Is this mortgage fraud?

4 Replies

If a buyer is having a hard time getting a loan for a townhouse that a friend wants to sell for $51k, because the bank requires the loan to be at least $50k after 15-20% down, would it be okay for his friend (the seller) to say he is selling the house for $65k, so the buyer can qualify for the loan? So, $65k loan with 20% down ($13k) leaves a loan of $52k. The $14k ($65k-$51k) that was payed over what the seller wants, is given back to the buyer to fix the foundation and any other repairs. Is this legal? If not, can the contract say the seller will put $14k towards fixing the foundation after closing, since he has the $14k extra in his account?

That's why banks do appraisals.  

It's really a moot point because banks are generally going to use the lesser of two numbers - the sales price OR the appraised value - to determine the LTV.

So if the house is only worth $51k, and the bank has an appraisal done and it shows the property is worth $51k, then they're still only going to be willing to lend 80-85% (using your numbers) of $51k....even if the sales price is listed as $65k. 

In this case, you're better off trying to find a lender that doesn't have a minimum loan amount or using some other creative solution (like a private lender or HML) that doesn't involve artificially inflating the sales price.

Thanks for the feedback. Trying to tag people but it isn’t working. I didn’t know I created two discussions. I spoke with the mortgage company and explained the situation to them. They said they will have an appraisal done and if it appraised and they can cut a check for $65, they aren’t concerned what me and the seller do afterwards. I even told him I didn’t want to do anything illegal. He said the seller can write me a check for $14k to fix the foundation and make repairs. I also talked to an attorney and they said the same thing. Just going to write up a co tract betwee me and seller about the $14k and what it’s being used for.

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