Posted by James Buster on July 16, 2002 at 20:11:52:
I find it odd to penalize somebody for acquiring equity by negotiation rather than cash. If an investor negotiates to purchase a property for 80% FMV and sell for 100% FMV, in what sense have they not earned that 20%? Would it be different if the investor put cash up front for 80% FMV into escrow? The lender is funding 100% of the investor’s purchase price either way. In point of fact, why does the lender care about the middleman at all? The middleman is not the borrower, the middleman’s buyer is. How is the borrower’s equity position and psychological attachment to the property different from what it would be had they negotiated a 100% FMV deal directly with the current property owner? More to the point, how is the lender’s position different? The gross speciousness of this reasoning makes it seem like it’s really about something entirely different. For example, a cover-your-ass policy in case seller’s remorse kicks in and they sue the lender and middleman alleging a conspiracy to defraud the seller.