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Co-op board says selling price is a few thousand short and suggested we do an under the table deal, in which we pay the extra amount out of pocket, but after closing the seller gives it right back to us, so that on paper, the apartment sells for the higher purchase price, but we aren't out of any extra funds.
We'd like to keep it between just us and our lawyers and not disclose it to the realtor, as they are very difficult with us. The lenders broker also told us to not disclose it to the bank, should we do it.
I know co-op boards wish to drive up the comps of their buildings, but, is this legal, and is it common?
It's an estate sale and the owner wants to sell, as it's been on the market for awhile. I don't see them having a problem with it, so long as it's legal. There would be an under the table contract executed.
Thus, my original question, whether it is legal or not, and is it common.
I've heard of this before. Also people do under the table to avoid the mansion tax....I know attnys who even own a cash counting machine...I've even heard of 400k in cash under the table transaction believe it or not.
What's illegal about it (ie what specific laws would be broken)?
Quote:
Originally Posted by sirtiger
Common: somewhat.
Legal: no
Ethical: no
I've heard of this before. Also people do under the table to avoid the mansion tax....I know attnys who even own a cash counting machine...I've even heard of 400k in cash under the table transaction believe it or not.
If you are paying cash, there is no legal or ethical problem, imo. If you are getting a loan and you do not disclose the arrangement to the lender, then it is quasi-illegal. Meaning it is against the law (in short: loan fraud http://en.wikipedia.org/wiki/Mortgage_fraud ), but no one has ever been prosecuted for a one time few thousand dollar undisclosed kickback on an owner occupied property.
If you had put it in the contract at the beginning as a small repair credit, it probably would have been ok with the lender. I am guessing it is too late now, and that changing the contract now would be a red flag.
Co-op board says selling price is a few thousand short and suggested we do an under the table deal, in which we pay the extra amount out of pocket, but after closing the seller gives it right back to us, so that on paper, the apartment sells for the higher purchase price, but we aren't out of any extra funds.
We'd like to keep it between just us and our lawyers and not disclose it to the realtor, as they are very difficult with us. The lenders broker also told us to not disclose it to the bank, should we do it.
I know co-op boards wish to drive up the comps of their buildings, but, is this legal, and is it common?
If you go through with this you will probably find that the lawyers will refuse to be present in the same room while the cash is changing hands.They will leave the room.That should tell you all you need to know about the legality. To be in the same room at that time would open them up to fraud charges and jeopardize their licenses.
What's illegal about it (ie what specific laws would be broken)?
I believe over 10k cash transaction are suppose to be reported. Also circumventing various taxes like transfer tax, title insurance, etc isn't legal.
I am sure grossly overinflating or underinflating the real purchase price is fraud....say someone wants to borrow more so they fake a higher selling price. Banks hire an appraiser to minimize this from happening & to protect themselves. I've experience where the appraiser themselves aren't too bright either.
That is correct...some attorneys don't want to be part of this transaction. Is it worth losing his license to practice? Flip side is some attny don't care & will help you as I noted above.
Who says it has to be cash? The coop board wants the deal to close at a particular price. But that isn't really the price the two sides agreed on. So the selling give the buyer a "rebate" for some cockamamie reason. It can be by check. This is done in the commercial real estate all the time (for other reasons though.)
And people play fast and loose with listing information all the time, which is what we're really talking about here. And if there are tax issues, taxes would be overpaid, not underpaid. The IRS would not object to that.
Quote:
Originally Posted by sirtiger
I believe over 10k cash transaction are suppose to be reported. Also circumventing various taxes like transfer tax, title insurance, etc isn't legal.
I am sure grossly overinflating or underinflating the real purchase price is fraud....say someone wants to borrow more so they fake a higher selling price. Banks hire an appraiser to minimize this from happening & to protect themselves. I've experience where the appraiser themselves aren't too bright either.
That is correct...some attorneys don't want to be part of this transaction. Is it worth losing his license to practice? Flip side is some attny don't care & will help you as I noted above.
What's illegal about it (ie what specific laws would be broken)?
All real estate transaction instruments are filed with state and federal offices.Offering a false instrument for filing is a felony.
I would also think that since all co op sales are,at their core,corporate stock transactions, there could be a potential liability for securities fraud.
Last edited by bluedog2; 05-21-2014 at 10:31 AM..
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