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Do you think cash back at closing is illegal? A slippery slope that is overinflating housing values? Even if legal, unethical? Or find to do and it has no bearing on the true real estate market?
The opinions seem to vary all over the internet, and even seem to vary state-to-state, realtor-to-realtor, lawyer-to-lawyer.
Cash back at closing is one indication that it could be mortgage fraud. There has been a big crack down in the last year or so on unscrupulous mortgage practices, and we've been warned to be on the lookout.
No need to worry about reputable lenders. Unfortunately reputable mortgage brokers have really been hurt by some of their unethical colleagues' practices.
If you are involved in a transaction where you suspect mortgage fraud, most states have some sort of "hotline" that you can call to report it.
When you say cash back at closing... do you mean a seller concession to closing costs? Or do you mean the buyer actually gets cash in their pocket? A buyer getting cash in their pocket from a sale is completely illegal.
The concession to closing costs can be very beneficial, as it often is what helps someone get their foot in the door. Granted, they pay for it in the long run because they've essentially financed closing costs, but many people need it.
"Cash back at closing is one indication that it could be mortgage fraud."
"A buyer getting cash in their pocket from a sale is completely illegal."
From the post it isn't clear if the question deals with monies distributed from a realtor to a buyer or from a mortgage originator to a buyer. If the former, it is apparently legal to do so as it is becoming a common practice in North Carolina.
When you say cash back at closing... do you mean a seller concession to closing costs? Or do you mean the buyer actually gets cash in their pocket? A buyer getting cash in their pocket from a sale is completely illegal.
The concession to closing costs can be very beneficial, as it often is what helps someone get their foot in the door. Granted, they pay for it in the long run because they've essentially financed closing costs, but many people need it.
Sorry, I should have clarified. Any money that comes from the seller, in the form of contributions toward closing costs, a check at closing for "repairs", etc..
I'm not talking about the criminal rings that go around making $300K offers on $200K homes looking to cash out the other $100K.
For instance, a home is listed for $200,000, a buyer makes a full price offer and wants $30,000 back at closing for closing costs because they can't qualify for the loan otherwise.
Rebates from realtors back to buyers or sellers is apparently illegal in some states, but not most states. The FTC has ruled on the side of realtors and the "free market competition for fees".
The question is badly phrased. There are any number of situations in which a buyer may end up receiving cash from a transaction.
It is difficult to phrase. "Can a buyer mortgage a property for more than it is worth?" Why not? Nothing illegal there. I know well an accountant who does it all the time. Makes a lot of money at it.
Nahh..it does not work. There really is no way to describe mortgage fraud in such terms. It is the "fraud" that has to be there before it is illegal or unethical or immoral.
Any money that comes from the seller, in the form of contributions toward closing costs, a check at closing for "repairs", etc..
It's common place in the Seattle area to pay some closing costs to the buyer. We've done it when we sold. We've had it done for us when we bought. NOTHING illegal about that. Granted, it's only a few thousand, and of course, the house has to appraise for that much.
We have also had cash given to us at closing for repairs, which is NOT illegal - but I would not recommend it. Always just have the seller fix it, at their cost and before closing and use your inspection clause to enforce it.
Credits and/or cash to seller at closing for costs incurred in the transaction, i.e. seller contribution of closing costs, seller concession for repairs, agent credit to the buyer of some portion of the commission to be used towards closing costs, etc are perfectly legal.
What would be mortgage fraud, though, is where a buyer and loan officer and sometimes an appraiser conspire to inflate the value of the home so that the buyer walks away with cash in pocket on a 100% loan. Something's fishy in that case.
I agree....I thought 'cash back at closing' meant that an agent gives money back at closing. The reason I thought that is because I know it happens. I know of agents who share their commissions with their buyers, and I think they hurt the industry. I also know there are some lenders who give thousands of dollars back to clients at settlement. I have found that the buyers agent and lender are usually in cahoots and there is a buyer who is not from this country involved. In my experience, the buyer doesn't usually know there's fraud involved. By asking pointed questions, the buyers agent and loan officer will either come clean and do things on the up and up or find another listing agent to present their offer to who won't be so inquisitive.
Credits and/or cash to seller at closing for costs incurred in the transaction, i.e. seller contribution of closing costs, seller concession for repairs, agent credit to the buyer of some portion of the commission to be used towards closing costs, etc are perfectly legal.
What would be mortgage fraud, though, is where a buyer and loan officer and sometimes an appraiser conspire to inflate the value of the home so that the buyer walks away with cash in pocket on a 100% loan. Something's fishy in that case.
From how I understand it, it's perfectly legal as long as: - Everything is disclosed on the HUD statement - the house appraises for at least the sale price or higher - the concessions are taken off of the "net sale price" of the home on the HUD statement
But the more people I talk to about this, the more confusion there seems to be.
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