I am a real estate novice, but i am pretty sure this would be considered some sort of loan fraud. I am equally sure that it is a ‘soft’ version that has been part of real estate business practices for the last few years. That said, I think that your lender is unscrupulous and you can now safely tread very carefully because he is clearly comfortable operating in murky moral water, what murky decisions is he making that are putting you at risk?. Will you get into trouble? Not likely. Is it symptomatic of a larger issue that in a falling market you are scrambling to get a 100% loan by cutting corners that make you at least a little uncomfortable? Yes. Add to this the risk of the owner changing his mind and holding on to the note and it just feels like bad business. I am by nature very fiscally conservative, so I probably represent the cautious end of the spectrum , I am curious to see what the other responses are.
