Do you think this is bank fraud?

[mom2boys]

My cousin is selling property. They have a offer but there is a twist. The offer "price" is $5,000 more than what the buyer actually plans to pay the seller. The buyer wants the seller to return the excess $5,000 at closing. This is supposed to be so that the buyer can incorporate the closing costs into the loan. The buyer is preapproved for the loan but the lender expects closing costs to be paid up in cash at settlement. Would this be fraud?

 

[charabby]

I know there is an upfront way to do this - the seller basically rebates the funds back to the buyer, but I don't know exactly how it works. It is commonly done in areas where most buyers would be 'low-income' and thus less able to come up with cash for the closing. Now, if the bank didn't know about it, I would think it would be fraudulent. The realtor would know.

 

[jipsy]

It's only fraud if the only people who know they are doing this are the buyer and seller. Since the buyer will be getting the money (a "rebate" so to speak) at closing, which will be attended by the banker and the realtor and the attorney, it's hardly fraud if all agree.

 

[LADDER286]

100% LEGAL In N.Y. anyway I did it at my closing it was called a sellers consession. The seller sits back at closing. from what the lawyers said its very very very common.As the buyer it helps with closing costs. "its not fraud"

 

[gymnasticsmom68]

Either way the buyer has to pay back the $5000, so no it's not fraud. As long as the buyer and the bank are in agreement, it's not fraud.

 

[IMGONNABE40!]

Our buyer wanted us to do this and we refused. Good thing too as we later found out it was against FHA rules, and that was the type of loan he had. Buyers realtor wanted to "mask" it as something else, so it didn't pass the smell test with us.

 

[mom2boys]

My cousin decided to talk to his attorney about it. He showed me the contract & there is one price within the body of the contract & a different price on an addedum. It's not passing the smell test for my cousin either.

 

[dcgrumpy]

It' quite common in this area and 100% legal. DH and I may do it since a lot of owners don't want to sell to someone getting an FHA mortgage. Say you only qualify for a mortgage that you need to put 10%, but you only want to put 5% down, the house is $300,000 you put $30,000 down and the seller pays $15,00 for the closing costs.

 

[Lisa F]

Yes, it IS 100% legal assuming:

1) the type of loan doesn't have any rules against it (most loans do not)
2) the property appraises high enough to cover the cost of the closing that is rolled in.

I'm guessing banks love this too, they get the closing costs up front and also get you to pay interest on them for the life of the loan. Pretty sweet deal for them!

 

[mom2boys]

Say you only qualify for a mortgage that you need to put 10%, but you only want to put 5% down, the house is $300,000 you put $30,000 down and the seller pays $15,00[0] for the closing costs.

Cousin's concern is that contract would say selling price is $285,000 not $300,000.

 

[Carl]

I have sold almost all my houses in the Houston area this way. It is a way for a person with poor credit to get a loan. It is legal, but it is really a way for the mortgage company to make more money. They get the money from you (the seller) as the down payment, but it gets added to the borrower's loan amount, so the mortgage company gets it TWICE - once from you as down payment and the second time (with interest) from the buyer as he makes the payments on the loan.

 

[wuv tigger]

Yes, this is probably fraud if the bank does not know. FNMA has strict guidelines on the amount that a seller can contribute to closing costs and they are the primary market for mortgages.

If the bank intends to hold the loan in their own portfolio and approves the concession then it would be OK.

David

 

[kadaten]

It's perfectly legal in the state of Virginia...it was the lender who suggested it! We did it on a VA loan and everything was spelled out in the paperwork. WE were doing it to pay off our credit cards...builder had offered $5000 in closing cost assistance, but our costs weren't that high, so we did a "seller concession" and used the money to pay off our credit cards instead!!

I might worry, though, it it's not spelled out "above-board" in the contract....