Commit Mortgage Fraud!….Who….Me?
So I did some research and also consulted with my lawyer regarding the legality of compensating a seller post-short-sale. On the internet I found an article on the Kick Ass Short Sales website. After reading it, this made a lot of sense. However, I still sought out the advice of my lawyer and this was his email response.
A Bill of Sale raises a red flag (in terms of fraud) but is not, by itself, a fraudulent act. For example, if the Sellers have a working washer/dryer and sell it for $500, there’s a legitimate argument that it was sold for its fair market value. If there were ever a legal challenge, we would need to show that $500 was a reasonable price to pay for that year, model and condition of washer/dryer.
Fraud only exists when an intentional act was done to harm another person. For example, in a short sale, the lender usually issues a short sale approval letter that says, among other things, that the lender should receive X dollars and the Seller must receive no more than $0.00 at closing. If I use a Bill of Sale to purchase the washer/dryer, and pay the Seller $5,000 when the fair market value of the washer/dryer was $500, then I’ve probably committed a fraudulent act.
As an attorney, I usually suggest that if you think you’re committing fraud, there’s a good chance you shouldn’t be doing what you’re doing. That said, there are many, many instances where a Bill of Sale is a very useful – and legal – tool to purchase personal property.
After this email response, we had a follow-up chat and I asked about my specific situation. The Department of Health and Family Services was the only lien holder to discount their note. This sole discount allowed for the other liens to be paid in full. However, the DHFS did indeed specify the amount that they’re to be paid at closing, BUT did not specifically state that the seller is to be paid $0.00 at closing. I asked, since that wasn’t specified in my correspondence with the DHFS, if that means the door is open to compensate the seller. My lawyer replied that it does. However, with any “gray-area” there are inherent risks. He approximated, in this situation, the risk to be minimal. But there’s still a risk, none the less. The risk being that the DHFS, upon learning of seller-compensation, could come after me and argue that the seller compensation restriction was implied.
Here is the latest email correspondence with the DHFS:
Sale price $9,000.00 less $3,590.00 for mortgage, $275.00 City of Champaign nuisance lien, $315.07 Urbana & Champaign Sanitary lien. H&FS will release it’s lien for $4,819.93.
Please send payment of $4,819,93 to Technical Recovery P.O. Box 19174 Springfield, IL 62794. A release of lien will be prepared and file when payment is received.
See, nothing says that the seller must receive $0.00 at closing. But all of this may be neither here nor there. I was scheduled to meet with the sellers yesterday (the original scheduled date of closing) and try and renegotiate something that would allow them to walk away with at least a little something from the deal. Not 9K, but something. But…they canceled on me. So that was it for me. It’s time to play rough! I’ll let yall know what happens once the gun-smoke dissipates.
- Peace Out
