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July 6, 2007 at 10:56 AM #9461July 6, 2007 at 11:09 AM #64259SD RealtorParticipant
This article was sent to me yesterday.
I have not personally been involved with a case where a buyer ever was able to receive cash back. Whenever there are credits back to the buyer for repairs, then escrow will need to have invoices from the contractors and escrow will hold the excess funds for those contractors until work is completed. In the case where there are credits granted for closing costs, (recurring or non-recurring) if those credits EXCEED the closing costs then the money goes back to the entity that granted the credits. Never, have I seen, that cash will go to the buyer. That indeed would be flagged by the lender.
Now granted I am only a pup so I am sure more experienced people have seen more. I am not saying it doesn’t happen or hasn’t happened.
SD Realtor
July 6, 2007 at 11:09 AM #64316SD RealtorParticipantThis article was sent to me yesterday.
I have not personally been involved with a case where a buyer ever was able to receive cash back. Whenever there are credits back to the buyer for repairs, then escrow will need to have invoices from the contractors and escrow will hold the excess funds for those contractors until work is completed. In the case where there are credits granted for closing costs, (recurring or non-recurring) if those credits EXCEED the closing costs then the money goes back to the entity that granted the credits. Never, have I seen, that cash will go to the buyer. That indeed would be flagged by the lender.
Now granted I am only a pup so I am sure more experienced people have seen more. I am not saying it doesn’t happen or hasn’t happened.
SD Realtor
July 6, 2007 at 2:15 PM #64336stansdParticipantI have 2 friends who recently bought or sold houses. In 3/3 cases, cash back was involved.
In the first, it was a 545K sale in Escondido. Cash back was 5K.
What was really intestesting was the condo this guy sold at the same time to move into the 545K house. Listed last year at 390K. Sold for 350K with 10K cash back (for the bears on the site, that’s well over a 10% decline). Buyer even lobbied for a higher sales price with more cash back because they were taking out a 100% interest only loan apparently at their limit. Needed Cash back for closing costs. I told my friend this was very shady. I was glad to hear, though that they reported it to the lender. Problem became that the lender saw the amount as excessive, so they were in escrow and the lender says it’s too much, deal is off if it’s that much (I think 2% was their limit).
The solution: Extra cash given to broker who then rebates back to the buyer his/her sales commission.
Very, Very, Very shady.
The third was a roughly 540K sale in 4S. Cash back was nearly 5K, and there was also an allowance for new carpeting.
Base on these data points, and the house I am renting: listed for 600K at bubble peak, trimmed to 570K, didn’t sell, comparables at 500, zillow at 480, I think the market in RB is down a solid 10% from peak when all this washes through.
Stan
July 6, 2007 at 2:15 PM #64395stansdParticipantI have 2 friends who recently bought or sold houses. In 3/3 cases, cash back was involved.
In the first, it was a 545K sale in Escondido. Cash back was 5K.
What was really intestesting was the condo this guy sold at the same time to move into the 545K house. Listed last year at 390K. Sold for 350K with 10K cash back (for the bears on the site, that’s well over a 10% decline). Buyer even lobbied for a higher sales price with more cash back because they were taking out a 100% interest only loan apparently at their limit. Needed Cash back for closing costs. I told my friend this was very shady. I was glad to hear, though that they reported it to the lender. Problem became that the lender saw the amount as excessive, so they were in escrow and the lender says it’s too much, deal is off if it’s that much (I think 2% was their limit).
The solution: Extra cash given to broker who then rebates back to the buyer his/her sales commission.
Very, Very, Very shady.
The third was a roughly 540K sale in 4S. Cash back was nearly 5K, and there was also an allowance for new carpeting.
Base on these data points, and the house I am renting: listed for 600K at bubble peak, trimmed to 570K, didn’t sell, comparables at 500, zillow at 480, I think the market in RB is down a solid 10% from peak when all this washes through.
Stan
July 6, 2007 at 2:35 PM #64343donaldduckmooreParticipantWho is really the loser in this kind of a deal? Why do they need to do that? The only end-result is the price jacked up, right.
July 6, 2007 at 2:35 PM #64401donaldduckmooreParticipantWho is really the loser in this kind of a deal? Why do they need to do that? The only end-result is the price jacked up, right.
July 6, 2007 at 2:37 PM #64350SD RealtorParticipantStan –
When you say cash back, you are inferring that the buyer literally got a check at the close of escrow correct? So basically, the buyer did not have to submit any money for closing costs, AND the buyer walked out of escrow with a check. I just want to make sure that this is the case.
I would be surprised if the HUD1 showed that the buyer actually walked out of the transaction with cash. To me, if the lender saw it on the HUD1 then it is the lenders fault for not flagging it and kicking it back. Now if the HUD1 showed the broker getting extra commission, then after the transaction the broker wrote a check to the client then that is not good. I wonder if the broker submitted a 1099.
SD Realtor
July 6, 2007 at 2:37 PM #64409SD RealtorParticipantStan –
When you say cash back, you are inferring that the buyer literally got a check at the close of escrow correct? So basically, the buyer did not have to submit any money for closing costs, AND the buyer walked out of escrow with a check. I just want to make sure that this is the case.
I would be surprised if the HUD1 showed that the buyer actually walked out of the transaction with cash. To me, if the lender saw it on the HUD1 then it is the lenders fault for not flagging it and kicking it back. Now if the HUD1 showed the broker getting extra commission, then after the transaction the broker wrote a check to the client then that is not good. I wonder if the broker submitted a 1099.
SD Realtor
July 6, 2007 at 2:41 PM #64411lnilesParticipantMe too, 3/3 friends who bought or sold experienced cash-back schemes. We discussed this in April:
http://piggington.com/false_comps_fraud
July 6, 2007 at 2:41 PM #64352lnilesParticipantMe too, 3/3 friends who bought or sold experienced cash-back schemes. We discussed this in April:
http://piggington.com/false_comps_fraud
July 6, 2007 at 2:53 PM #64361stansdParticipantYes, literally a check at closing. I think the broker was planning to submit a 1099…not sure how they squared away the tax implications.
Stan
July 6, 2007 at 2:53 PM #64419stansdParticipantYes, literally a check at closing. I think the broker was planning to submit a 1099…not sure how they squared away the tax implications.
Stan
July 7, 2007 at 10:49 AM #64472novice1027ParticipantFor the sake of sounding stupid, I don’t understand why the seller would agree to something like that. Am I missing something?
Does the seller get anything out of a shady deal, or just the buyer?July 7, 2007 at 10:49 AM #64531novice1027ParticipantFor the sake of sounding stupid, I don’t understand why the seller would agree to something like that. Am I missing something?
Does the seller get anything out of a shady deal, or just the buyer? -
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