"phantom" seller second on 100% CLTV loans? - Posted by rayrick

Posted by raelynn mitchell on April 01, 1999 at 24:03:18:

I would appreciate any details you might be able to tell about this, Mark.

Thanx in advance,

“phantom” seller second on 100% CLTV loans? - Posted by rayrick

Posted by rayrick on March 31, 1999 at 09:23:17:

I’ve heard tell of people buying with all cash at 80% of FMV by getting a 80-20 CLTV loan and having the seller forgive the second. This seems like a very attractive way to get 80% financing at pretty good rates, while still doing a nothing down deal.

I’m curious about the details of this. It is my understanding that if the seller truly “forgives” the 20% second after closing, that this forgiven debt counts as taxable income. Talking to Bill Bronchick at the convention, he said what is often done is that the second is not formally forgiven but you as buyer simply never make any payments. I wonder if anyone out there who’s done this sort of thing could give me the run-down on the nuts and bolts of how they structure this in their contract. Do you have a separate document that outlines the fact that the seller will never actually be recieving any payments on the second? Is it written right into the terms of the note? “First payment due Jan. 1 2099?” lol! Are you in danger of being nailed for loan fraud if you have a written agreement with the seller about this? Thanks a bunch!


Re: “phantom” seller second on 100% CLTV loans? - Posted by Dave(Mi)

Posted by Dave(Mi) on March 31, 1999 at 20:02:03:

Wouldn’t it be good also to buy a property that’s worth 100,000 agree to purchase for say 80,000 borrow (64,000)the 80% of the 80,000 and have the seller carry (16,000)in a real 2nd??

Re: “phantom” seller second on 100% CLTV loans? - Posted by dmoore

Posted by dmoore on March 31, 1999 at 17:57:10:

Sticky situation. I’ve seen this transaction a number of times, its deals a lot with trust. Make sure you know who you are dealing with.

What if the seller doesn’t forgive after closing? The ideal situation is to have the seller sign an agreement that the second has been paid in full right before you go into closing. Usually, the second is never filed in the county records and if it is you have your agreement releasing you from the second. Most escrow agents don’t file the second, but some do.

Texas laws are a little foggy as to whether this is a legal practice or not. If you move the price up on the home and don’t specify a second mortgage??? However, on Texas contract it does have a place to mark a second mortgage carried by the seller.

Re: “phantom” seller second on 100% CLTV loans? - Posted by Joe(IN)

Posted by Joe(IN) on March 31, 1999 at 14:03:23:

Here is an idea I got from this board
(i.e. “The” Board) a few months ago.

Have the seller loan you the money in the form of a second mortgage on a different property you already own. Make it an entirely seperate transaction. Then make your down payment with cash. In addition you can still set the terms of the second any way you want.
(like no payments, no interest, etc.)

This seems to me to be a Lot further away from fraud.

Yes, to whatever degree perceived, it is… - Posted by FJW

Posted by FJW on March 31, 1999 at 09:46:13:

fraudulent. Written or unwritten. Is it done? All the time, but you’re still in a conspiracy to decieve the lender. I’m sure this will conflict with other opinions, but it’s pretty black & white. Question is: Are you providing misinformation or refraining from providing complete accurate information that will enable the lender to accurately assess it’s risk and adhere to it’s own underwriting guidelines?


Re: “phantom” seller second on 100% CLTV loans? - Posted by Mark (SDCA)

Posted by Mark (SDCA) on March 31, 1999 at 09:45:46:

I don’t see how you could be guilty of fraud assuming that the 1st mortgagor knows there is a 2nd. I actually have one of these through a government program. It was called a silent second. I have an FHA 1st and through a state program, the silent second. Interest accrues but no payment is due until 1) I sell the property or 2) I re-finance the 1st. At that point, any proceeds above the 1st loan balance go to pay down the 2nd. Any amount of the 2nd that is not paid is forgiven. And yes, it IS taxable income.
Hope this helps,


Re: “phantom” seller second on 100% CLTV loans? - Posted by rayrick

Posted by rayrick on April 01, 1999 at 09:10:13:

Does money actually have to change hands in this scenerio? Can this be done as an all paper transaction? Or does the seller actually have to come up with the 20% in short term cash somehow, that they get back when you buy the house and give it back to them in the form of a downpayment?


Re: “phantom” seller second on 100% CLTV loans? - Posted by Dave (MI)

Posted by Dave (MI) on March 31, 1999 at 19:48:46:

Sounds like a plan ,could you elaborate on this a little more?

Re: “phantom” seller second on 100% CLTV loans? - Posted by Charles-DFW

Posted by Charles-DFW on April 01, 1999 at 02:20:39:

I think there is significant difference between the state program and the original post.

The FHA is aware of the terms of the state program.

In the post situation is the lender aware of the terms of the agreement between the buyer and the seller. The lender has been led to believe that there will be a 20% loan above their 80%.

Fraud: intentional perversion of truth in order to induce another to part with something of value…