Loan Fraud

“We’re looking to buy our first home. The only way to buy what we want is to find a cheap house that needs a lot of work. Our problem is we’re cash strapped and won’t have money left for fix up. An agent told me we could offer more and have the seller write us a big check after closing to cover some repairs. Is that OK to do?”

***ANSWER:
“But we do it all the time!”

That was his response when I told the Realtor who wrote an offer on my client’s property that my seller would NOT write his buyer a $35,000 check when escrow closed.

To which I responded… “I’m sure you do, but that’s called LOAN FRAUD. It’s illegal and would subject us and our clients to fines and imprisonment.”

He replied… “It’s not illegal. I’ve done it dozens of times.”

Unfortunately, he was 100% wrong. It seems his argument was that the more times you break the law, the more legal it gets.

BOTTOM LINE:

Crediting a buyer funds through escrow, where it’s fully disclosed to the lender, is 100% kosher.

But if a seller transfers significant funds to a buyer OUTSIDE of escrow it is called LOAN FRAUD.

(FYI: It’s generally accepted that the seller may give the buyer a nominal sum outside of escrow, say a few hundred dollars for a leaking pipe he forgot to fix.)

BTW, here’s another problem:

What if the seller “forgets” to write you that check or the check bounces?

I’m no attorney, but I’m not sure you can legally enforce an illegal contract. And even if you could, you’d find yourself chasing the seller for the money, and perhaps never getting it.

All around, it’s a bad idea. Don’t do it.

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