EDITOR’S NOTE: Because of the intense and often off-topic nature of many of the comments left for this blog entry, commenting has been turned off, and all unrelated comments have been deleted.

In just the last few days, two separate respected real estate-related news sites have written about the problems associated with Cash Back at Closing offers.

From RISMedia, a highly regarded national news and information service that provides a wide array of services to clients throughout the home services industry sector:

Roberts urges home buyers, sellers and real estate professionals to know the law, to act in accordance with it, and to abort any deals designed to dupe anyone involved. “Watch for warning signs,” he tells them, “such as a buyer offering significantly more than the asking price, an inflated appraisal, or a situation in which neither the buyer nor the buyer’s agent has seen the property, or they want to use a different title company than the one that the seller’s agent has chosen. Often the buyer or buyer’s agent claims that the extra money will be used for home repairs or renovations or paid to a contracting company to handle the repairs or renovations.”

From RealtyTimes.com:

While the logistics of cash-back-at-closing scams vary, the underlying legality is the same. “Whether it’s seller kickbacks, inflated purchase prices or ‘repair’ costs, the common thread is that the lender is not informed of the true nature of the transaction,” Roberts explains. “Whenever the lender is not informed, in writing, of the true nature of a transaction, the transaction is illegal.”

Roberts notes that cash back at closing can be legal if a broker is giving back a portion of his or her commission, but this would be rare occurrence. “If agents want to rebate part of their commission back to the purchaser, I would call this ‘commission back at closing,’” Roberts says. “While this is not illegal, it should be done only with the broker’s knowledge and approval, and it should not be cash, as it could be considered income and have tax ramifications. I would check with an accountant.”

For a lively discussion on Cash Back at Closing offers, check out the comments being left here.

EDITOR’S NOTE: Because of the intense and often off-topic nature of many of the comments left for this blog entry, commenting has been turned off, and all unrelated comments have been deleted.

EDITOR’S NOTE: Because of the intense and often off-topic nature of many of the comments left for this blog entry, commenting has been turned off, and all unrelated comments have been deleted.
———————————–

When I tell colleagues and customers that cash back at closing offers are illegal, an unexpected number of them are surprised. Real Estate agents frequently approach me and describe cash back deals that they were convinced were legitimate, while consumers wonder why I don’t offer them myself. If you don’t know what a ‘cash back at closing’ offer looks like, take a gander at the following advertisement, which is currently posted on the Detroit version of Craig’s List:

The above offer is illegal, and to understand why, just take a look at a 1003 (the Uniform Residential Loan Application) that every home buyer signs when they apply for a home loan. The 1003, which is authorized by Title 18 of the United States Code, Section 1001, is one of those documents that has small print that lawyers always tell you have to read before signing on the dotted line.

To paraphrase Title 18, section 1001, you cannot lie on a loan application or any other document related to a transaction. When a buyer, appraiser, real estate agent, loan officer, or another party provides a false statement of a property’s value on a 1003 or any other document, they’re lying, which means they are breaking the law.

As real estate professionals, our job is to know the law, act in accordance with it, and abort any deals designed to dupe anyone involved in a real estate transaction. That means we have to shut down cash back at closing scams before they close. The warning signs are readily evident:

• The buyer places an offer on the property that’s significantly more than the asking price on the condition that the seller kicks back all or some of the extra money.
• The appraisal is obviously inflated.
• Neither the buyer nor the buyer’s agent has ever seen the property.
• The buyer wants to use a different title company than the one that the seller’s agent has chosen.
• The buyer or buyer’s agent claims that the extra money will be used for home repairs or renovations or paid to a contracting company to handle the repairs or renovations.

The logistics of cash back at closing scams vary, so the warning signs tend to morph over time, but the underlying law that’s being broken remains the same. According to my fellow real estate fraud blogger, Rachel Dollar of the Mortgage Fraud Blog, “Whether it be through seller kickbacks, inflated purchase prices or ‘repair’ costs, the common thread in these deals is that the lender is not informed of the true nature of the transaction.” Whenever the lender is not informed, in writing, of the true nature of the transaction, the transaction is illegal. And if–as either a real estate industry professional or consumer in on the scheme–go along with the scheme, you become an accomplice, subject to prosecution.

So, what should you do when you smell something fishy? Put a stop to it! Inform all parties that cash back at closing schemes are illegal, and then call the lender immediately. The lender’s phone number is on the closing papers, and, believe me, they’ll be eager to hear of any pending deals that call for them to loan more money than a property is worth.

EDITOR’S NOTE: Because of the intense and often off-topic nature of many of the comments left for this blog entry, commenting has been turned off, and all unrelated comments have been deleted.

EDITOR’S NOTE: Because of the intense and often off-topic nature of many of the comments left for this blog entry, commenting has been turned off, and all unrelated comments have been deleted.
————————————

As I’ve mentioned before, I contribute articles on a monthly basis to RealtyTimes.com, a leading real estate industry web site that over the last few years has become one of the real estate industry’s most informative and timely sources of news and information.

Here’s a preview of my latest article:

Cash Back at Closing: Appealing Arrangement or Sinister Scam

Cash back deals are stitched into the very fabric of the U.S. economy. Manufacturers promote their products with cash rebates. Credit card companies offer cash-back on purchases. Even banks dangle cash-back deals to attract new customers. Now, homebuyers and con artists are jumping on the cash-back bandwagon, and plenty of our own people — real estate professionals — are tripping over themselves to cater to them.

On its surface, cash back at closing seems like a win-win situation. The buyer simply pays a little more for a property than it’s worth, and the seller agrees to kick back the surplus cash to the buyer.

For buyers, it can be a savvy financial move, allowing them to pay off outstanding credit card debt or use the extra cash for home repairs and renovations. The seller unloads his house at close to or better than his asking price. The real estate agent gets a bigger commission. The loan officer chalks up another successful loan. And the lender scores a larger loan and stands to earn more interest over the life of the loan.

If anything seems like a win-win situation, cash back at closing is it! But is it legal? Click here to find out.

EDITOR’S NOTE: Because of the intense and often off-topic nature of many of the comments left for this blog entry, commenting has been turned off, and all unrelated comments have been deleted.