Mama Liz's Blog: To get a loan closed - no matter what?

Liz...

I'll be curious to see what others have to say about this.

My popcorn and I are parked for the festivities :)

TLW...ROAR!

my first thought what is the sale price, the only reason to steer away from putting the $5k on the contract is it's tough to find an investor that will take escrow greater than 2%.

if it's straight repairs perhaps the seller would fix them prior to closing?  I am assuming he is also unwilling to drop the sales price?

I would also ask the lender and closing attorney to prepare settlement statements showing what the deal looks like with him paying closing costs vs. not paying closing costs but writing a check for $5k; maybe seeing the net net is identical he'll understand it better.

I am with the first poster (Bryants wife; ). I would not go forward unless like Jeff said, just have seller fix things before closing and have a non refundable EM check if buyer fails to go through with purchase?

Patrick Johnson, ABR E-pro

Windermere RE, Bellingham, Wa.

I suppose alot of this depends on the type of loan the buyer is getting.

There are certain allowances and limitations for each kind of conventional, FHA, VA, etc. type of loan.

There are different allowances for concessions, repairs, etc.

What kind of loan is the buyer getting?  how much down?

Liz - I'm going to chime in here but I want to take it one issue at a time.  Your first example of the false lease is not only unethical but illegal as well and you were right to question that.

As for the 5k seller credit.  What difference does it make to the seller what the buyer does with the 5k?  If the seller has agreed to give the buyer a credit of 5k, what does the seller care if the buyer chooses to use it for closing costs or repairs and decorating?  Just asking.

You don't mention what kind of financing the buyer is getting but if the "repairs" are noted on the appraisal as being either health and/or safety hazards or structural damages, I don't know any underwriters that wouldn't request that those "repairs" be done prior to the close of escrow.

However, if the "repairs" are really more of a cosmetic nature, then by all means note that on the contract.  In the end it will come down to what the health and safety hazards and/or structural damage that the appraiser notes on the appraisal as to whether or not the buyer will receive final approval for the loan.

As long as the cosmetic conditions aren't creating any health and safety hazards or causing any structural damage, then there shouldn't be any reason why the underwriter would not accept the 5k repair/decorator credit be included in the contract and/or HUD statement.

Fraud is a tricky topic and does go both ways. Not to make excuses for the originator you have referenced, many are pressured to get deals done as the power of the real estate client has drastically shifted to the Realtor as refinance business has waned. Conversely, many Realtors also clamor for just get the deal closed because they have fewer opportunities to close a transaction.

In regards to the money, all material facts dealing with the transference of money must be disclosed on the HUD-1. To leave a material fact that there would be $5,000 transferred outside of a closing is just flat fraud. I would suggest that whatever items that required repair be negotiated into the contract to be completed prior to closing. Likewise, any decorative requests should also be remedied prior to closing.

Here is a scenario that 2 identical monetized requests were asked and the seller only conceded on one of them. A more palatable offer would have been to give a laundry list to agree/disagree so that it was not so overwhelming in regards to large numbers. That's just my opinion.

Liz - I'm with Donne on this one - No one should be making false leases to get a loan through. That's mortgage fraud. Don't do it. I don't think you want to enjoy some "rest and relaxation" at the Gray Bar Hotel.

As for seller credit towards repairs or towards closing costs - why the refusal to contribute towards closing costs? If the buyer pays his or her closing costs, then the seller is contributing towards repairs. If the seller pays the buyer's closing costs, then the buyer has freed up his or her cash to make the repairs he or she wants. It's really "six of one, half of dozen of the other." However, so long as it's noted on the contract and on the HUD-1, and so long as the concession doesn't exceed the maximum permitted (depending on the loan), it will be okay.

If, on the other hand, the repairs that need to be done are the type that affects the safety or hability of the home, or of the safety of the new owners, then the lender will require them to be completed before settlement.

easy- Tell the seller that the bottom line will be the same for him whether he pays $5,000 in closing costs or $5,000 in repairs. If he still refuses he is definitely a JA and doesn't care that much about selling his home. 

Liz:

I would advise your buyer to run away from this loan officer.  A loan officer willing to cheat the lender will likely have no reservations about cheating the buyer or anyone else in order to get his/her commission.

If it is part of the deal, it has to be on the purchase agreement and the HUD.  You can put it on all the paper work, however if the repairs are a safety issue the underwriter will require them to be repaired prior to closing.  If the $5000 is going towards cosmetic items it is a sales concession and lowers the LTV.  SO if this is a high LTV transaction and they ask the for $5000, it will kill the deal.

My advice is not to ask for the $5000 and drop the sales price $5000....but that would lower your sales commission.

Have to agree with the posts about trying to get the seller to understand that paying the closing costs would be the same net to the seller as paying for repairs.  If he doesn't agree, can the repairs be done prior to the transaction?

Wow, you are seeing some really interesting cases lately.

I will get to answering each of you -- I wanted to clear up a couple of issues --- the repairs are mostly cosmetic --- the seller is very stuborn --- no, he will not reduce the price and no, he will not pay any closing costs --  so, now what?


       Mama Liz

Liz:  I represented sellers this year that refused to pay closing costs.  You know what?  They paid $10,000 in closing costs.  It was that or not sell the house.  If he really won't pay, do the repairs/updates himself prior to closing.

If it is $5000 for cosmetic items ( carpet, paint, counter tops, ect...) you can put them in the purchase agreement...HOWEVER these would be considered a sales concession, effectively lowering your sales price by $5000.  So the buyer would be comming to close with more funds.

You talk with the listing Realtor and have them agree to pay $5000 towards closing costs, the numbers net out the same for all parties.

I don't think the origianl loan officer was trying to commit fraud, but did not explian the complications of listing $5000 of repairs.  You could do a FHA 203k streamline and include the repairs in that loan (actually up to $35,000).  If that lender won't do a 203k....I will!

There may come a time you\'ll have to cut him loose!

Patricia

It sounds like the blame is being put on the loan officer (as usual). To be frank, how come your agent wasn't educated on what is and isn't allowed on the psa?

Any monies associated with the transaction need to be documented and accounted for on the HUD at closing.  The seller obviously doesn't understand that his unwillingness to cooperate with the verbiage of the written contract in order to close on the house will drastically reduce his ability to sell the home.  His has basically placed a $5000 price tag on his stance.  How about a $5000 credit to be applied in any manner that the buyer chooses?  Has anyone asked the seller exactly why he has an issue with contributing to the closing costs?  Maybe he has a good reason and won't compromise because of that, if that is the case, market the property according to his wishes.

No matter what!  Are you kidding me...our integrity and license is always on the line.  We are here to protect the public and the profession.  This is why we lose passion for the business with all the eupheisms for fraud.

I don't want to add fuel to the fire in the agent vs. loan officer undercurrent here, but shouldn't EVERYONE involved have all the facts and then just do what's right, not what's illegal/unethical?

Hi Liz, so the Seller won't pay closing costs, won't reduce the price but WILL pay for cosmeti/repair items?  Am I missing something here? Is this just a power trip by the Seller?  He obviously is not motivated to sell the property. I'm with one of the previous comments - sometimes you just have to cut them loose.  I can't imagine going to closing with a client like that and that attitude.

As for the phony lease - we all know the answer to that one...it's fraud!

I think that it is pretty clear:  Everything has to be disclosed.  I don't recall you indicating what type of financing that the new loan will be, but at the very minimum, licenses are at stake here. 

Howdy, Liz.  I am grateful that an agent is talking about this because we, as loan originators, are asked to perform these acts a lot, from relatively well-meaning agents.  Once they understand the repurcussions of fraud, they generally steer clear from those actions.

Your two examples are excellent ones.  Falsifying lease agreements is fraud.  Lenders are getting smarter about this; both FHA and the GSE agencies require equity and reserves for a "new" lease to be used for income.  Otherwise, a landlord history is required and verified through tax returns.  The intent is to avoid the "buy and bail" strategies practiced in 2007.

I think the loan originator who framed the contract language was explaining loan guidelines.  I might have not have said that "it's fine with me" as I have no opinion about your contract; I can only explain lending guidelines to you and how they might be interpreted by an underwriter.

Loan originators can, and should explain all loan guidelines to real estate agents so that they can write their contracts to minimize any potential problems while staying in compliance.  Sometimes, that calls for an offer of options that may not "sit well" with the sellers.

If he really won't pay, do the repairs/updates himself prior to closing

A solution that appeases both buyer, lender, and seller.  Great thinking, Chris!

Hi Liz -- Absolutely no dollars can change hands outside of what is listed in the purchase agreement and reflected on the HUD-1.  I would walk away from a transaction before I would let 1 cent go unaccounted for.  This is a loss of license just waiting to happen if it occurs this way.

I go back to the work up two sets of settlement statements and show the ol' geezer the bottom line is the same.  Really, people respond to different things and people learn in different ways, maybe he just needs to see it.

Keep it on the HUD.  Period.

Hello Liz and Active Rain members,

First comment on AR I am new:

The bogus lease is obvious fraud, we all know that.   The good news is that most ethical lenders have put multiple safeguards in place to make sure that loan officers don't get away with this activity for the sake of making a commission.   These safeguards are present in the loan registration, loan set up, underwritting, processing, closing, quality control and funding departments before they get to secondary.   Additional documents will be required to confirm that the so called "lease" is valid.  It is at this point that the wild wild west loan officer will be in a bit of trouble scrambling to alter new documents to authenticate the fraudulant ones before this because losing the commission won't be an option.   

I think we all have the advice for realtors when they hear something like this from a loan officer:

RUN FORREST RUN!!!!

Liz

I have to agree that fraud is not a good thing for any party involved.  Once you are aware of it, and you allow it to continue, places the knowing party in jeopardy.  I am not lawyer, but have been advised of such a thing.

Just as a matter of record, I have counseled agents to write their contract based upon the sell paying closing cost. vs. an allowance.  I know that we can argue the semantics, but how the contract is written is important.  I'd have to re-verify any changes of date, but many lenders will adjust the loan amount and LTV lower if allowances are indicated.  Underwriters have given me this information to use accordingly.

While preparing a false lease agreement is just plain fraud, we just have to make certain that we frame our decisions based upon lender interpretation of the guidelines.

Blatant falsification will undoubtedly be found in some cases; it's up to the originator and everyone involved to ensure this does not enter your world.  Otherwise you jeopardize your livelihood by losing your license.

Best Regards

Paying outside of closing / not on the HUD is illegal but it won't close if it is on the HUD or if the underwritere knows about it.

I'm glad that the loan officers I refer clients to dont practise it. I'm not sure if this incident is just out of the ordinary. Surely there are more respectable professionals around!

Fraud - nope - 100 miles away. I tell clients and professionals alike when fraud is even on the radar screen, EVEN when they are acting right. One of the main ones I see people "Attempt" is owner occ refi's on investmenet properties. I'm not wasting my reputation or life paying for some stupid loan closing.

What about getting estimates for the repairs and putting the money in escrow? We have held monies in escrow many times for various situations, including builder finishing pumch list, repair allowance in escrow until buyer got estimates, then monies were disbursed according to the estimates. This would be an agreeable way to ameliorate the old codger, IMHO.

Liz: It's unfortunate that these little things happen. Some day it will back fire and catch someone

Thanks for sharing your story with us. People will always try to short the system. It is better to take the high road in the long run. The short road pays off in the short term and bite in the end.

I certainly wouldn't have the seller pay the buyer after it closes.  That is way too risky.  It seems like the seller could apply the $5000 credit to closing costs to keep the lender happy and then the buyer can use that money for repairs.

I agree with Sybil.  Everything should be on the HUD. You don't want to risk your license over one deal.  Faking a lease is out of the question. Some lenders don't require that the rental unit be rented out. They take the market rent and they will calculate the income that way.  Maybe it's time to reconsider lenders?

Compared to the crazy loans and things that were going on a few years ago its like bible school today. All you need to do is have the Loan Officer show this as a credit on the HUD after you put it on the contract.

There is only one way to do any mortgage deal and that is the right way! We're always struggling with the simplest of problems - why didn't the broker just ask the underwriter to allow the credit to be used for closing costs.  In eight years of writing loans - LANGUAGE - has never been an issue. 

Too many people create problems where they don't exist.

Liz: I would say this. By the way, thanks for the post. If it sounds and feels fishy, then it is. If the deal falls through, that may be o.k. No one wants to be investigated later for a sham. Good luck with this. Follow your gut!

Interesting discussion - how did you end up handling this? We've had similar requests in our area. keep us posted. Thanks!

About putting the repair money in escrow until completion..... Most lenders won't allow this, the work must be done by closing. The sales contract and loan underwriting/approval were based upon a specific sales price/market value. Once the loan is closed and funded, the lender has no recourse if the repairs/upgrades are not made. In my experience as a mortgage broker, the only time a lender would allow escrows were for minor landscaping work that did not affect the structure. For more information, see "Getting To Closing", www.CherylLPeck.com.  

Some people really will try anything and everything to get the deal closed, some of these people can be dangerous. Congrats on the feature Liz!

I try to stay with the letter of the law. I explain to all parties that what they are suggesting is illegal and then I explain the legal way to proceed. I get our office loan officer involved to explain the law.

It seems easier to make the needed repairs.

These are underwriting guidelines pertaining to decorating allowances:

Giveaways: The cost of any contributions from an interested party that are in the form of furniture, decorator allowances, moving costs or other "giveaways" must always be deducted from the property's sales price.

The decorating allowance is what is known as "inducement to purchase".  It's like saying if you buy this house I will throw in a Ferrari.  The home price is inflated because no one is going to give away a Ferrari for free.  The lender wants the price reduced because they are aware the seller is demanding a higher price because the house comes with a Ferrari.  That's an extreme example but those are the mechanics.

TLW ---Thanks forstopping by  -- OK, let's see what goes on


       Mama Liz

Jeff --- all very good suggestions --- this older seller is very stubborn -- he will not drop the price and he will not pay closing costs


       Mama Liz

Patrick --- good suggestion ---I will share with you later what my suggestion was. Thanks for stopping by.


       Mama Liz
 

Ralph --- the buyer is getting a loan from the Charleston Consortium -- it's community funding


       Mama Liz

Donne ---
1) You are correct --- the seller should not care what the money is used for -- in this case, the seller does care
2) Actually, we don't have the appraisal yet --- if there are some that are noted, then they will have to be done prior to closing
3) The repairs/decorating allowance is about what we are speaking here
4) Thanks for stopping by


       Mama Liz

James ---- you make a good point that many Realtors just like mortgage loan officers clamor to make a deal work
Your suggestions are good and appreciated -- will let you know what my recommendation was


       Mama Liz

Lewis --- your suggestions are great --- you are forgetting that our seller is stubborn and he will NOT pay closing costs and he will NOT reduce the price of the house --- remember, by some standards, he may be a JA


       Mama Liz

John --- you would think this would be pretty simple, but we are not dealing with a normal sellelr here.


       Mama Liz

Jesse --- I'm finding this a lot these days - don't like it --- good advice


       Mama Liz

Kent --- good advice, but seller will NOT reduce the price


       Mama Liz

Kim --- this is one of the "fun" parts of being a broker-in-charge ---we are dealing with an unreasonable seller ---


       Mama Liz

Chris Ann -- you see, this seller wants to sell, but does not NEED to sell -- he is being very stubborn -- your solution is very close to what I suggested --- you see, he doesn't want to do the repairs prior to closing either.


       Mama Liz

Kent --- you see, the listing agent and the selling agent are the same --- this is a special community funding --- I hate to disagree with you, but the original loan officer specifically told my agent-owner to have the seller just write a check to the buyer and to NOT put it on the contract or the HUD


       Mama Liz

Patricia --- cut who loose? Thanks for stopping by


       Mama Liz

Bryce ---- Excuse me, but I think you are sounding a little testy, here.


       Mama Liz

Kyle --- we are just dealing with an eccentric seller --- we do represent him and trying our best to close the deal --- without fraud.


       Mama Liz

Eileen ---thanks for stopping by and for your comments.


       Mama Liz

Christianne --- absolutely ---everyone should just do what is right? the loan officer is the one who suggested the fraud --- BTW, I love your name - it is so pretty.


       Mama Liz

Daria --- You would feel as though you were missing something here --- but all that you are missing is that we are dealing with an eccentric seller.


       Mama Liz

Julie --- the financing is through a community lending group --- you are, of course, absolutely correct --- all must be disclosed.


       Mama Liz

Chris --- thanks so much for your great comments --- Certainly, I realize that there are just as many illegal real estate agents as there are illegal loan officers, but in this scenario, the loan officer was definitely suggesting fraud


       Mama Liz

Chris --- thanks for stopping and for your comments --- we are on the same page.


       Mama Liz

Jeff --- thanks for your suggestion --- we tried that and NO, he would NOT see it.


       Mama Liz

Emily --- Great suggestion --- but there has to be a way that makes this a win-win for everyone and stay legal.


       Mama Liz

John --- I hear you and this is good advice ---  however, here, we are trying to save a deal ---- legally.


       Mama Liz

Wayne ---  you are absolutely correct --- however, here, we are trying to save a deal --- legally.


       Mama Liz

Russ --- you are correct -- so, how does one handle this -- legally - and get it closed.


       Mama Liz

Loreena --- thanks for stopping by --- any suggestions as how to handle this - legally - and get it to closing.


       Mama Liz

Steve -- thanks for stopping by and for your opinion --- since you are a loan officer, got any ideas of how to solve this -- legally?


       Mama Liz

Sharon &  Frank --- now, we are talking -- very close to my suggestion. Thanks.


       Mama Liz

Roland --- no question, one day this will catch up with the guilty --- how would you solve this problem --- legally?


       Mama Liz

Harry --- thanks for stopping by -- no question, the high road is critical -- but how would you solve this taking the high road?


       Mama Liz

Sybil --- you would think that this situation would be this easy to solve -- unfortunately, it isn't.


       Mama Liz

Vanna --- this is more about the agent-owner knowing that the lender is acting wrongly --- we need to solve this issue - legally.


       Mama Liz

Laura --- great suggestion --- one big problem with this solution -- the lender says it cannot be shown on the HUD


       Mama Liz

Shellie --- you missed one important point --- the seller will NOT pay closing costs.


       Mama Liz

Paul --- you missed the part that I have already made my decision as how to solve this issue - legally.


       Mama Liz

Monica & Kevin --- thanks for stopping by -- I will write a comment as to how I handled this situation - legally.


       Mama Liz

Cheryl --- thanks so much for stopping by --- you make a very good point.


       Mama Liz

JL --- thanks, my friend --- but you didn't give me any suggestions as how to solve this issue -- legally.


       Mama Liz

Susan -- thanks for stopping by --- what you say is all good, but does not solve the issue to get this deal closed - legally.


       Mama Liz

Cassi --- you are correct -- that would be the easiest way, but the seller did not want to do that prior to closing.


       Mama Liz

David ---when it comes right down to closing, everything may fall apart because we have such an eccentric seller --- thanks for your definitions --- this loan is going thru a community lending company - so guidelines may be a little different.


       Mama Liz

Here is my suggestion on the solution:

The seller wrote in the contract

"seller to contribute up to $5000 for any repairs and/or cosmetic allowance for the buyer provided that the buyer obtain the contractor of her choice and an invoice for the desired repairs and/or cosmetic repairs prior to closing and these invoices will be paid directly to the vendor/contractor at the closing - buyer needs to be sure that she is obtaining contractors/vendors that she trusts will actually perform the work since these vendors will be paid their invoices at the closing from the seller proceeds."

Now the lender has accepted this being in the contract -- at least as of now --- Hopefully, this will solve the issue --- we, by this paragraph  have warned the buyer of the dangers of doing this --- the buyer is pleased as she really wants this houe.  BTW, the buyer is a customer and not a client.

       Mama Liz

Mama Liz: The only credits that the underwriter is going to allow is credits for closing costs. Or, as comment #44 states, seller can reduce price (I realize he does not want to do either of these things)

Credits for repairs are just not going to fly unless he has a portfolio lender of some sort that will go outside of normal underwriting guidelines.

Your mortgage person can accept the contract and proceed, but I sincerely hope he has informed all involved this will not clear normal underwriting guidelines.

Maybe he is hoping the appraisal will cause things to fall in place....but no matter what, this is going to real its ugly head again....in my opinion, it is unfair to buyer and seller and agents to invest time and energy when this is not resolved.

PS I believe all listing agents should throughly prepare their sellers for offers that require SELLER credits long before an offer comes in...because once there is an offer on the table, people do become more emotional (you called it stubborn)

PPS: For the record, not suggesting you abandon this transaction. Best solution is to lower the price and completely remove the seller from the repair situation. In California, this would also lower the buyers property taxes and closing costs.

Janet --- apparently, the local community funding program does allow for paying the invoices at closing from the seller's proceeds --- I just hope this loan officer knows what she is doing.
Thanks for stopping by.


       Mama Liz

The in  house loan officer freaked out when she read this post --- she said, "What if people think it is Residential Mortgage of SC"?     I can tell you definitely that this did not involve Residential Mortgage of SC or Beck Hayward - our most trusted loan officer.

       
        Mama Liz