Please resolve an argument - is this legal?
My friend purchases a home a few years back ("in the boom" as we say), financed 100%, and recieved $10k cash back at closing. She cannot concieve why I think this is fraud! The builder inflated the price of the home, she purchased at the inflated price and got her cash after closing. She's very proud of herself, and consideres it a savvy move. I think it's illegal.
Remember - this is a purchase money, 100% LTV loan, not a refinance. I know people often DO get cash out of these, but my question is SHOULD they? I beleive it's in violation of some regulation, but not sure which.
No, this person is not me. My friend is horrified that I'd accuse her of this ignorant fraud.
Right, but on a purchase loan, lenders NEVER lend beyond the purchase price of the home, correct? This was a loan officer kickback.
- Anonymous1 decade agoFavorite Answer
It's possible depending on the type of loan. On a government loan such as FHA, VA or any loan underwritten under FNMA or FreddieMAC guidelines, very very unlikely on a "Purchase".
The only other think I can think of is proceeds not related to the actual mortgage such a real estate taxes from the seller, for example, but that would never be handed to the buyer as cash. One other possibility, this was not a conventional loan. It could have been part of those loans they would advertise no payments for 'X' months. Believe me, she's paying for it, it was somehow built into the loan. Sometimes by looking at the difference between the quoted rate and the APR (on the Truth 'n Lending stmt & the HUD-1) kind'a tells me what they did.
She did not give you the whole story (it could be she did not understand the whole transction). Without seeing the HUD-1 (Closing docs), it's hard to say how this was done!
- rickinnocalLv 71 decade ago
It's perfectly legal.
You are also wrong about lenders never lending beyond the price of the home.
At the height of the boom it was not at all uncommon to see bank ads in the paper for mortgages for 110%, 115%, even 120% of appraised value.
After all, *everyone knew* that home prices were just going to keep going up and up and up forever, so why not lend 120% of the appraised value? The house will be worth more than 20% over the purchase price by the time any foreclosure might happen, right?
- Anonymous1 decade ago
Your friend got screwed. Not only did she pay more for a house than it is worth, she will never get her money out of it should she want to sell it. Then she was paid $10K to keep her happy.
Meanwhile, the builder laughed all the way to the bank.
Buyers are the ones responsible for researching properties before purchasing so these types of things don't happen like what happened to your friend.
Live and learn.
- Anonymous1 decade ago
If she (a) faked the appraisal, or (b) acted in concert with a lending officer who knew the property was not worth the amount being loaned (often there is a kickback involved in this arrangement), then I would say a crime has been committed.
However, if a fair and objective appraisal was used to justify the transaction, you may just be looking at a case of bad judgment.
- How do you think about the answers? You can sign in to vote the answer.
- TeeknoLv 71 decade ago
Not illegal at all, and was very common. People could often leverage over 100% of the equity in the home. It was one of the bad business practices of the banks, one of the kinds of things that got us into the mess we are in now because some people shouldn't have qualified for that much money.
But there's nothing illegal about it -- neither your friend nor the bank broke any laws.
- LaurieLv 71 decade ago
It's not fraud. Do you really think that the builder is really going to lose money on this deal or she is really going to gain anything. It's just incentive payment after it was closed. One way or the other, she is still out the $10 k.
- biermanLv 43 years ago
I understand the sensation. I drink everynight. Been sober for 10 of the final four hundred days. And i love it, i role exceptional, i do not get under the influence of alcohol for paintings or fundamental matters. But while its no longer that, im surely under the influence of alcohol. I had a first-rate pal, and she or he is equal means. Whenever she acquired fairly under the influence of alcohol she might date me/ and sleep with me, however each morning she didnt suppose the equal means lol. Meh, its existence, get of the alcohol, or keep on it and be completely happy. Cuz in the event you didnt understand you didnt wish to be round him while u have been sober, then that simply maybe the sober facet speaking. If you're under the influence of alcohol greater than 50% of the time, wherein your completely happy there may be wherein you must be.