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Vendor Cash Back Agreements

peacock

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Aug 28, 2007
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Hi All,

I am currently in a situation where I want to purchase a property privately and the vendor has offered to give me cash back on the deal. Basically I will pay him $20,000 more on the mortage and he will give that cash back. I obviously want to cover myself against getting scammed in any way so I wondered if anyone had any input on the topic. Can I get my closing lawyer to draft up a contract completely separate and external to the deal (ie. the bank does not know about) that the vendor is going to give me the cash back after closing, or will a lawyer have reservations about doing that?
Are there standard contracts out there somewhere for this type of agreement?
Is there a better way of doing this?

Thanks in advance,

Chris
 

Ted

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Aug 31, 2007
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Hi Chris

Full disclosure is the best route in any transaction. Even though your intent is honest why risk your reputation? With the attention on mortgage fraud this might raise alarm bells with the bank. Sent this question directly to the REIN team (the ask an expert link) and talk to your lawer.

I hope this helps.

Ted
 
R

RussellWestcott

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Howdy Chris (and this a great question), I believe that Barry McGuire has answered this one before, and it goes something like this: if the seller wants to give you a cash back upon closing of the property, this is fantastic... however,

You will want to go back to the seller and ask them to place all of this information in the Purchase and Sale agreement (perhaps a separate addendum to the agreement setting out all the terms you agree to). If you present this agreement to the bank you are applying for a new mortgage with, make sure they are fine with this clause. Finally, if the appraisal (from the bank`s appraisal list, not the seller`s appraisal) checks out and if all these things come together, you have an agreement.

Bottom line, make sure you provide the full disclosure (talk to your lawyer) on the purchase and sale agreement. If the bank that will be providing your mortgage is ok with the deal, then you have an agreement. However, typically in these scenarios the appraised value will not come in at the `price` that you have agreed on, and the bank will not like the clause in the agreement, and most likely the seller will not agree to these terms... but you can always ask!
 

peacock

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Thanks Russell, that information is very helpful.

I spoke with my lawyer (before I read this) and he told me that taking cash back from the vendor is completely illegal mortgage fraud, and if I`m caught I`ll go to jail (he`s a pretty dramatic guy!).
I assume that what you`re suggesting is not illegal, so, is what makes it illegal when you do not disclose all of the details of the transaction to the bank (ie. don`t tell them you`re receiving cash back)?

Thanks again,

Chris
 
R

RussellWestcott

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If you disclose everything to the bank, and the bank approves... then there is no mortgage fraud (because they approved it), but the odds of the bank approving will be difficult. However, you may want to run this by your lawyer again, and ask him if it would be mortgage fraud if the bank approves the deal based upon the full disclosure.

Many thanks
RW
 

timk519

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Sep 20, 2007
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QUOTE (peacock @ Sep 11 2007, 09:06 AM) I am currently in a situation where I want to purchase a property privately and the vendor has offered to give me cash back on the deal. Basically I will pay him $20,000 more on the mortage and he will give that cash back. This is a common scam - for instance if you`re selling something on Ebay - an "overseas" buyer offers to send you a certified check for $x + 4000 to cover the purchase price, shipping etc. You`re supposed to ship the product, pay for the shipping with the extra, and then send the balance back to the "buyer".

Except - after the goods are gone - the check bounces.

Ooops.
 

HeatherShadlock

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QUOTE (timk519 @ Sep 20 2007, 02:50 PM) This is a common scam - for instance if you`re selling something on Ebay - an "overseas" buyer offers to send you a certified check for $x + 4000 to cover the purchase price, shipping etc. You`re supposed to ship the product, pay for the shipping with the extra, and then send the balance back to the "buyer".

Except - after the goods are gone - the check bounces.

Ooops.

I have heard of that before also. But I could never figure out one thing. If you get a "certified cheque" then how does it bounce?
 

timk519

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QUOTE (hshadlock @ Sep 20 2007, 09:14 PM) I have heard of that before also. But I could never figure out one thing. If you get a "certified cheque" then how does it bounce? I think the usual scenarios is if it`s a fake. Alternatively cert checks only mean the funds were there when the check was certified. The funds could be removed after the check`s been certified, and result in a bounced check.

Also, cert checks from overseas banks take time to clear.

If you want a "funds are guarenteed to be there" check, then you want a bank draft. With that instrument, the bank withdraws the funds from your account, puts it somewhere else, and then writes a check against that account.


I`m not a banker, so talk to a bank for an authoritative opinion.
 

jamtec

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Sep 27, 2007
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Hey Chris
Cash backs are normally done when the purchaser does not have enough downpayment and the vendor would be willing to leave some of his equity in the home to serve as a downpayment for the purchaser. Is this the case with your purchase? It works if the lender is willing to loan on appraised value as opposed to the actual purchase price.

James
 
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