Are there legal problems with the seller raising the price on a property and crediting that amount back to the buyer after escrow as a way for the buyer to be able to pull more money off the loan. Property is commercial and is being sold at 50% of appraised value and the additional money would put the deal at 60% of appraised value. I want to do this but not if there are going to be leagal problems over it. Does anyone have an answer

Call the closing attorney or title-escrow company for guideance.

no legal advice

This is fraud. If there is a lender involved the purchase agreement with arranged financing is considered full representation to the lender, and no lender would ever allow cash back at closing--the only way would be to misrepresent the transaction to the lender.

Defrauding a lender is mortgage fraud through and through. They lend money for the purchase of a property. Not for the purchase and a little extra padding in the buyer's wallet. This is common malpractice in residential transactions, but I haven't encountered it in my commercial dealings.

Tread carefully. Mortgage fraud is now considered a felony and all parties who have knowledge of the fraud can be prosecuted to the full extent of the law.

Actually it is not Mortgage Fraud. I had a long talk with the lender and he told me to have the credit written up as money to be credited to buyer to cover rent deficiencies, repairs and any other items required by the buyer. This is a commercial loan and not residential. I think that is where the difference is. They are basing it on the fact that the property value is twice the purchase price and the NOI is quite high compared to the amount borrowed. The interest rate is also good. The only costs on behalf of the buyer are closing costs. They are doing this loan at 100%

The lender is teling you this or the mortgage broker getting you the loan is telling you this???

If th eproperty truly appraises that high then th elender will see little risk in the deal if a problem comes up. If I was the lender I would have 2 appraisals done to get an average of value.

The reality is you are going to probably take that 10 percent and stick it in your pocket instead of for repairs and defencies.


no legal advice

What kind of property is this? It is possible - but it depends on the amount and where it's going as well as the policies of the lender. It's not fraud (depending on what you're doing), people get credits at close all the time on commercial property. I've done it many times. It really depends on the particulars of the transaction.

If you have to lie it's fraud. Pretending cash back is for repairs or pre-paids when in fact it's going into the buyers pocket is fraud. Now if the lender knows cash back is going into the buyers pocket you're good to go. Problem is most lenders don't do this on purchases.

There is no lying involved. A conference call was made between broker, lender, and myself and everything is being done without hiding any of the facts. The point is: there is plenty of equity in the properties because they are being sold at 50% of their value. Yes appraisals are being done by the lender to verify that. Recent appraisals show these values and talks with the appraiser say that the value of these houses may vary by about 1% at most because of their area and age. The main reason for this post was to show that you can do more than people say you can. You just have to search for it. I talked with plenty of lenders that said no and lenders that said yes and the ones that I didn't like their interest rates. If you want anything it is out there you just have to persevere until you get what you want.

Bubba if the closing docs/HUD1 show $50K (or whatever #) for repairs, rent deficiencies,etc. but it's really cash back to the borrower it's fraud. All the double talk and patting yourself on the back thinking you made the deal work doesn't make it right. And appraised value has nothing to do with whether or not the actual investor knows the truth regarding cash back to the borrower. If it's not documented properly you have no way of defending yourself years down the line. Anything that doesn't show $XXX cash back to the borrower on the closing docs/HUD1 is a lie. The same goes for "silent seconds" which are to common in our business.

Well, if your lender documents everything accordingly and everything is in plain english then it's your call. I would still draft a hold harmless agreement but the fact of the matter is that cash back at closings have been big news lately for fraud.

What I don't understand is that you came on asking about legality, and when it seems that most everyone here is telling you that there are some definite concerns you back track and say that you've got the answers.

I'm not sure what the situation is exactly, and I'm not making any assumptions but I've been doing this for a long time and have not seen a situation where a lender was "ok" with cash back to a buyer at closing.

First off I did come on here looking for advice on the legality of it and after further research I found that it is not illegal. This is a commercial transaction not a residential purchase and it is a private lender and the only requirements are his. He is willing to lend up to 65% of the appraised value of the properties to include all closing costs making this a no money down transaction. The interest rate is also comparable to what I would have gotten if I had used a commercial lender. There are always alternatives. You just need to find them.

Sounds like you are using a private or hard money lender for your deal providing the cash. In that case they are usually fine with giving cash back because of the equity spread.

Normal commercial loans don't work that way however.There are plenty of finance options when doing a commercial deal. It's all how you set it up.