Posted by Glenn OH on January 27, 2000 at 22:00:55:
I was assuming that the mortgage co. was not being informed of the 12K rebate (therein lies the fraud) thru a side agreement. If you are trying to get 100% financing (or in your example 200% of purchase price) using this trick, the mortgage company will have made a loan in violation of its guidelines, i.e. one they would not have made if they had been informed.
Seller Rebate at Closing - Posted by Kat
Posted by Kat on January 26, 2000 at 20:42:32:
I’ve got a chance to buy from friends a sideXside duplex, great area, etc. May be able to get appraisal for $60k. They will take about 40k or less (desperate). I would like to make offer for purchase price at 60,000 so that I can get the full $40k financed easily, or even finance $48k to help with siding and windows.
How does the seller rebate (12k) at closing work? Do they have to claim the income, or is it legit to claim only the 40k they actually got?
Also, I don’t want to pay for an appraisal if this is not going to work (it’s not high enough, or financing doesn’t go through). I can’t image paying for an appraisal on every property that I make an offer on. How do you all handle this??
Any advice on how this should be played out would be appreciated…I’m kind of lost!
Re: Seller Rebate at Closing - Posted by Kev.
Posted by Kev. on January 27, 2000 at 11:29:31:
I thought you are allowed to get up to a 5 or 6% credit back from the seller, according to lending guidelines. I may be wrong.
Also, as long as the credits are disclosed upfront, re: repairs, closing costs, etc., that the seller will pay for, there should be NO problem. I have seen deals close this way before, with the lenders knowledge, etc.
Thanks.
Re: Seller Rebate at Closing - Posted by Chris
Posted by Chris on January 27, 2000 at 10:53:27:
Kat-
Can you please clarify this deal for me so I understand where the excess cash is going.
The way I read this is the seller wants $40K for the property and you want to get financing for $60K. $8K goes to repairs and where does the other $12K go?
Are you getting the $12K and does the seller know about this?
-Thanks, Chris
Re: Seller Rebate at Closing - Posted by JoeB(Atlanta)
Posted by JoeB(Atlanta) on January 27, 2000 at 07:56:13:
Rebating is fraud and is currently being highly scrutinized by banks whenever investors are involved…
That being said, here’s a creative idea that straddles the fine gray line: if you own another piece of property, you could draw up an short-term (say 60 day) option to that property, where your Seller/friends are the Buyers of that option at a non-refundable option fee/consideration of $12k. This way when they DON’T execute the option, they can expense the $12k and not have to pay taxes on it, and you get your $12k right away as option consideration.
Mull it over…if you have a VERY creative attorney run it by him/her, too.
Hope this helps,
Joe Brillante
Re: Seller Rebate at Closing - Posted by Paul_NY
Posted by Paul_NY on January 27, 2000 at 24:09:34:
Appraising is not a science. Normally, you pay for the appraisal. Before an appraiser arrives to do the inspection, they call you with some questions. One such question is about the value. You always say the highest reasonable value. In your case, you would say $65,000. Thats what you believe its worth.
Also, pretty up the property before the appraisal. The appraiser is human too. They represent the “eyes and ears” of the lending institution.
In conclusion:
Hope this helps
Re: Seller Rebate at Closing - Posted by Glenn OH
Posted by Glenn OH on January 26, 2000 at 20:52:05:
This type of rebate is bank fraud - federal offense I think. Try other methods.
Re: Seller Rebate at Closing - Posted by Chris
Posted by Chris on January 27, 2000 at 11:12:40:
Hi Glenn-
Can you please clarify this for me. I had trouble figuring out what Kat was trying to do in her original post.
Using my own numbers:
Say that you find a property with an appraised value of $100K owned free and clear. The motivated seller is willing to take $40K for the property. If a bank will lend up to 80% LTV ($80K in this example) where do the legality issues come into play? Does the bank fraud come into play with the buyer pocketing cash at close or was there some side agreement with the seller? I’m missing something here and I would appreciate the help making this more black and white.
-Thanks, Chris