Is this legal? - Posted by kw

Posted by kw on October 25, 2000 at 08:02:14:

Thanks JimIL:
I posted this info as “education” material. I told my friend that he really wasn’t a friend. Needless to say, I am not going to work with him.

Is this legal? - Posted by kw

Posted by kw on October 25, 2000 at 03:06:11:

I had a friend(?) ask me to invest in real estate with him.
He wants to buy a house below FMV and sell it to me at near
FMV. He wants to get at least 75% of the profit and I get 25% and less. However, my share never gets above $5000. Then I sell the house to someone else (owner fin.) with a wraparound mortgage and $5000 down payment (he says that he can sell the house in 2-3 days). Lucky for me I get half of this $5000 and get to keep the difference on the mortgages on everyother house. Now this friend told me that this would be done in a trust. Is this legal? Isn’t it a possibility that this friend could just take off with all of the profit and leave me standing with nothing? I don’t think he’s much of a friend.

What’s the verdict on this? Thanks for your input in advance!

Yes and No! - Posted by Bud Branstetter

Posted by Bud Branstetter on October 25, 2000 at 09:34:34:

The fact that he buys below FMV then has you qualify for a FMV loan can be considered fraud if you lie about being an owner occupant or about there not being any other agreements between you as buyer and him as seller. An owner occupant can get 95% or better financing with good credit. An investor as non owner is more like 70-80% financing at comparable rates. Higher LTV’s at higher rates.

Then there is the possibility that he can’t get it rented/sold or the buyer flakes out in the future. Either way you are left with making the payments or ruining your credit. The other aspect is that invariably the loan will have a due on sale clause and a simple wrap is not the way to do it.

Yes, it is legal to put it in a land trust and yes if properly done, transfer the all the benefits of ownership to the new occupant. I doubt if your friend knows how to properly do it.

Properly done a partner bringing in an under FMV property, refinancing and reselling by you qualifying for the loan is not immoral or illegal. What it is worth to each is open for negotiation. From your tone I don’t think you or your friend are ready for such an arrangement.

Re: Is this legal? - Posted by JD

Posted by JD on October 25, 2000 at 08:38:32:

yes it is leagl. can he flee?:depends how the deal is structured. It would appear you are too paronoid and unsophisticated to enter into such an arrangement. As far as why he would need you: He probably dosent have the verifiable income to qualify for the conventional financing needed, and presumably you do.

Food for thought!!! - Posted by BR

Posted by BR on October 25, 2000 at 07:07:35:

If he can find a buyer in 2-3 days for a wrap deal why does he need you? Who is taking the risk? This sounds like a great setup…FOR YOUR FRIEND!!!

Re: Is this legal? - Posted by Jim IL

Posted by Jim IL on October 25, 2000 at 03:44:52:

kw,
Okay, lets see, your supposed friend wants you to get a mortgage in YOUR NAME to buy these homes for FMV right?
And for that you make $5k?
Sounds a little skinny to me.
I cannot tell you if this is “legal” or not, but to risk my name and credit, I had better make more than $5k.
There are better ways to make money in this business and at a greater scale, without using your own credit and/or money.
Read EVERYTHING here and you will see it can be done.
Some friend you have there.

Good luck,
Jim IL

Re: Yes and No! - Posted by kw

Posted by kw on October 25, 2000 at 09:48:16:

I think the first paragraph describes what he wants to do, which is fraud.