Uh Oh, Am I Committing Fraud In This Instance?
I'm coming down to the wire on my first ever short sale. The lender agreed to a discount of 357,000 (from the 420,000 owed) and I have a buyer lined up for 465,000. Do I have to do the HUD-1 stmt showing the actual sale price of 465? I mean, is it fraudulent if the stmt reflects a sales price of 357 and the lender later finds out (through a transfer tax stmt or some other means) that the actual price was 465? If I do put the actual sale price on the HUD-1 and the price does, in fact, cover what is owed, won't the lender get excited and then disallow the SS? Man...I DO NOT want to do anything fraudulent and at the same time I've worked so hard on this deal I don't want to blow it now. Help...
Good deal, congratuations.
Yes, putting a number on the HUD-1 which is not the truth is fraud, don't do that.
I'm assuming your short sale agreement is in writing. If so then I don't think you will have a problem here. Unlike "lay" sellers banks tend to feel bound by their agreements and will close on your ss agreement even if they think you took them to the cleaners.
More likely the bank will recognize how hard you worked to find a buyer and figure you earned the money.
May make it a little more difficult to get your next short sale done with the same bank but I wouldn't worry too much about that. Any doubts they may have are more likely to be washed away by actually having the transaction completed. That and a balance sheet thats $100,000 stronger.
Just for the record, I think your discount was to $357,000 not of $357,000.
You are trying to incorporate two, separate transactions on a single HUD1.
Transaction #1: You are buying the property for $357,000.
Transaction #2: You are selling for $465,000.
Read carefully the terms, conditions, and closing instructions within the mortgagee's short sale approval.
My hunch is that any proceeds left on the table above and beyond the $357,000 (less approved costs) are payable to the mortgagee.... not you.
If this is a small bank that originates and keeps it's own loans... you may be able to pull this off. But, if they are a sophisticated financial institution....
you'll need to consider and plan for a double close.
[addsig]
Well, the bank will not put an agreement on the SS in writing until they've reviewed the final HUD-1. So, I have no commitment yet. And, I believe this is a large, institutional bank. Under no circumstances will I commit fraud so I guess I lay all the cards on the table and grit my teeth? I'm just so sure they're gonna smack me down when they see the sales price as compared to what they're owed.
STOP!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
Tipping off the lender that the property could be sold for a substantial sum more than they are accepting will kill your deal. They would order another appraisal and reassess their position.
Haste makes waste.
You need to prepare for a desired exit strategy!
[addsig]
keep this one simple, double close. i think your anxiety will fade about this as you proceed..its been my experience that all excess funds will go to mortgagee. your commitment letter from the mortgagee should describe the closing protocal required to make this work.
regards-pat
why are you disclosing any info to the lender regarding your end sale?
ugh,,,i just hate following SSP...LOL.
Thank you all for your great advice and assistance! I did discuss this with my title guy and we will be doing a double closing. The lender WILL NOT see what my buyer is paying...
the only legal way I know of to get around this situation is to do a double closing(meaning you have to pay off lender's $357k and take title to the property, then close with your buyer for $465k and keep the difference. If you try to do it all on one closing, lender will most certainly not allow it
Quote:
On 2004-07-20 10:08, pickledpunk wrote:
I'm coming down to the wire on my first ever short sale. The lender agreed to a discount of 357,000 (from the 420,000 owed) and I have a buyer lined up for 465,000. Do I have to do the HUD-1 stmt showing the actual sale price of 465? I mean, is it fraudulent if the stmt reflects a sales price of 357 and the lender later finds out (through a transfer tax stmt or some other means) that the actual price was 465? If I do put the actual sale price on the HUD-1 and the price does, in fact, cover what is owed, won't the lender get excited and then disallow the SS? Man...I DO NOT want to do anything fraudulent and at the same time I've worked so hard on this deal I don't want to blow it now. Help...
I am not ready to do a double close or as I call it simultaneous close yet, but here is a way to satisfy both sides the same day and avoid any fraud.
First find a good escrow company that can handle the transaction. Both transactions must occur the same day.
Schedule your $465,000 buyer to close in the morning. Proceeds go into escrow.
Schedule the closing with the bank in the afternoon the same day. The banks money comes out of escrow and they get paid and the property is deeded to you.
The property is then immediately deeded to the $465,000 buyer. You actually own the property for about 10 min.
Paper work done and the balance of the money in escrow you get.
You would have 2 HUD 1 statements. One for the buyer($465,000) and one for the bank($357,000). Both are factual because there are actually 2 seperate transactions taking place, the first with the end buyer and the second with the bank.
As long as the transactions are done on the same day, your risk is reduced to 0.
Nice try digitaltwister, that is a great guru textbook definition of a double close. Problem is, in the real world, it simply doesn't work like that.
You can not legally close on a property that you don't own. So you cannot close with your buyer in the morning and the seller in the afternoon and everything work out okay. It might work, but it is illegal. If the paperwork is ever checked, or worse, the second closing is fouled up (by your terms, the one where you're actually buying the property), then the closing agent and you will have some serious explaining to do, and I'm sure that the end buyer will be wanting to sue somebody.
You have to buy the property (ie close the deal) and then you can sell the property.
Roger
Following digitaltwister’s line of thinking – I am in possession of the deed. Before I went into this short sale, I struck an agreement with the defaulted homeowner where the deed itself is being held in escrow. In the event the bank approves the short sale, then the deed is released from escrow to me. The deed has already been signed and notarized so at the point I take possession of it, I own the property, yes? Then I can go to closing and follow DT’s scenario.
Quote: Frequently (I won't say 99% of the time, but with increasing frequency), the documents that the Seller will be required sign at closing will state (under penalty of perjury for making an untrue statement in a transaction that involves a HUD 1 document) that the Seller has done nothing to transfer his or her title interest in the subject property.... including and specifically to a third party.
SSPro, could you point me to where it states that making an untrue statement in a transaction that involves a HUD is perjury? Just trying to learn. My RE attorney says that it is not fraud to falsify a HUD if you are paying off a loan.
How does this apply to a Sub To? I assume that a SS does not have any special paperwork. So this paper work that the Seller must sign to verify that the "Seller has done nothing to transfer his or her title interest in the subject property.... including and specifically to a third party." , does it apply to Subject To also?
Thanks
Brenda
Quote: Laws: Cases and Codes : U.S. Code : Title 18 : Section 371. Conspiracy to commit offense or to defraud United States
If two or more persons conspire either to commit any offense against the United States, or to defraud the United States, or any agency thereof in any manner or for any purpose, and one or more of such persons do any act to effect the oject of the conspiracy, each shall be fined under this title or imprisoned not more than five years, or both. If, however, the offense, the commission of which is the object of the conspiracy, is a misdeamnor only, the punishment for such conspiracy shall not exceed the maximum punishment provided for such misdemeanor.
Again, I do not want to argue, I am just trying to learn.
Oviously this is pretty broad. Is there anything that is HUD specific, that actually means the HUD?
This would have to apply to Subject to. You are taking the deed and trying to deceive the bank.
Brenda
SSP please answer the question posed earlier then. How do you get someone to float the boat for even 20 minutes in the short sale on double closes?
I have had two deals fall through worth upwards of $40k in my pocket cash because - well basically the banks aren't in business to make YOU money... they are in biz to make themselves money.
PLEASE PLEASE ANSWERS.
Dil
Short sale pro;
Then what would be the correct "legal" way to do this transaction?
What if you didnt take a deed and put it in escrow? Then could you follow DT's scneario where you close with the end buyer in the morning then close with the bank in the afternoon. You will have taken possession of deed for a short period of time. And what you own you have the right to sell, no?
Let me clarify,
If we dont take the deed before short sale approval (which would protect us from all the other investors) then we are legally ok.
Heres the question. Certainly there must be away where the investor doesnt have to get his own loan to close the transaction and then sell for his profit.
Their must be a way for the investor to not have to get a mortgage loan each and every time he completes a short sale.
Wouldnt the double close DT was talking about be the solution?
Quote:
On 2004-07-23 09:12, rajwarrior wrote:
Nice try digitaltwister, that is a great guru textbook definition of a double close. Problem is, in the real world, it simply doesn't work like that.
You can not legally close on a property that you don't own. So you cannot close with your buyer in the morning and the seller in the afternoon and everything work out okay. It might work, but it is illegal. If the paperwork is ever checked, or worse, the second closing is fouled up (by your terms, the one where you're actually buying the property), then the closing agent and you will have some serious explaining to do, and I'm sure that the end buyer will be wanting to sue somebody.
You have to buy the property (ie close the deal) and then you can sell the property.
Roger
You can do a double (simultaneous) close legally and ethically. Make your Purchase Agreement with your final buyer contingent on the closing with your original seller. The final buyer closes in escrow with an Escrow Agreement that spells out exactly what happens in the event that you cannot perform (ie he gets his money back). You can sell what you don't own as long as you disclose to your buyer what is going on.
Here in the South when large timber companies sell their land holdings the individual tracts may flip out two or three times all at a simultaneous close. Happens all the time.
Ok... I'm the one who was sitting in the real estate aisle every damn time you went into the bookstore. But a year ago, I decided to go out and try this stuff.
Worst case scenario, but it seems like you could always get a partner who has the cash, by offering to split the profit 80/20 for your work. It's awesome that you have a $108,000 deal put together, but if you don't have the resources to pull it off, it's a $0 deal.
Post on a forum here or try one of the investment loans groups at google or yahoo. I'm sure someone can cough up $360,000 for a days use, if they are going to get $20,000 (legal as a partnership, but not legal as a loan due to usury laws). If you call every doctor, lawer, and small business owner in your yellow pages I GUARANTEE you will find someone with that much money liquid or available as a L.O.C.
Unless I'm missing something?! You are obviously pretty resourceful and comfortable with thinking creatively or you wouldn't be in SS. 8-)
In response to shortsalepros last response:
Many of the gurus are just being up front with the banks and telling them first thing when they get on the phone with the bank rep... "hey i have the deed in escrow..."
From what you are saying that might be the best way to do it
I love this site!
You guys are awesome!!
Great info on the double close disclosure... thanks for the info - will run it by my title gal and keep you abreast of how things turn out.
Dil
yes! for me if i have to hide anything at all or is anyway shady i move to the next deal.......kenmax
Here is my $.02
Of course. My thinking is that if you can't disclose all aspects of the proposed transaction to all parties, your deal might not survive judicial scrutiny...
Two issues come to mind. The snatching of the deed in preforeclosure short sales, and/or the attempt to assign or 'flip' the approved contract...
Generally, in each case, in order to be successful, you must intentionally withhold this detail from the foreclosing lender... without getting into the illegality of withholding material information intended to cause a mortgage lender to forgive debt, or causing another party to to the transaction to lie about it......usually the Seller is asked to swear that they have done nothing to transfer title to a third party... which of course they have if they've conveyed a deed... recorded or not. So, they would have to lie about it on the closing docs... and since the mortgage company is usually a federally insured institution... it's not just a small, white lie....it's a big one. No, you probably won't get caught unless the mortgage company's debt forgiveness practices are audited and the former homeowner is deposed and tells the truth.... then the Feds can come knocking on your door...looking for the amount that was forgiven.
The easiest way to a straightforward short sale acquisition is to prequalify the ss candidate for transactional feasibility and profitability...contract to purchase the property, negotiate the short sale, and be prepared to finance the purchase and take title. Once you have title, you can continue to enhance the subject's equity and move forward per your own business plan and exit strategy.
The problem is that many folks want to combine acquisition techniques, take shortcuts, and end up stepping on their own foot..
[addsig]
Thank You Kenmax and Shortsale pro
Your feedback is invaluable
Kenmax: Using the criterea you mentioned (no shady stuff)
How many deals do you pass up?
What kind of shady situations do you come across?
Shortsales pro:: I would love to know how to prequalify a ss candidate.. can you share or point me to an article?
Thanks
Niceguy
[ Edited by Niceguy1 on Date 08/06/2004 ][ Edited by Niceguy1 on Date 08/06/2004 ]