“Were looking to buy our first home. The only way to buy what we want is to find a cheap house that needs a lot of work. Our problem is were cash strapped and wont have money left for fix up. An agent told me we could offer more and have the seller write us a big check after closing to cover some repairs. Is that OK to do?”
***ANSWER:
But we do it all the time!
That was his response when I told the Realtor who wrote an offer on my clients property that my seller would NOT write his buyer a $35,000 check when escrow closed.
To which I responded Im sure you do, but thats called LOAN FRAUD. Its illegal and would subject us and our clients to fines and imprisonment.
He replied Its not illegal. Ive done it dozens of times.
Unfortunately, he was 100% wrong. It seems his argument was that the more times you break the law, the more legal it gets.
BOTTOM LINE:
Crediting a buyer funds through escrow, where its fully disclosed to the lender, is 100% kosher.
But if a seller transfers significant funds to a buyer OUTSIDE of escrow it is called LOAN FRAUD.
(FYI: Its generally accepted that the seller may give the buyer a nominal sum outside of escrow, say a few hundred dollars for a leaking pipe he forgot to fix.)
BTW, heres another problem:
What if the seller forgets to write you that check or the check bounces?
Im no attorney, but Im not sure you can legally enforce an illegal contract. And even if you could, youd find yourself chasing the seller for the money, and perhaps never getting it.
All around, its a bad idea. Dont do it.
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