80% LTV with “fake” purchase price – ?????

[23109VC]

ok…I am not a finance genius…. and I respect a lot of you here…so please don’t flame me if this is a dumb question…

i was talking with a lender….getting the bottom line on what my monthly costs would be to finance the house I am looking at if I go 100%.

the home I am considering is a rental I am in. the last comp was for $430k. the owner has offered it to me at $340k. I havne’t had it appraised..but lets assume it would appraise at or near 430-440k. but i could pay only $340-350k to get it..that’s roughly 80% of what it would appraise for.

if I took out an 80/20 i get hit with a higher int rate due to going 100%.

the lender suggested I write upa purchase agreement that says I bought it at appraised value..say 430k. the owner writes up a “note”..that’s actually bogus claiming he is giving me a 2nd and carrying paper of the other 20%.

submit the loan…I am effectively taking out an 80% first…and get the rate for only having a first..but since LTV on my note is 80% i don’t have PMI.

then once escrow closes you tear up the paper the owner is carrying…and i revert back to an 80% first. with “equity” on paper.

is that legal? can you even do that..or will the bank still consider that 100%?

i was told I could get 6% on a loan like that….and with $2000 in buy down, i could get the rate down to 5.75.

i’m not necessarily buying…but at the price i was quoted…once you factore din all costs..due to the lower overall rate…the payment was honestly almost the same as rent..nto bad.

but i don’t know if this is a legit way to do it…

this would all of course be contingent on the house appraising at the right number…but effectively..it might get me a 100% loan at a better rate..and make the costs almost to the poitn tha it’s wroth doing.

if this won’t work..and i am stuck wtih an 80/20…the rates for a typical 100% loan are too higha nd it’s a good $500/month cheaper for me to just keep renting…. so unless thi works…i’m not gonna buy

[23109VC]

i hope my post above wasn’t confusing..

what i meant was… i’d agree to buy the house for sasy $340k from teh owner. but we’d write it up as if i paid $430k..and somehow to the lender it looks like i’m only borrowing 80%….

i thought that if I was borrowing 80% from the bank and taking a 20% note from the owner (even a fake note) that it would still be considerted a 100% loan…

maybe i misunderstood my lender..but he seemed to imply that there was a way to only take out one loan that was considered 80% by effectively writing it up as a higher purchase price… i’d pay a bit higher property tax…but since the whole amount wqs in a first and an overall lower rate, i’d avoid a second at the high interest rate, pus have no PMI and overall…the end result is a lower monthly payment…

i’d sell in 5-10 years…so the overall extra property tax wouldn’t hurt me int he long run.

or just flame me and tell me to shut up and keep renting.

🙂

[JJsqueeze]

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.

[TemekuT]

It’s for the Harveston house, right? Don’t do it. That is mortage fraud and you are complicit. And, run from that loan broker and tell everyone you know not to use him/her.

You shouldn’t have PMI with an 80/20 loan. I take it you don’t have a down payment, so you ethically have to accept the lender guidelines and pay a higher rate on the 2nd. Instead of participating in a mortgage fraud, either pay the higher rate on the 2nd and figure out how to pay it down early, or don’t buy.

I sympathize with you in that it’s easy to fall down the “slippery slope” because “everybody else is doing it”, but you can take the high road here.

BTW, the difference in the prop tax at 1.9% Harveston rate on 20% of 430,000, or $86,000, is $1634 annually for year 1. Then you can expect the 2% assessed value increase annually so the incremental tax basis year 2 would be $87,720 and the prperty tax would increase to $1686. You can expect this increase yearly, unless property values tank and are reassessed down. And, while the general public merrily deducts that entire property tax bill on form 1040 schedule A, the amount is not entirely deductible – the portions relating to special assessments and considered by the IRS not to be taxes. But that’s another story because the IRS is auditing prop tax bills and many people in Mello-Roos areas are going to be unhappy campers when audited. 🙁

The difference on a 1% rate increase on 20% of $340,000, or $68,000, is 70 cents per thousand monthly, or 47.60 per month, or $571 annually. It seems to me you are better off paying the higher interest rate on a 2nd, even if it is 3 points higher than the 1st, as the interest is 100% deductible, decreases annually, and can be paid off entirely.

[Bugs]

I always assumed that an internet poster who would use a Vehicle Code section for a moving violation as their handle was a CHP officer or something like that. If so, I’m a little surprised you would ask how to commit mortgage fraud, which is a felony. If not, then that’s what I get for making assumptions.

A purchase of that house at $350k may or may not be a good long term bet, but it’s a sure thing compared to risking everything good in your life for a slightly better interest rate. I sincerely hope you reconsider, ’cause I don’t want to think of you like that.

[temeculaguy]

The Vehicle code he is using is for “speed contest,” so I doubt he is chp, they hate telling the parents their kid is dead after racing, no glory or inside joke in that.

I followed your other threads and I know your temptation with what is really a good price but you have to look at what TemekuT said about the property taxes, you are screwing yourself by adding 25% to your property taxes (which at 1.9 to start and 2.5 after the scam is a lot of money, year after year).

The only thing I can say is that if you have been renting and haven’t saved enough for a down payment, this is going to put you under, which is exactly why subprimes imploded. The reson 23109 is a law is to protect teens from killing themselves and there is a reason that banks want you to be able to afford a loan. If you are able to pull this off in the end the bank may lose a little money but the bank will still be there and the banker will still have a house, you on the other hand will have ruined your credit and be without a house. You found your way to piggington so you have to be smarter than the knuckleheads being interviewed in front of their homes by the media doing stories on foreclosures. Those “victims” and the legistlators rushing to their aid are claiming because someone let them buy a house they couldn’t afford then it has to be that someone’s fault.

[4plexowner]

At least one poster in the other thread pointed out that the value of the house is currently $380K not $440K or the $430K from the last comp

[SD Realtor]

What you mentioned was fraud.

How bout putting the screws on the seller and trying to get them down to 320k? If you did it between yourselves that is about what the seller would net at 340k with realtors on both sides.

SD Realtor

[Critter]

YOU might rip up the fake note, but the previous owner may hang onto his copy and hold you responsible for it – or threaten to take you to court for fraud if you don’t pay him. I wouldn’t be surprised if he and the loan officer are in collusion.

As others have noted, the loan officer should be fired and kept from spreading his “creative financing” ideas to others. I would run from him – what he is suggesting is clearly fraud and he should be tarred and feathered if not indicted.

BTW, when it gets this twisted to buy a house, it is a big indicator that you should continue renting. If you would like to sleep at night and not fear opening the mailbox or answering the phone, I suggest you stay away from these schemes.

I think your heart is in the right place – since you are opening yourself up to opinions by posting these questions. Good for you for having the guts to ask in the first place.

[23109VC]

i’m not CHP. i am a car nut, and also have a lead foot, hence the 23109VC handle… 🙂

like i said, i’m not an expert in mortgages, etc..and i know enough to think that putting down a purchase price that isn’t legit is probably a bad idea… but the way he talked about it, it seemed like it was fine. i asked if it was legit and he said it was… but i still wasn’t sure.. hence the post here.

i’m not going to do anyting that isn’t 100% legal. i am a moral and ethical person. i’m all about getting a good deal.. but if it is NOT legal.. then I’m not going to do it.

basically, after running the numbers, the only way this purchase would make sense is if the house sold at or near 300k…. and I did the standard 80/20 with the higher rates…. or i got this “loan” my lender mentioned where I got 100% of the price into a first at a lower rate.

i ran more comps ont his house via zillow… by looking at the actual recorded sales and while some of the older sales were going at about 245-250/sq ft…. that was older. the more recent sales are at about 211-220/sq ft.

a very recent comp was a 2400 sq ft home..a bit larger.. but it sold for $517k. 2440 sq ft. = 211/sq ft. it’s the same tract, same builder, 200 yards away..just bigger/2 story. i know smaller homes sometimes aren’t the exact same price per sq. ft… but it’s close enough.

most of the homes seem to be selling at this price.. so even using the 220 figure.. x 1875 sq ft… (my home’s size) you get to $412k. using the $211 figure you get to $395.

my guess is that if this home listed tomorrow…a listing price would be at $420… it wouldn’t sell for over $400k. this gy will maybe pocket #375-400, minus his commissions.. hence that’s why he’s offering it to me at $350k…that’s about what he will get – which also happens to be EXACTLY what he owes. i looked it up on the property records.. he owes exactly $350k…. he bought for about $450k.. but his loan wa only $350k. he just wants to walk away fro what he owes.

at $300 it’s worth buying. at $325 it’s *maybe* worth it. at $350k i’m better off renting another year and watching the arm tsunami hit and see everyone continue to lose their A$$.

[Critter]

New word – tsunARMi – good thought process above, vehicle code guy!

[sdrealtor]

“like i said, i’m not an expert in mortgages, etc..and i know enough to think that putting down a purchase price that isn’t legit is probably a bad idea… but the way he talked about it, it seemed like it was fine. i asked if it was legit and he said it was… but i still wasn’t sure.. hence the post here.”

I think this wraps it up in a nutshell. I believe you said that you were an attorney. At the least you are well educated and have spent some time around this board but even so a lender just about had you swayed “but the way he talked about it, it seemed like it was fine. i asked if it was legit and he said it was”. Now imagine the uninformed masses listened to the lender telling them sure you can afford a $500,000 home on your combined landscaper and 7-11 job incomes. Thats how we got here.

[patb]

Dude:

Fraud : Noun : A material misrepresentation for a tangible gain.

What you are describing is Fraud.

If it wasn’t fraud you could just tell the lender that’s
what you are doing.

The fraud is on the rates.

look, here’s what you can do, get the seller to give you a rent
credit, or do this.

Do it at a #300 note and the seller takes a $50K second
to you on a 2 year short note.

but frankly wait for the TsunARMI to hit,
the whole world is crashing.

[lonestar2000]

If it smells like yesterday’s sushi, it probably is just that.

Stay well clear of these type of transactions.

[temeculaguy]

Try to hold your landlord off off a little longer and you may not have to sweat the other 20%. I just spent the day looking at houses in Temecula but only in 92592. A new tract opened today in Wolf Creek, undercutting to going rate and I found at least five examples of model match new listings of resales in Redhawk and Vail, undercutting others by 15-25%. I found a new listing in Vail Creek today for 320 and it was one of the nicer and bigger ones, until monday it was 400k for a brown lawn repo and that was the cheapest, in the Redhawk Fairways gated I found a 410k that said “lowest in community” and it was on Monday, at least two more just listed in the threes. I even saw a condo in the new temecula creek listed for 230 (still a rip because it’s a an apartment you buy) but on Monday the cheapest was like 289. There are more examples but I’m still checking how comparable they really are. At any rate, I think the crack in the armor is just starting to show in Temecula, it’s not just the occasional price misprint, they are starting to panic, panic is in the air, I am almost giddy. Now the hard part starts when we have to guess the bottom.

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