is it illegal for buyer and seller to make their own deal (agency, commission)

[janshere]

The seller is asking lower than appraisel and we are asking for a loan lower than appraisel but higher than asking price. Is this illegal? The lender said it was OKbut the lawyer with closing said I could go to jail, it is a class D felony. What's right?

[rubytue]

Just to clarify, do the two amounts (seller's asking, your loan) match? Are you getting a loan for more than the seller wants and taking the rest in cash?

[rjrcm]

Originally Posted by rubytue

Just to clarify, do the two amounts (seller's asking, your loan) match? Are you getting a loan for more than the seller wants and taking the rest in cash?

Lenders will only loan the lower of the purchase price or appraised value. Providing false sales information to the lender and taking cash out of the loan is mortgage fraud.

[sunsprit]

I'm not familiar with Kentucky law, but I've done a number of Colorado "cash-out" purchases where the amount of the loan was well secured by the appraised value of the property and the loan amount was in excess of what I needed to buy the property. So, at the closing table I received a check back for the excess amount of funds from the loan. I was taught to do this by a good friend who is a managing broker for a REMAX agency, now the owner of the agency ... and he made a very good living by collecting a commission check as well as his "cash-out" on a lot of properties that he bought for rentals. Nothing illegal about it if the lender has met their loan-to-value lending guidelines for the loan and you've got the income verification to make the PITI payments.

Most of my purchases were "distress" situations where somebody needed to sell their property as quickly as possible and could not wait or did not need to wait for the "top of the market" buyer, they just needed to sell their place. I made "low-ball" offers which were accepted by the sellers ... nothing illegal about that, no misrepresentation at all. I've even had folks who I knew casually "give" me their house that they'd been in for a year or so and had a job offer out of the area, so they had to move immediately ... they walked away from any down-payment equity they'd put into the house. Just simply wanted to be out of there and not have to deal with trying to prepare and market and sell it. Quick clean deal for them, good deal for my rental property portfolio. And there was nothing wrong with my lender giving me a loan for an amount in excess of the purchase price to buy the place with all that equity in place.

Of course, Kentucky lending and real estate laws may be different than what I dealt with, so it's best to get a real estate lawyer's opinion, or search the statutes that may apply in your state. Perhaps you could call the lender to confirm that all is OK with them, and/or a closing services company that might also know the laws of the state.

[Bill Keegan]

Originally Posted by janshere

The seller is asking lower than appraisel and we are asking for a loan lower than appraisel but higher than asking price. Is this illegal? The lender said it was OKbut the lawyer with closing said I could go to jail, it is a class D felony. What's right?

So long as you diisclose to the lender that you are taking cash out of the transaction, I don't see how there's anything illegal about it.
Now, if you told the lender you were buying the house for $XXX, while you were only paying the seller $XXX-$Y, so you could put $Y in your pocket, that would be illegal.

[Silverfall]

If the house appraises at $200,000, for example and you want a loan for $190,000 but you and the seller agree that the sales price is going to be $180,000?

Is that the kind of situation you are talking about? There would be some RESPA violations with that, which is what your attorney is talking about. Your lender would need to approve the cash out portion of the mortgage...which I don't see happening in this market.

[chet everett]

Some states specifically prohibit this, even when full disclosures are attempted -- Get Cash Back At Closing...Legally! . I understand why and how it could be a semi-legitimate tool (to fund the undating/repair of a property and/or help with other costs of ownership that contribute to a stable real estate market...) but the potential for fraud and abuse is very high. Many people have been convicted of fraud over the years...

The lender is well within their rights NOT to give you the dough on the same terms as the portion that is going to the seller. In fact I would strongly recommend to most folks considering such a situation to instead get a HELOC to be well withing the intent of the lender...

I can understand that sunspirit may have used the techniques he mentions in the past, but I have never seen as rough a lending environment for investment properties regardless size /use as we are now in. I would be very surprised if any major commercial lenders are open to cash back at closing for investment properties presently...

[shellytc]

I would love for you to take this question over to the mortgage board and them weigh in on the matter....

shelly

[MikeJaquish]

To quote Cosmo Kramer's (Michael Richards) final line to the Seinfeld series,
"Hey. Good chow."

Not the dining experience I aspire to...

[Brandon Hoffman]

I'm not touching this. Not enough info about what you're trying to do or why. I defer to your attorney.