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Strange offer on a house I'm selling
Old 02-15-2008, 01:02 PM   #1
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Strange offer on a house I'm selling

My brothers and I inherited a house from our father a few years back. We decided to put in on the market a few months ago and we recently received an offer on the home but it's structured in a wierd way.

We have the house listed for 224k. The offer from the buyers was 230k with us giving them 6% cash back at closing. 3% to be used for the down payment and 3% to be used for closing costs. We're thinking about accepting this offer but the 3% back for closing costs seems a little excessive to me. I can't understand how closing costs could approach 7k. My thoughts are that this customer might pay the closing costs with part of the funds and then pocket the remainder. This doesn't seem right or legal to me. It's almost like we're giving them a kickback to buy our house.

Have any of you ever seen a deal structured this way and is it legal? I've already faxed a copy of the contract to our attorney for her to review but I'm waiting to hear back from her. The dollar amount we'd walk away with is acceptable to us but I don't want to get involved with anything illegal.

Any advice offered would be appreciated.
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Old 02-15-2008, 01:14 PM   #2
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They're probably using the $7,000 to buy favorable financing. As long as the property appraises for financing what do you care?
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Old 02-15-2008, 01:19 PM   #3
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Frankly, I'm not as concerned about the dollar amount as I am about the legality of the deal. I've bought a house before but have never sold one so I'm not familiar with the different ways to structure a real estate deal. I, apparently naively, thought that we'd get a plain vanilla low ball offer and we negotiate the price and that would be that. I'm not sure if this is a common way to structure a deal but, like I said, I've never seen this before.
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Old 02-15-2008, 01:28 PM   #4
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Don't worry about whether 3% is too much for closing, etc. That's their problem - you just need to be happy with the NET bottom line (after you do the payout at closing).

People do this who are cash-poor, among other reasons. It may not be kosher between the lender and the buyer depending on how they disclosed it, but I would guess that there is nothing illegal in your selling it that way; this assumes that you have no knowledge of any deceptive or illegal.

Be careful - it may not appraise out if the purchase price is 6% higher than the "actual" value.
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Old 02-15-2008, 01:31 PM   #5
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Originally Posted by Eyerishgold View Post
We have the house listed for 224k. The offer from the buyers was 230k with us giving them 6% cash back at closing. 3% to be used for the down payment and 3% to be used for closing costs.
Are you loaning them the ~$13K or are they depositing $230K into escrow and expecting you to pay their down payment & closing costs?

Either way it sounds like a swingin' real-estate mogul trying to make a deal out of a no-money-down book. With closing costs that high it also sounds like they might be paying points or a hefty commission on their mortgage funds. As long as escrow clears their checks before handing over the title you probably don't care, and you also probably don't care very much whether they pay back a loan that small on an inherited property that big. Especially if the loan is a recorded lien on the title.

Last couple years there's been a spate of mortgage fraud by people being paid to appraise real estate at wildly overstated values, but if you're listing at $224K and the offer's at $230K then there's probably nothing illegal happening.
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Old 02-15-2008, 02:25 PM   #6
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As a realtor, I can tell you that the 3% closing cost and prepaids are absolutely normal. If there's extra, they can always put it in prepaid items or even points to reduce the rate.

On the other hand, the 3% "downpayment" is illegal (at least in our state, but I think it's probably a federal law). Essentially they are using your money to count towards the downpayment so that the lender thinks the buyers have some money in the deal while they don't. This is pretty typical lending fraud.
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Old 02-15-2008, 02:49 PM   #7
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Are you loaning them the ~$13K or are they depositing $230K into escrow and expecting you to pay their down payment & closing costs?
It's my understanding that at closing we'd be "donating" the 6% to a charitable organization and then the organization gives the funds to the people buying the house to use as their down payment and for closing costs.
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Old 02-15-2008, 03:13 PM   #8
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It's legal if it's disclosed to the lender and it's not your problem if they don't disclose ... the problem will be getting the house to appraise at the higher amount.

I'ld take the $$ and run.
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Old 02-15-2008, 03:15 PM   #9
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It's my understanding that at closing we'd be "donating" the 6% to a charitable organization and then the organization gives the funds to the people buying the house to use as their down payment and for closing costs.
What "charity" is it? A national one? That seems...questionable.
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Old 02-15-2008, 03:19 PM   #10
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It's my understanding that at closing we'd be "donating" the 6% to a charitable organization and then the organization gives the funds to the people buying the house to use as their down payment and for closing costs.
Fraud.
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Old 02-15-2008, 05:22 PM   #11
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This could be legit, but we had a fraud scheme like that in the DC area. The 'organization' was promising to make the mortgage payments, payoff home in 5-7 yrs, and split the equity with the homebuyer. Buyer (or seller on behalf of buyer) was making a payment of 10-15% to enter the program. In many cases the purchase offer was above asking price to cover the fee. Of course this was before appraisals were tightened up. It was basically a ponzi. AFAIK, the sellers were not involved in anything illicit as long as the arrangement was disclosed on the Hud-1.
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Old 02-15-2008, 06:40 PM   #12
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It sounds like you'd be accomplice to mortgage fraud, now I don't know if that is a real crime or you'd be in anyway subject to anytype of punishment, but I'd stay clear.

I counter with an offer of 233 and offer to buy closing costs up to 3% which I think is legal.
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Old 02-15-2008, 06:58 PM   #13
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It's my understanding that at closing we'd be "donating" the 6% to a charitable organization and then the organization gives the funds to the people buying the house to use as their down payment and for closing costs.
If it looks like fraud and smells like fraud... more than likely it IS fraud...

I vote fraud....

Tell them you will pay closing costs, but nothing else.. and do NOT donate it to a charity, pay at closing...
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Old 02-15-2008, 07:26 PM   #14
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The whole charity angle sends off the alarm bell. Im sure theres folks here who are much more real estate savvy than I am though.
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Old 02-15-2008, 08:58 PM   #15
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Wow...tough crowd. I have heard about charity down payment programs, but never had reason to check into them. I know the rules have changed from the days when you could not use borrowed or gifted funds for downpayment. What bothers me is that you did not initially describe this as a charity program, so I am wondering how fully the details were disclosed to you up front. I am pretty certain if everything is in writing and DISCLOSED you would be ok as seller legally. That ponzi scheme program I mentioned stunk so bad I was totally amazed people fell for it.

maybe this will help:
AmeriDream®, Inc. - Down Payment Assistance For Home Buyers - Sellers


BE CAREFUL!
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Old 02-15-2008, 09:03 PM   #16
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Old 02-15-2008, 09:08 PM   #17
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Smells like fraud to me. These articles discuss the concept.
Point of View: Mortgage Fraud

cbs4.com - New Law Targets Mortgage Kickbacks
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Old 02-15-2008, 09:13 PM   #18
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I think you shouldn't care what the details are, so long as you get your money. The problem here isthat it isn't clear to me that the buyer will be able to get a mortgage with these shenanigans, especially given how tight mortgage lenders have gotten. So unless they can prove to your satisfaction that they will be able to get a mortgage, I would probably not accept the offer.
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Old 02-15-2008, 09:16 PM   #19
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I think you shouldn't care what the details are, so long as you get your money. The problem here isthat it isn't clear to me that the buyer will be able to get a mortgage with these shenanigans, especially given how tight mortgage lenders have gotten. So unless they can prove to your satisfaction that they will be able to get a mortgage, I would probably not accept the offer.
You should care what the details are. Aiding and abetting fraud or participating in a conspiracy to commit fraud are also crimes.
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Old 02-15-2008, 09:18 PM   #20
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We had our house on the market 2 years ago and were given a similar type of offer. They offered more than we were asking and then we were expected to give them back a certain amount of money, which meant we were really getting less than our asking price. This, in and of itself was fine, but it was lower than we were willing to take. But you had to do the math to see that. Basically you are getting $216,200 for your house.

1) Would you accept a $216,200 offer?
2) Are you aware that the realtor commission is on the sale price of $230,000, unless you make sure your realtor is willing to take less. So, you are paying a 6% commission (assuming your realtor commission is 6%) on $230,000 - not $216,200. Are you willing to pay this additional $828 in realtor commission? If your realtor is willing to accept the commission on the final $216,000, be sure you get that in writing.

Basically what you are looking at is a buyer who doesn't have any money to buy the house and needs you to front the money to him. I doubt there is anything illegal about it - we were told it was not unusual back then - but it is also how many people have gotten themselves in over their heads with their mortgage. I am surprised that there are still lenders that are willing to do this. There is a real good chance this deal will fall through.

In our case, I ran the numbers once, laughed and said "No, thanks". On paper it looked like we were getting a great price, but when I was done with the math, it was not a good deal for us (and a really stupid deal for them - I have no idea what they were thinking).
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