As far as I know HOA fees are not deductible so you aren't missing out on anything there.

I don't know a lot about this stuff, but it reminds me of cash back at closing scams I've read about. I think the lender is supposed to be aware of the exact nature of the financial transaction taking place, and cash back at closing muddies those waters. Your paying those fees at closing means that the selling price was inflated from the lender's point of view-- your official closing price was higher than the amount that's really coming out of your buyer's pocket.

I'm not sure whether you did something illegal or not, but I think it might be. Whether or not it turns out to be okay, why would you agree to doing things in such a dodgy way without knowing for sure?

As far as taxes go, I suspect that you can't claim it for anything on your taxes. You have no documentation: effectively, it's a gift. And it's under the gift tax limit, so your buyer doesn't have to report it as income.

It went shady and dodgy like that because it was a last minute request from the buyer a couple days before closing & it took several months to get to a closing...Like 4 months. Believe me it was a total pain in the ass! I could have said no, "I want it done properly"...etc. & for all I know it could have ruined the deal and sales here are hard enough to find in So. Florida. So, I said yes. Basically I'm dealing with south florida types... English is barley spoken and ethics are out the window & cash talks.

Thanks for the great answer. I've posted this on a couple law forums and the experts didn't have much to say... They said things, but nothing of value. Thanks

For those of you who think I'm being discriminatory, yes I am.

and you've got the "-----" to say so too. I've just gone through a car deal like this so I sympathize with you. Sometimes you're over a barrel, you know it, they know it, so what can you do. And you would be stupid to act any differently. How about sending a 1099 at the end of January - Happy New Year to the new homeowner.

Hey Springvillegardens! I don't understand the 1099. What is that? Thanks!

This is totally fine. As a lender (in FL), there are situations where a seller may not contribute to buyer's closing costs more than a % or $, if at all. This is according to the guidelines of the lender and program the buyer has locked with. If what you are contributing exceeds that amount, generally we tell title companies that any excess needs to be handled outside of closing between both parties and not appear on the HUD. So giving the buyer your personal check is not out of the ordinary. Having this agreement not in writing is between you and your agent. As a lender there are times that contract addendums to such are done but have to be removed from the contract because it goes against the underwriting guidelines. I am a little surprised that you paid the HOA with personal check. Generally if the seller agrees to pay that, it will be on the HUD on your side. There's obvious more to this story but I wouldn't worry about it. It could have been a situation where your buyer was doing 100% financing and didn't have enough of her own money into the transaction.

Hope this helped. Can't advise you on tax issues though.

If this was investment property which you sold (rental home, etc), then you DO want to make sure you track all your expenditures. So you track the check that you wrote and the amt, etc. Since you don't actually submit these on your taxes, it is not much of an issue. Just save a copy of the cancelled check in case you are audited.

I mentioned the 1099, kind of tongue in cheek. It's where you pay someone for work and they are an independent contractor and you send them a 1099 at the end of the year to show you paid them money without taking out taxes, so the government can collect the tax due on it.

Someone above mentioned a gift, but wasn't it payment of a sort for buying your house. If you are giving a gift wouldn't you rather give it to a relative or someone you know - not to a perfect stranger. Heck you can send me $2000, I could use it. Income tax forms say did you get any income from any other source - and you are supposed to report income there - for circumstances where you do a side job for someone and they paid you without taking out taxes.

We once sold a trencher to a guy and even delivered it to his house. Then he asked DH to show him how it ran. Then he took a picture of DH on the trencher. Much to our dismay at the end of the year he sent us a 1099 in the amount we sold him the trencher for. Of course that was sleazy on his part because we didn't do any work for him just sold him the trencher - but I think he was trying to use it to his benefit for tax purposes somehow. We asked our accountant at the time and he somehow figured it out so it wouldn't be detrimental to us - so now we are careful not to let others take pictures of us in or on something we sell them.

Jgirl: It could have been a situation where your buyer was doing 100% financing and didn't have enough of her own money into the transaction.

That was exactly the case!

Everyone who replied, Thank you so much for your wisdom! Like I said earlier, I posted this on a couple popular legal info forums & got bogus responses, if any at all. This is my new favorite! Hunter

One easy way to make sure this sort of deal stays "above board" is to make your check out to the HOA, not to the buyer.

mfbenson: Thanks, that's what I did. It was made out to the association. Thanks for the reply!

"Thanks, that's what I did. It was made out to the association."

Then you should be in the clear. On the off chance that someone comes snooping, your response "I happened to pay my HOA fees in advance, and come to think of it, the HOA owes me a refund for the time after I moved out. I just haven't bothered to follow up with them yet. I'll get around to it someday."

I see now that you did mention it was made out to the association. I need to get more sleep! :)

What would the implications be if I stopped payment on the check. I wouldn't do it, just wondering... Thanks!

This is totally fine. As a lender (in FL), there are situations where a seller may not contribute to buyer's closing costs more than a % or $, if at all. This is according to the guidelines of the lender and program the buyer has locked with. If what you are contributing exceeds that amount, generally we tell title companies that any excess needs to be handled outside of closing between both parties and not appear on the HUD. So giving the buyer your personal check is not out of the ordinary.

As a lender in Florida, or anywhere, you should know that exchanging money outside of escrow and not disclosing it on the HUD is FRAUD, pure and simple. And if you are instructing escrow companies to handle transactions this way you are a party to fraud.

In this case, however since the money was towards HOA dues, I am not sure if it counts.

I would say if you stopped payment on the check you would win. Since it wasn't written up as part of the deal there is no proof that you owe it. I guess the buyer is taking a bit of a risk in that aspect.

But isn't stopping payment on a check fraud too - I think it is in my State.

Isn't the check already cashed anyway? Too bad you didn't say, I don't have my checkbook with me - I'll have to send the check later, or I'll have to see what my finances are - I have lots of bills to pay before spending any more money, then you would have had a chance to think about it. I hate it when people put you on the spot and you don't have time to think about it.

Thank you terriks .. and I think ANY contribution made by the seller, which benefits the buyer needs to be disclosed to the lender as part of the transaction. There are all kinds of guidelines for how much the seller can contribute.

The statement "The strange part was that nothing was in writing and I was told to give the seller my personal check at the closing, but not to let anyone see. " makes me think that the other parties knew this was not above board.

So I think that it was fraud. To confirm, all you have to do is contact your State Banking Department.

Things are done all the time "outside of closing". You just don't know about it because it's between the buyer and the seller.

I don't advise any one to commit fraud, EVER!

I'm sorry, but just because these things are done "all the time" does not make them any less fraudulent. When you advise someone to make a deal outside of closing and keep it off the HUD-1 you ARE committing fraud.

Read this from this article

"Cash back at the table has been in the investors tool box for decades. It is, in reality, just another form of a sellers concession. I've seen this done many times successfully. I've never seen it done where it created a situation that cancelled the deal, but that's just me. I put it that way for a reason. Any additional concession, other than the sellers concession on the contract which has been authorized by the lender, is AGAINST THE BANKING REGULATIONS. If your mortgage broker knows that this is going on he is guilty of mortgage fraud and can have his license revoked, or worse. Jail time is possible in cases of mortgage fraud.

Another article about this type of loan fraud

Terricks - I was merely answering the question. Whether or not this type of activity occurs, which we all know it does, is not condoned by myself. A situation between the two parties should be resolved between them.

Howabout in this market where sellers are giving cars, furniture, gift cards, cash back at close or numerous other things to buyers? Those are seller concession and are not allowed as any part of the transaction. Do you think that they are not doing this? Of course they are. Again, I am not saying it's right but it is happening. What if I were a buyer and you, the seller, were offering me a car if I bought your home? The lender would require it removed from the contract. Do you think that I, the buyer, am still not going to want the car? Of course. So if it's a separate addendum that the agent is holding on to, are they not commiting fraud? I don't think it's something that person would go to jail over.

I come to these forums for information, feedback and enjoyment, not to be attacked.

Ok, enough said. I'm off my soapbox and on to other things.

Oh, by the way, I love Heidelberg, don't you? Did you go to school there? DH and I had our prom in the castle many moons ago.

Bitting lips & tongue to stay out of this one. :(

/t

Sorry, I didn't mean to attack. I know that this stuff goes on all the time, but I also know that it's not legit, and many homebuyers and sellers don't know that it is a potential can of worms.

And I do love Heidelberg, though I only got to spend 4 days there. My son just finished up a year at the University of Heidelberg and I flew over for his last few days. It was like a postcard, just picture perfect.
I have a friend that went to high school there and they held her graduation in the Castle.

For my very first house my friend lent me $500 because closing costs ended up being more than I had - I didn't tell anyone about it and later paid my friend their money back.

...and then there are some things buyer and seller agree to that should be put in the contract. Reminds me of a transaction years ago where the sellers agreed to give us a property line adjustment if we went to sell the property in the future (because they said they knew their shed was over the line) and they owned the property next door to us. We had an inexperienced agent and they didn't suggest getting it done at the time and we were so caught up with moving and everything that we forgot about it. Well when it came time to sell, we had to threaten them just to get them to sign papers to get the property line adjusted and we had to pay for the survey and everything involved just to sell and it took over 4 months - thankfully our buyers waited. So some things need to be into the contract - we have since learned.

Not to sound attacking, but jgirl, you said, "If what you are contributing exceeds that amount, generally we tell title companies that any excess needs to be handled outside of closing between both parties and not appear on the HUD."

If you're part of the "we" telling people how to do this, how is it not the same thing as condoning it? Terrik's citation seems pretty clear. If your organization tells people how to break the regulations, doesn't it mean that you're implicitly supporting their doing so?

I guess I'm just amazed at how this doesn't seem to be a big deal to a lot of people here. But everyone is screaming bloody murder over the sub-prime mess.

Fraud is a HUGE problem in the mortgage industry; buyers, sellers, realtors, appraisers, bankers, mortgage brokers, attorney's perpetrating fraud.

And I disagree ... "So if it's a separate addendum that the agent is holding on to, are they not commiting fraud? I don't think it's something that person would go to jail over." People are going to start going to jail over these types of transactions. Fraud is fraud ... the FBI has a large task force specifically for mortgage fraud.

This type of fraud, as mentioned by the OP, is part of the whole problem. Don't be a party to it. It needs to STOP happening "all the time".

Rather than my saying anything, I'll let 'Realtor Magazine' do the talking for me.

/tricia

Here is a link that might be useful: Mortgage Fraud

The way I understand it cash back at closing and other deals like that may be illegal, "depending," but if anything is misrepresented to the lender it's loan fraud. So what the OP did was likely get suckered into a deal that was borderline. Another good site is www.mortgagefraudblog.com I have read their book on loan fraud and like how they describe the many gray areas, and how easy it is for regular people to be hoodwinked by someone telling you "it's ok."

Is fraud ever discovered after closing?

I learned of a recent closing where the lender required 20% down payment, but the buyer had no cash. They overstated the sale price and after closing, the seller repaid the realtor for funds advanced to the buyer as down payment.

Everybody worked together on this deal. The realtors cooked it up, the buyer and seller eagerly went along, and the lender had to know because the realtors kept screwing up and submitting different versions of the contract. The appraiser should have noticed that the sales price significantly exceeded the listing price. The title company finally asked not to be told anything further about the after-closing transactions.

I thought that credit standards had tightened and that this kind of thing had stopped. This didn't even seem like a very creative scheme. I guess if it makes it past closing, there will be no consequences, but it's still fraud.

Wow! This post turned up more info than I expected. All your information is outstanding & I learned much. I knew it was a crooked industry, I just couldn't pin-point what it was. This Opens my eyes & I'll have an attorney by my side on the next deal... Now I have to go through the buying process.. What is crooked on this side of the house?? Again, I know it is but I just don't know what! Thanks ;@) Hunter

hunterosx, I would highly recommend the book they're selling on "Mortgage Fraud Blog" since you're going to be buyind and want to avoid similar situations. I hesitated to buy it or any book sight unseen, but once i got it, I was glad I did. It approaches it from both the buyers and seller's side.

Here is a link that might be useful: Mortgage Fraud Blog

quandary, yes ... fraud is often caught after closing. Most (all?) banks and lenders have Quality Control (QC) departments that reverify a percentage of closed loans for fraud. Many lenders, including the one I work for, have a built in fraud check as part of the loan approval process.

In that case, most likely, the fraud check we do would hopefully indicate that the value of the property was not realistic. That would then flag the loan for more of a follow up.

That's also why many of the No Income No Asset or Stated Income Stated Asset loans are going away. They have become a huge source of fraud.

Good mortgage lenders have to spend more time making sure the deal is a legitimate deal than ever before. It is no longer just about making sure the buyer qualifies and has enough money to close.

Thanks for responding, pamghatten. I tried to discourage the seller from engaging in this because (1) it's fraud and (2) I didn't want them to waste time off the market because I was sure the lender would catch this and it wouldn't close anyway.

I'm still stunned that the underwriter and/or appraiser went along with it. I would think that multiple submissions with different contract terms would have raised a red flag. Additionally, someone should have been skeptical as to how these borrowers suddenly came up with tens of thousands of dollars cash for down payment -- they couldn't have shown that these funds had been on deposit and a gift of this size should have been suspicious. If a gift letter is involved, do lenders check the financial wherewithall of the donor?

The realtors removed the house from the MLS when it went under contract, but don't appraisers or underwriters check the history of listing prices? This house had been on the market for over 2 years with numerous price reductions. Appraising isn't an exact science, so I can understand that the appraiser starts with the assumption that the sales price is accurate, but knowing that inflated sales prices are a common basis for fraud, it seems that a closer look would be warranted.

If this deal wasn't exposed during underwriting, it seems unlikely that Quality Control would catch it. The scrutiny really needs to happen before the funds are disbursed. I can't see the payoff lender returning the funds.

I know that the seller really wanted to unload this house, but that doesn't justify the commission of fraud. Even if your conscience doesn't kick in, people need to understand that it's very difficult to cover your tracks. A transaction of this size leaves a paper trail, and fraud is a crime which can carry pretty stiff penalties.

Unfortunately, there are underwriters who bow to pressure applied by LO's or managers to approve loans they do not agree with in order to keep their jobs. And many appraisers are not given a purchase contract to review before they appraise a home. They are supposed to be provided one, but it's possible they didn't get a copy until the contract was already changed.

I don't mean to defend the industry, crooked things go on, but not always. Sometimes loans are manipulated in a way that the people who should catch things are not aware that something is going on.

And you are absolutely correct that the fraud checks need to happen before closing. There are kinds of new fraud softwares out there to address these issues, it's a matter of lenders changing their processes.

As a lender, we can now run a pre-closing/funding review on a borrwer to ensure that they are not closing on multilple loans/properties without our knowledge. Some fraud has been where a borrower applies to a couple of lenders on the same property and closes on all the loans within a few days.

Gift funds are not verified too much in detail. A lender basically looks to see that the donor had the money in an account, but does not look for the history of the money being in the acocunt. There is only so much information we can ask from soneone who is not our borrower.

I agree, nothing should justify fraud.