclosure. Wrong way is to tell you "I forgot to include the last two (wink wink).

I was engaged in debt settlement for a large company where I had authority to settle debts, pretty much like a short sale. A 50K debt can be settled for “zero percent” if I can present a good story to management. Unfortuantely word got out that I was the one suthorized. Management told me they would like to see 75% payments where possible.

One enterprising chap as I recall had a 50K debt that he wanted to settle for 50%, and I said NO. So he offered to pay me 25K in cash, and it’s entirely up to me to go buy a money order and apply to his account.

The way he explained he scheme is since he heard I can settle at “zero” percent, I can keep all of the money he gave me just by giving management a good story, and as long as he doesn’t have to pay anymore, he’s OK with it, and he’ll back whatever story I made up. All he needed from me is put in writing that his account is settled in full, which I was authorized to do.

Or I can play the “good honest guy” if I wanted to, put the whole 25K on his account. Or I can apply anything in between, say, put 10K on his account, keep 15K for myself.

Brian, I wonder what you would do??

This ia apart from the legality or illegality of it. It’s hard to prove unless I or someone open his big mouth.

The issue for me then was, do I want to start doing stuff like that??

That’s why I see posts here from people frustated dealing in short sales, and REO’s, and I can see it from the banker’s side. The banker, in cohoots with an investor, or a lazy banker, or a stupid one, can say “OK I’ll take 200K for that 250K loan becuase I like your story”. Do that day in a day out, and not many banks can stay in business.

So the better way for the bank sometimes is to just let the house rot.

Frank Chin

Re: Giving Seller huge money back after short sale - Posted by lukeNC

Posted by lukeNC on June 27, 2007 at 09:41:46:

Are you sure the lender even cares? I posted earlier that many times a lender will just discount a bad loan to get it closed and off the books.

On a short sale deal where the borrower cannot make any money, the most I’ve ever given is $100. Maybe $500 is as high as I would ever go.

Re: Giving Seller huge money back after short sale - Posted by Brian_wa

Posted by Brian_wa on June 26, 2007 at 11:00:38:

I’m not the type who would walk away from a deal like this. I have people who I can flip this to quickly and make some good amount of money. However, I would like to see what can be done where I could make more money…

Brian