Help -- Will this come back to bite me? - Posted by Robert Fraim

Posted by ken in sc on November 16, 2000 at 14:22:55:

Excellent discussion below - see “double contracting” post by Dan Simpson on 11/15/00.

Help – Will this come back to bite me? - Posted by Robert Fraim

Posted by Robert Fraim on November 16, 2000 at 13:31:31:

I’m trying to sell an investment property. Just got a call from an agent (the property is not presently listed, but he happened to know about it) who wants to present an offer. He’s coming by tomorrow (Friday, Nov. 17)

The buyer wants to inflate the selling price and have me take a second mortgage. Then after the deal closes I’m supposed to forgive the note. I haven’t seen all of the particulars and I’m not sure how they are going to
word the contract but that’s the basic idea. I’m sure this has to do with wanting to get a larger first mortgage and needing to improve his loan-to-value ratio.

I have two concerns:

  1. If the buyer ever defaulted and the bank had to foreclose, would they take the position that I had been involved in attempting to defraud them somehow – by creating an artificial price?

  2. Since I would be 1099’d for the higher (inflated) price when in fact I’d be getting less if I don’t collect on the note, how do I account for this for taxes? Normally, it seems to me, before you can write off a bad debt you
    have to show a reasonable attempt to collect it. If I just walk away from it and forgive the debt, I’ve really just given a gift to the guy, not taken a loss on a debt.

I’d be interested in any insights from those here who are certainly more experienced and expert than I. Thanks in advance for your help.


I?d ?walk? from this one. - Posted by SusanL.–FL

Posted by SusanL.–FL on November 17, 2000 at 11:52:11:

There is FAR too much $money$ to be made legally than to risk having your reputation smeared (or worse yet, serving jail time).

A couple years back I had one guy submit an offer on my duplex. He had inflated the purchase price then attached a separate addendum (for my eyes only) stating that I was to ?refund? the $difference to him at closing.

When it was clear that he wasn?t willing to correct ?the error of his ways?, I wrote VOID across his rather hefty deposit and returned the check with a note saying: ?Sorry we couldn?t come to terms?. Never heard another word from him.

Re: Help – Will this come back to bite me? - Posted by June Logan

Posted by June Logan on November 16, 2000 at 23:02:23:

I don’t understand how this would ever be approved by the lender anyway. They will want an appraisal and regardless of the selling price if it doesn’t appraise the deal doesn’t go through. Sounds to me like this so called realtor is new to the biz and is trying to scheme.

Re: Help – Will this come back to bite me? - Posted by PBoone

Posted by PBoone on November 16, 2000 at 19:40:04:

If you go the way as suggested by the realtor it would be very bad news for you!!! But if you agree to take back a second @ the agreed upon inflated price w/ no payments or interest for the duration payment due when buyer sells, then you would be ok.
Consider this, as it is done daily and legally by “non-profit” companies. The exception is the so called “non-profit” groups place a 12% interest on the second.

Re: Help – It Will Eat you alive - Posted by Ed Copp (OH)

Posted by Ed Copp (OH) on November 16, 2000 at 17:59:16:

What the seller is suggesting is MORTGAGE FRAUD.

What your REALTOR is suggesting is called conspiracy to commit MORTGAGE FRAUD.

What you will be involved in is called MORTGAGE FRAUD.

You be the judge (be lienient).

Re: Help – Will this come back to bite me? - Posted by JoeS

Posted by JoeS on November 16, 2000 at 17:00:12:

Yes, it will bite you, eat you and spit you out. Loan fraud all over this one. Unless the lender knows about all the details, and they can find out, you will be found guilty. Be very careful…find a GOOD real estate attorney and run everything by him. The small cost will be offset by less jail time!!!

Re: Help – Will this come back to bite me? - Posted by phil fernandez

Posted by phil fernandez on November 16, 2000 at 16:57:52:

My take on your scenario is the buyer who is defrauding the lender to get the loan to close on your property is definitely in trouble if he gets caught. The realtor who is suggesting this and knows whats taking place could at the minimum lose his license.

As far as your position as the seller, that’s a little more unclear. But if push came to shove and it is proven that you knew about the forgiven second you are really also trying to defraud the buyers lender.

Don’t go there and give the realtor the boot.

Re: Help – Will this come back to bite me? - Posted by Tim (Atlanta)

Posted by Tim (Atlanta) on November 16, 2000 at 14:27:18:

If the mortgage holder for the 1st mortgage is not informed of the forgivable second, it is lender fraud. Several investors here in Atlanta have done the same thing. When the mortgage company found out, they immediately called the loans due, foreclosed on the properties, and reported the investors to the authorities. The investors were fined $50,000 for each “forgivable second” they originated.

Be very careful. It could be you…