Posted by Luke Hoppel on March 22, 2006 at 21:50:07:
Tell your buyer client that “pigs get fat and hogs get slaughtered”. Basically, try to get the best deal but don’t be to greedy.
My Buyer Wants Cash Back At Closing? - Posted by Downriver Brian
Posted by Downriver Brian on March 22, 2006 at 20:43:46:
Here is the situation…
I found a house that needs no work. Seller is selling for almost $50k less than what we anticipate it to appraise for.
The buyer wants to walk away with the equity at closing.
Isn’t there something amiss with this? I’ve heard about it working elsewhere, but don’t the lenders get uppity about it or something?
How should I handle this?
Re: My Buyer Wants Cash Back At Closing? - Posted by John Corey
Posted by John Corey on March 23, 2006 at 08:32:31:
There are ways for a buyer to walk away at closing with cash. Most are illegal because it depends on the lender not finding out what is really going on. Some buyers are dumb and do not realize this.
If you are an agent then stay away from any deals that involve fraud (hiding things from the lender) as it is not worth your license.
If the deal is a good one and the buyer is not able to make it work legally just find another buyer.
Some investors do something similar by having a payment made to an entity the buyer controls. The payment is made from the escrow. It is therefore declared on the HUD1. It will generally pass the lender’s review because the lender does not check or even ask what the entity is that is being paid out of the escrow. Hence you are not hiding anything but you are depending on the lender not understanding. Really close to the line depending on the questions asked on the loan application.
Other deals can involve a lease/option where the deal is seasoned so the lender will lend on the value and not the purchase price. Similar for a subject-to deal followed by a refi later.
I like Luke’s comment about a hog being slaughtered. Better to find a pig rather than a hog as a client.
John Corey
Re: My Buyer Wants Cash Back At Closing? - Posted by Innovator
Posted by Innovator on March 23, 2006 at 03:03:13:
RULE OF THUMB:
If you are trying to hind anything. Don’t. It’s probably fraudulent!
If each deal will not stand on it’s own. Don’t. It’s probably fraudulent!
If it’s not arms length. Don’t. It’s probably fraudulent!
I got this advice from the lead council of one of our States largest title companies.
If it’s not on the HUD1, cross foot or settlement statement something?s wrong and most Title companies won?t touch it! If they do I?d be suspect of the title co.
There is only one way that I know that you can ?legally? get ?cash back? at closing, but you have bad mouthed me so many times on this board that I am keeping it my little secret.
Good luck, you’ll need it if you stay on the path your on.
Re: My Buyer Wants Cash Back At Closing? - Posted by Luke Hoppel
Posted by Luke Hoppel on March 22, 2006 at 21:16:49:
Are you the broker? I’m kind of confused with what role you play here.
Most lenders limit the “sellers concesion” to 3% of the purchase price.
If the buyer wants more, you will have to write the purchase contract for the full ammount including the 50K of equity and write a seperate contract between the seller and buyer (behind the lenders back) that states the seller will give the buyer the 50K after closing. The lender would definitely not approve of this. I know it happens all the time but I’m not sure of the possible negative side effects.
Good Luck,
Luke
I agree with you - Posted by Downriver Brian
Posted by Downriver Brian on March 23, 2006 at 08:39:12:
I agree with you completely on this one. I told the guy too that this isn’t going to fly. I don’t know why he was pushing it so hard.
I mean, you can ALWAYS just get another note tacked onto your house…even with shaky credit. So why bother with the cash back at closing games?
Re: My Buyer Wants Cash Back At Closing? - Posted by Downriver Brian
Posted by Downriver Brian on March 22, 2006 at 21:43:15:
Yes, I’m the agent on this deal. While I am VERY flexible with my investor clients, being and investor myself, I know this is a serious gray area.
I dunno why the buyer doesnt’ want to take my advice on this one. If you have the appraisal for $270k (not an “inflated value” either) and you buy for $220k, you can go to Bank of America and get another loan on the house for $20k. The trick is not having to refi the whole deal.
He does want to contract outside of sale for the $50k. Which is a BAD idea because it could bust the deal when the seller is walking away with nothing and the buyer is walking away with $20k in his pocket plus another $30k in equity. I know they are “motivated” and all…but jealousy has a way of blowing things up…and the sellers are just motivated…they arn’t desperately begging anyone to take the house off their hands.
Re: I agree with you - Posted by Innovator
Posted by Innovator on March 24, 2006 at 03:21:03:
I can see why you might think cash back at closing might be a game. The, “why play the game”, is because it is a very, very profitable game to play.
It only requires one offer, one close and one sale. No Double Contracting, No Simultaneous Closing, No Assigning your Contract, No Acquiring or Selling of an Option, No Private or Hard Money and your Down Payment, fix up, rehab or inprovements costs, if any, comes back to you at closing, usually with money left over for Hip National Bank (even if I break even I now have a property with no investment. I have several profitable options now. Flip, L/O, rent, etc.).
Oh, I forgot, it’s Safe, Ethical and Legal in all 50 States. But again, that?s my Secret.