How does this one sound? - Posted by Doug Pretorius

Posted by JPiper on May 21, 2000 at 23:41:55:


I answered your post up above.


How does this one sound? - Posted by Doug Pretorius

Posted by Doug Pretorius on May 20, 2000 at 20:32:14:

Triplex 2-2br 1-1br
Appraisal: $54,000
List price: $52,000
Seller willing to rebate $12,000 at closing for fix-up.
Required fixup more like $1,000, if you even want to bother.
The tenants are low end, but have been there for at least 6 years each.
Cashflow after expenses and financing at $52,000, is about $500/month.

Offer as suggested by listing agent:

$52,000 purchase price.
15% down ($7,800)
10% seller 2nd ($5,200)
New 75% 1st ($39,000)
Seller gets $34,800 cash after rebate ($27,000 from 1st plus down.)
I’ll get $12,000 cashback, leaving me with $4,200 minus about $1,000 closing costs.

Re: How does this one sound? - Posted by JPiper

Posted by JPiper on May 21, 2000 at 21:33:51:

Hello JB?glad to see you around again.

Guess it goes without saying that you?re my hero?.$650 in closing costs huh? I?m looking at a settlement statement now?.let me see now?..$1000 origination fee (1point), $50 credit report, $25 flood certification, $60 tax service, $395 prepaid interest, $339 insurance policy, $85 insurance reserve, mortgage insurance reserve $76, county property taxes reserve $734, closing fee $225, lenders title policy $190, recording the deed $69, pest inspection $50, appraisal fee $350, oops, what?s this?$495 underwriting fee. Dang?looking back over this list, the property tax reserve alone was more than your closing costs! I didn?t add these closing costs up?but I believe they?re something like $3500. I don?t find that particularly unusual. What I would find unusual is $650. I suppose you?re now going to tell me the rate on that loan you closed for $650 was 7%??

Now on to your comments on this fraud thing. In the above example Doug had $12K rebate from the seller?amounting to something like 30% of the loan amount. I think both you and I know that the lender would have a problem with this IF they knew about it. The essence of the question that you?re asking seems to me to be ?If I bury this ?detail? in a clause somewhere in the contract, and the lender doesn?t notice and doesn?t have me sign something, would it be fraud?? Beats me JB?I?m not a lawyer. You might be right. Of course, it can?t show up on the closing statement either. It has to be a condition of the contract that is performed AFTER the closing to complete the subterfuge. Can?t answer this one?.I?d want to ask a good criminal lawyer?.lol. Most of the loans I?ve seen DO require something to be signed at closing?and depending on what that was would drive the answer to the question. But again, I?d want to talk to a very good lawyer about this. The penalty for fraud is very severe.


Re: How does this one sound? - Posted by JPiper

Posted by JPiper on May 21, 2000 at 09:14:13:

Sounds great the way you presented it?.but I doubt that you gave us all the facts.

First, is the lender aware of this $12,000 rebate by the seller? Is it in writing in the contract? If not, this would be loan fraud in my opinion. And I would be surprised if a lender would approve a seller contribution of $12,000 to the buyer. Make sure you?re not just taking the assurance of a mortgage broker, loan officer, or realtor regarding this. The $12K rebate needs to be in the contract.

Second, you say that the triplex has $500 in cash flow after repairs and expenses and debt service. What you don?t say is what the gross rent is, or how you arrived at your expenses. You also don?t give payments on the two notes that you will have. Call me crazy, but I?ll bet you are not considering all the expenses in arriving at this figure of $500. As a side note, low end properties typically have high expenses.

Only $1000 in closing costs??? I don?t know any lenders who will do a deal for $1000, let alone all of your costs amount to that.

Not trying to rain on your parade. Just don?t think you provided enough information to have a solid opinion.


Re: How does this one sound? - Posted by Laure

Posted by Laure on May 21, 2000 at 08:16:00:

DOUG ! GRAB IT ! You don’t steal in slow motion ! (Lonnie Scruggs) My concern is how bad is the neighborhood? but hey, my best money makers are in so-so neighborhoods. The nice rental houses are for my ego, and not my best cash flow, although appreciation is best in the nicer houses.

Sounds like good cash flow. I am guessing there are some hidden repairs if seller is going to give you 12k back. Maybe a roof coming? I don’t usually recommend taking cash out, but rather have a lower mortgage, but perhaps you should take it, because there just might be a roof problem lurking waiting to strike !

Go get 'em Tiger !

Laure :slight_smile:

Re: How does this one sound? - Posted by JohnBoy

Posted by JohnBoy on May 22, 2000 at 24:38:08:

Mine had no origination fee, no points, no credit report fee, no flood (wasn’t needed), no tax service, no pre-paid interest (first payment due 30 days from date of closing), no reserves, no tax escrow (we pay our own, lender does not escrow taxes), no closing fee (we closed at the lenders office), and no underwriting fee.

Our costs were for title search, recording and appraisal. We did pay the insurance ourselves, so that wasn’t in the closing costs. So after including that cost it would bump it up to almost $1,000 for everything.

No, nowhere close to 7%. This was a B, C non-conforming lender. The best rate to even an “A” borrower at the time was 10.1/8%, 30 year fixed. That’s what we got.

The point of my response wasn’t to say that closing costs should not be a $1,000 or less or anything. My point was that it can cost as little as a $1,000 or less. I’ve had others that cost me around $2,500 in closing costs. In the case mentioned above I had done business with that lender prior and in this case he didn’t charge us any fees except for appraisal, title, and recording fees. But I guess at 10.1/8% for a “A” borrower being their best rate available it was the least they could do! :slight_smile:

Re: How does this one sound? - Posted by Doug Pretorius

Posted by Doug Pretorius on May 21, 2000 at 23:19:04:

To reiterate on the closing costs I mentioned: The $1000 covers land transfer tax, lawyer’s fee and disbursements. The broker’s commission would come out of the 1st mortgage cash to the seller. Very few lenders charge points around here on most mortgages. Plus most of them are offering 3% discount or cashback, so that helps with the closing costs too. But I don’t know about the other origination fees you mentioned. I’ll be sure to take a good look before I buy.

About the cashflow, I don’t know where that $500 came from. The gross rent is $1200/month. If we take off 40% for expenses and I buy the place for $40,000 @ 8% (average, may be able to get 7%) for 25 years (standard) instead of $52,000, the cashflow comes out at $411.27 according to my HP.

As for the possibility of fraud. I don’t want to get into any grey areas, for religious reasons, let alone legal too. I’ll be sure my lawyer takes a good look at it. If it turns out not to be above board I can always buy the place for $40,000, maybe a bit more if I want the seller to hold the full 25%.

Re: How does this one sound? - Posted by JohnBoy

Posted by JohnBoy on May 21, 2000 at 19:00:49:

Hi Jim,

Wouldn’t that only pertain to being loan fraud if the lender required a signed document at closing stating there is no other written or verbal contracts between the buyer & seller? I mean, if the lender doesn’t have you sign anything pertaining to getting money back from the seller then how could there be fraud? I know all the conforming lenders will have the buyer sign something but a lot of non-conforming lenders won’t. Of course slipping a clause somewhere in the purchase contract stating something to the affect of the seller agrees to pay buyer x percentage of purchase price for repairs at closing would always be the safe route to take. A lot of lenders wouldn’t even notice the clause. But then again even if they didn’t notice the clause and had you sign a document contradicting the cash back by seller then wouldn’t that be fraud if you signed it even though it was clearly mentioned in the purchase contract?

What’s hard to believe about $1,000 in closing costs? One of my deals only cost $650 in closing costs.

If you have a mortgage broker handling the financing then I can see it, but if you’re dealing directly with the lender then it could be under $1,000.

If he is dealing with a broker and claiming costs of only $1,000 then he is probably not counting the brokers fee on the back end of the loan being financed in the deal?

On a deal I did I had a clause in the purchase agreement that allowed me to charge the seller at closing for any repairs needed I found prior to closing. The lender never questioned it (assuming they never noticed the clause) and they never required anything to be signed by me stating otherwise. this was a non-conforming lender. Am I correct in assuming this would not be considered fraud on the lender?