Mortgage Fraud
Jan 18th, 2010 | By wendy | Category: Columnists| Liam’s Law | |
|
Lee County is suffering from a really bad down turn in the real estate market. As Wall Street says “Diseconomies of Scale”. Real Estate firms are advertising and advertising and the phones are just not ringing. Housing prices are dropping at an alarming rate. I looked into my bell weather on-line source for real estate informatio
 n and here is what I found: Average price of a home in Lee County is $268,000 and in Collier County $406,000. At the end of the frenzy in 2004 and 2005, Lee County was over $300,000 and Collier County was over $500,000. Other areas in Lee County are at: $375 for Bonita Springs, $313 Estero, Cape Coral $270, Sanibel $753., Lehigh Acres $212. Florida on a whole is not doing any better and coming in at $240,000 However, believe it or not we have not lost money. Maybe we have not made as much as we thought we would or thought the worth of our properties were higher but we are still doing OK. For example. Five years ago the average price of a home in Lee County was $110,000 and in January of 2004 was only $140,000. Today as shown above with an average price of $268,000 we have increased that investment a whopping $128,000 in just a little over two years and in five years we increased the worth $158,000. Not really bad considering the time element.
If you are thinking of selling I would like you to be really cautious and take note about what I’m going to share with you today.
Because we are in a buyers market and we have loads of unsold properties available; buyers are dreaming up new ways of purchasing this overstock with very creative financing. Sometimes a little too creative.
One of the ways floating around is that some buyers are writing into the sales contract and asking the sellers to inflate the selling price of the property and to give a kickback of the CASH money back to the buyer. The buyer’s also are asking the seller, real estate agent and title company NOT to show this amount on the HUD-1 closing statement.
Liam’s Law
You can not even imagine how many laws would be broken with a transaction like the example above. Many government agencies would be involved: Internal Revenue Service, Department of Housing and Urban Development, Federal Reserve System, various State of Florida agencies, Florida Real Estate Commission, Florida Association of Realtors, National Association of Realtors, Local Associations of Realtors and MLS. Take your choice; none of them would be too happy with this transaction. The HUD-1 is the closing statement the lists all the details of the financial transaction of a purchase of real estate. The HUD-1 is part of the Real Estate Settlement Procedures Act of 1974. ”RESPA” as it is commonly called is also responsible for the way real estate transactions are closed. It also provides rules that eliminated kickbacks and gifts that were once given by closing firms and title companies to real estate agents in exchange for using their services.
All monies must be stated on the HUD-1 at closing. However, sometimes money can be “Paid Outside of Closing” or “POC”. That’s OK as long as it is stated on the HUD-1 that this is what is actually happening, the amount, who is paying and who is receiving. It is common for a seller to give back closing costs to the buyer. This is generally limited to 3% of the sales price and again MUST be listed on the HUD-1 closing statement.
If money is given outside of closing in the form of a kickback, the IRS would like to talk to you. I don’t think the seller is going to provide the buyer an IRS Form 1099 when taxes are due because the IRS is going to ask where did you get this money in the first place and were the proper Federal taxes paid on it when you did receive it.
The buyer, most likely, was not intending to declare or pay taxes on this kickback money. This also becomes a BIG problem with the IRS as well.
Since the purchase price of the house was inflated to cover the kickback amount, you can bet the mortgage company is not going to be too happy about loaning money on this property either and not in this market. Since banks are responsible to the Federal Reserve System we now have another US Government Agency taking a close look at this deal. Another thing to remember is that any cash transaction over $10,000 must be reported to the IRS.
However, there’re many creative financing techniques. Mortgager brokers are best at advising you what can and what can not be done. For example: sellers can give back incentives to make a deal come together. One would be to give a carpet allowance or pool cage allowance. Remember it must be shown on the HUD-1 and the funds put into escrow and paid to the vendor who either supplies the carpet or builds the pool cage. This becomes equity in the home and will increase the value. The mortgage company will take this into account and will be happy with the increased in values too.
As you can see from the above there are many pitfalls when writing an offer to purchase real estate and it can be very complicated especially, if some form of creative financing is needed. Conversely there can also be many rewarding ways to structure a creative financing contract that is beneficial to both buyer and seller. Please use a good reputable Realtor and Real Estate firm when you buy or sell property. Remember what happened to Martha Stewart when she took on the SEC and the FBI. Don’t fool around with BIG Brother.
In the end, this low point in the real estate market will turn around. Remember real estate is still known as one of the best investments a person can make. We might have to hang on to it a little longer than we wanted too However, it will pay off in the long run.
Definition of the Month:
Easement is defined as a right, privilege, or interest limited to a specific purpose which one party has in the land of another. For example, a right of use obtained by a public agency or utility from a landowner to run a water or sewer line across private property. Source: IQReal Estate.com Disclaimer: |