Riverside Realtor Blog - Alma Dizon

Alma shares her experiences and observations as a Realtor in Riverside California.

Wednesday, May 10, 2006

If they want to pay an extra $100,000...

My broker recently announced a scam to watch out for. If the buyers want to pay an extra 100k or so, and they ask the sellers to pay them about half of it outside of escrow (or say, take back a 2nd loan without expecting it ever to be paid), they're defrauding the lender. Such amounts are way over lender limits for seller help with closing costs and/or allowances. To accomplish this, the buyers need the help of the appraiser. Of course, the buyers are going to be stuck with a sizable payment for some years (unless the house goes up significantly in value), so they don't get off completely. If prices dip and a life change forces them to sell, they're in real financial trouble. Moreover, these kinds of sales are also bad for the neighbors because they produce comps that then justify bigger debt when other home owners in the area decide to refinance. If these other owners then get into a situation where they need to sell, they won't be able to cover their debts.
So who benefits? The buyers might at first because they get the house and money to fix it up (hopefully to the point where it actually approaches its supposed worth.) The sellers obviously get their price and then some. The appraiser may profit beyond the usual fee. And then the real estate agent who is also the loan officer fares well because s/he is the person who is making the commissions off the overvalued property. If this person also manages to represent both the buyer and the seller, s/he could be getting an extra 10k. But is that enough money to justify putting so many others at risk?
So if one house in your neighborhood suddenly sells for 100k or so over anything else in the neighborhood, don't jump for joy because your house is suddenly worth more. And please don't use it to take out a bigger loan!

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