I was approached with an offer on a vacant property that I own. The offer was an 80% bank loan and for me to carry the other 20%. We met with the mortgage company to run the numbers and the first 80% was just enough to pay my first off and I told them no for that deal.
The mortgage company came back with bumping the offer price up
and them the first 80% was what I needed to pay the loan off and pocket $10,000. Then I would throw away the other 20%.
My question is what happens to the other 20% that I forgave and am I taxed on it or do I write it off ?
They are asking you to commit fraud. “Throw away” seller seconds are considered fraudulent by the lender. Not only does the lender take exception, but you are liable for the capital gains because the purchase price is recorded, but the mortgage is not.
Talk with a real estate attourny. There is away to accomplish the end goal without a “thow away” seller second using a “purchase option on the note”…in essence, after the closing, the buyer purchases the note from you at a discount (i.e., penny on the dollar). You then claim a loss on a business asset (the note) and are not liable for any additional capital gains (unless interest payments have been made on the note)
As a mortgage broker, do you not have a responsibility to the lender to disclose any common knowledge that you may have about the transaction?
Doesn’t the title company have a document in the closing package which requires the buyer to disclose if they have made any deals/arrangements outside of closing? Wouldn’t that note sale be considered something the lender should be made aware of? I can’t imagine most lenders being ok with it.
To stay on the right side of the law the structure is slightly comples, but check with a lawyer…it works. Is the buyer walking a fine line…yeah, but that’s why a lawyer is often an investors best asset.
As far as the 20% between you and the buyer the bank does not care what you two do with the 20%. the only thing the bank wants to know is if the seller is carring the 20% thats all they care about. The bank will not get in details about the 20% all they care about is the 80% because thats their money
If the bank does not care, then there should be no problem disclosing to them what the intentions of both are. So the conversation would go something like this.
“Hello Ms. Underwriter. I’d like to originate a loan where in the seller will hold a note for 20%. After the sale takes place the seller will disregard the note.” “OK, sure Mr. Loan Officer. We’ll let you create this 2nd loan for the purposes of getting your client in with no money down.”
Is it likely this is going to happen? Maybe a 1% possability.
Is it loan fraud if you failed to disclose the info upfront? Absolutely.
No it is not fraud because i have done deals like this and i tell the bank up front the thae seller is carring the 20% and the ban kalways replies we dont care aboyu the 20% all they want ot know is if the seller and the buyer both agrees. i know for a fact it is not a fraud the bank doesnot carewhat happen with the 20% because its not between the buyer and the bank its between the seller and the bank and that has nothing to do wiht the bank. if the buyer does not pay the seller the bank doesnot care.
You’re right, if you tell the bank, it’s not fraud.
If you don’t - Fraud!
Please tell us what banks you have discussed this issue with. Was your conversations with an account executive or their compliance department?
There’s a difference with them telling you they don’t want to know and you actually disclosing in writing and adding to the file. Remember that not all underwriters, accnt exe., managers, and title companies play by the right rules.
So closing their ears for you doesn’t neccisarily protect you. Imagine if that loan ever defaulted and an audit was done on the file. With no record of this in the file it’s your word against theirs and you leave you and your client at risk.
99% of most banks won’t allow this.
For any investors reading this, make sure this is disclosed in the file somewhere. The title company is supposed to ask at closing if there are any outside agreements between buyer and seller. To immediately release lien would constitute an outside agreement.
In my reply i mention that i tell the bank up front but the bank has nothing to do with the seller and the buyer after everything is completed.The bank needs to know the seller is carrying the 20% thats all they do not ask in detail the payment plan between the two parties They donot care all the ask about is thie a 20% between the seller and buyer an dthat its in writting that all. Because after the transaction is all over the seller cannot go to the bank and complain if the buyer doesnot pay the payments because that between the seller and buyer. After closing youcan rip up the agreement the bank have nothing to do with that. The seller can sue the buyer for not making payments the bank does not care. As long as its diclosure betwwen all parties that the seller is carring the 20% now what happens after the settlement has nothing to do with the bank.
You may have been able to get away with what you were doing but the investors on this board are smarter than you presume. Do you really think that you will be able to mislead them into thinking it’s ok to “rip it up”? Investors know that if it sounds shady that it probably is. In simply consulting with other brokers or an attorney they can fin the truth.
I hope the eyes of “Big Brother” are watching and recording as it’s ignorance like this that gives the mortgage industry a bad name.
I started this thread and the house did not appraise for what we needed it to to tear up the second.
We came up about 10,000 short and will need to collect at least half of the 20000 second. Is it still illegal to take a % of the 20%.
I have a house that appraised for 100,000 and it is an actual appraisal. I have about 69,000 tied up in this property. I have it listed fsbo for 89,900 for a quick sale. If it didn’t sale in a month I was going to list with my wife for upper 90,000.
A couple approached me and wanted to buy but they wanted us to meet with their mortgage broker. We were told that they could only qualify for a 80/20 loan with us carrying the 20%.
The couple needed us to pay for their closing costs so 80% of 100,000 is 80,000 - 6000 closing costs for both of us witch would leave us with $74000. A $5000 profit. This house I should make an easy 12000-15000 and I don’t want to give them the house.
The broker than told us I can collect as much as I need from the other 20% $20,000.
Since your a broker and in the same state as myself, what is the best approach in making this deal work?
First off for the buyers to only qualify for 80% they have bad credit. now its up to do if you want to do a 20% carry with someone with bad credit thats what you need to consider. Now if you know your house is worht more money i would say wait for the summer say around may june htats when the market gets hot around the summer and slow down for the winter. Now if you just want to get rid of the house go ahead and sell but make sure what ever your decision is its the right choice you are making it sound to me like you are having second thoughts about it.also why is this person trying to buy a house with bad credit and no money. it seems to me they want a house for free. They should be happy that you are carring the 20% but than they want you to pay for your closing and theirs no I donot think so. What you can tell them if you want to sell to them is you can carry the 20% but they have to pay for their closing cost. I thinlk the reason why they are asking for you to carry the 20% and on top of that pay for their closing cost is because they think you are very anxious to get rid of the house. for me when i see a house is under price i see it as the seller just wanting to get rid of the property so they sell the house under price and thats when they are a little bit easier to work with as far as paying for the closing cost or any other things that have to do with the transaction. so may to the buyer they see you and your wife as a seller who just want to get rid of their house because its very rare for a buyer to ask for two big favors. and also with the appraiser this in my opinion I think each appraiser appraise houses differently as far as the value goes. some appraiser might under praise the home while some over praise or some praises it at the right value so i think it depends on the appraiser
Shoot. Give them the note for 20% and don’t “forgive it”…hold it…or better yet sell it! Keep in mind any note buyer is going to discount the note, I suspect by more than 50%. But lets assume you do sell the note for .40 on the dollar…thats an extra $8K. If they buyers have a problem with the note not being “throw away” tell them to walk.
I know I probably live in a glass house and should keep my mouth shut but… for someone who is complaining about grammer you seem to be have no problem throwing commas around like they grow on trees. Chill out and lighten up.
“… for someone who is complaining about grammer (glass house) you seem to be have no problem throwing commas around like they grow on trees.”
C’mon Christopher…lighten up yourself! I think it’s both funny, and ironic that someone with a third grade writing level is giving advice on an investment message board. Especially when they attack another industry as being “uneducated.”
It’s just hilarious!!! We gotta be able to poke fun @ that…and loan officers!!! ;D