Duplex w/ 100% Financing?

[Roger J]

Man, people really like to point those fingers, don't they?

Hey, I don't know all the details of the transaction, but from what was posted, I see no fraud there.

First, there was no "phantom" second mortgage.  It was a legally created 2nd note and it was presented to the primary lender in the package.  By calling it a phantom 2nd, you're assuming that it was never created or that it wasn't reported to the primary lender, which is false.

Second, REO bought the 2nd at a discount.  It wasn't a "write-off" 2nd, where the seller just considers it "paid in full" at closing.  Mortgage notes are bought at a discount all the time.  In fact, that is one of the methods of RE investing, if you want to read some on here.  Hey, lenders sell notes at the closing table all the time, too.  But because REO did it, you're spouting out that it's fraud and illegal?

Third, just because REO bought it at a discount doesn't make anything illegal.  The lienholder can do whatever he wants with the note whenever he wishes.  Anybody ever here of shortsales?  Even if REO didn't buy the note, the seller could still have offered a discount for a quick payoff (Hey, REO may even offer that to himself!).  Or he could have chosen to wait on the full amount.

Maybe REO's company bought the property and REO, himself, bought the note.  So now, REOconsultants has to pay REO a monthly payment.  Don't know, but it works for me.

And maybe, before you know all the facts, or start putting more in than what's given, we all leave our fingers in our pockets a little longer.  It may go off.

Merry Christmas and Happy Holidays!

Raj

[Investment Loans]

Explain it to the lender before you close.  Ask them if they'd still approve it.

Call the Fed's ask them too?  Let the know that's common practice for you.   If you have a couple example loans they may want to see them.

[DFWHoldings]

Roger J -

I don't have a problem with what Reo did. Personally, I err on the side of business any time I can. However my personal feelings have no bearing on whether it's considered fraud or not.

Having this 2nd note that he had agreed to buy at $.01 on the dollar prior to the loan transaction with the lender constitutes fraud. That is going strictly off what reo is stating in his original post about a pre-arranged price for the note. It is a 'phantom' 2nd insofar as from the beginning the note isn't worth the paper it's recorded on because it's already been sold for 1% of the face value. The value of the note is non-existant hence my term 'phantom'.

Just as anything in law it's the INTENTION that is in question. His intention is to deceive the lender into an 80% loan based on facts that he has not presented in his loan package.  Any time you misrepresent the truth for the purposes of deception it is FRAUD. No if's-and's-or but's. In fact there was a case of a real estate agent in Florida who went to jail for loan fraud. What she was guilty of is signing the real estate certification that there were no outside agreements other than those presented in the purchase agreement when in fact she was recording a second lien shortly after closing on the properties. She was giving the borrower's funds to close on the primary loan from the note she was recording after closing. It was her signing of the real estate certification that showed that she had deceived the lender because she did indeed have an outside agreement (much like purchasing a discounted second beforehand).

That being said, I have no problem with these types of transactions anyway from an ethical standpoint. I personally think that alot of the lending rules or guidelines are not well thought out. I have issue with the fact that lenders (the one I work for included) have issue with seasoning on properties. I personally think it's good business to buy something for less than you know you can sell it for, then sell it for as much as you can as soon as you can. However lenders are over protective of their risks and don't allow this in many cases. FHA won't even budge on the 90 days from previous transaction seasoning on new contracts. It's not the investors fault they got a good deal and immediately 'flipped' it to a retail buyer.

Roger you speak of the legal issues that real estate agents face daily, I'm certain you can appreciate how purposefully misrepresenting the facts of a transaction to a lender is loan fraud.

[reoconsultants]

Look at it like this!!

1. Did I tell the lender the owner was going to carry a second YES

2. Did I buy the Property for more then appraised value? NO

3. Is it really relevant to the lender what the note holder does with that note? NO

4. Do most mortgage bankers service the note themselves or do they sell the paper?

THEY SELL THERE PAPER unless they are one of your larger banks!

So you are telling me it is FRAUD to buy a note at a discount?

Lets say the property was in foreclosure and I acquired it after doing a short sale so there for I bought a note for a lower discount would that be fraud as well?

NO it is what you call getting a deal! You should look into getting deals they are really nice!!

Also Raj was correct in saying Robb bought the property and a company holds the note!

[DFWHoldings]

The fraudulent thing about the deal was negotiating the sale of the second note at a discount prior to the transaction. It's all about the real estate certification that you sign with the seller that states that you have NO outside agreements, verbal or otherwise, other than the purchase agreement.

You are purposefully defrauding the lender into giving you a lower rate and no MI based on information you know at the time to be false.

For instance, if you are currently employed and w-2'd and you qualify on income of what you make today but you have already put in your notice to quit your job after the loan closes. That is fraud to not disclose this.

It's silly, and I don't agree with it, but it is fraud. The real test is easy. If you disclosed that you had this agreement with the seller would the Lender have proceeded with the loan with the same terms? If the answer is no, then you witheld information for the purposes of deciving the lender. It's fraud.

Does that mean it's not good business? Does it mean that you weren't just doing what America has been founded on (Capitalism)? No, I'm not disagreeing with you, I don't have a problem with good business (buy low, sell high). But rationalizing something doesn't mean it's not illegal (which defrauding a lender / creditor is illegal).