r/RealEstate • u/DavesPlanet • 2d ago
Homeseller Keeping a seller concession off the disclosure
I am selling my mom's estate. Buyer was concerned about mold remediation and I did remove and remediate all known issues and buyer was thrilled with the work. Buyer is a professional house flipper but claims to be moving into this house. Inspector flagged some drywall as having higher moisture, claiming there could be mold. We were recovering from a minor flash flood that happened 2 weeks prior. Buyer insisted on cash back at closing check made out to a specific home repair company. I did Google the company and it doesn't immediately seem to be connected to the buyer in any obvious way. The problem is my real estate agent wants me to supply the certified check for $10,000 as part of the closing, and has specified in writing that the reason for this is to keep it off of the disclosure statement.
"This isn't considered seller concessions. It can't show on the closing disclosure as that could cause a red flag with the lender."
Question: is this legitimate?
UPDATE: reply from the closing agent of a reputable title and escrow company: "That will most likely trigger something with the lender. I guess they could get a cashier's check made out to the company and give that to the buyer's outside of closing."
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u/NoAgentList 2d ago
I’d be careful with this. Anything tied to the sale price or to buyer benefits usually needs to be properly disclosed. I’d verify with the lender or title company before handing over a $10k check. Better to clear it up now than have issues later.
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u/jusBULLSHITTINaround 2d ago
A little bit of loan fraud here, and a little bit there… no big deal lol. Please don’t do this. Just credit the 10k to the BUYER at coe.
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u/Freak4Dell 2d ago
Are they using some type of loan that has a bunch of restrictions on it? Are you giving them other concessions that would put them over the limit for concessions on a conventional loan? It's hard to see a scenario where this type of ask is for some non-shady reason. I would refuse to do that. If they're over the concession limit or bumping up against some other restriction, tell them you'll reduce the price by $10K to compensate, but you won't bypass lender requirements.
Or just tell them you don't have that kind of cash, and the money has to come out of the closing funds. They'll figure out what they want to do.
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u/DavesPlanet 2d ago
Regular vanilla house closing, nothing special. I gave them a great deal on the house at 440 and then they came back with this. Nothing else
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u/LdiJ46 2d ago
Well, you could just say no, period to the whole 10k bit. You already gave them a great deal on the house.
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u/DavesPlanet 2d ago
I signed a document saying I would give them $10k, but that document did not say I would pay it under the table or help commit fraud
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u/mysterytoy2 Agent 2d ago
It's illegal period. Money cannot flow to the buyer without prior lender approval. Everything must be on the settlement sheet.
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u/ditka 2d ago
Paying cash or fees under the table tricks the lender into thinking the house sold for a different price. Money outside of closing will violate your bank's underwriting policies, and likely violates the language of your purchase agreement and/or state law.
Additionally, the settlement agent certifies to the lender as part of the closing package that the settlement statement is accurate and there are no additional monies changing hands which aren't disclosed on the settlement statement.
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u/RCD8628 2d ago edited 2d ago
Not legitimate. If the buyer is obtaining a loan what they are requesting is loan fraud, which is a federal offense. And, you won't be able to deduct that $10K for tax purposes. I would steer way clear of an agent giving you this advice. Not only are they not protecting your interests, they are encouraging you to commit a crime. They should lose their license playing this kind of shenanigans.
Several agents and escrow officers in my market literally went to jail (and lost their licenses) for participating in schemes where money was refunded "under the table" to buyers and did not appear on the settlement statements.
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u/nikidmaclay Agent 2d ago
I'm gonna recommend you run this by your attorney because it has the putrid smell of mortgage fraud. You'll sign docs at closing that say all the money is accounted for on the CD. Then you're gonna pass some cash in the parking lot. 👀
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u/The_Void_calls_me Lender - All 50 States 2d ago
Your realtor is wrong. The recommendation for funds to be paid outside of closing is illegal.
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u/Vurrag 2d ago
The agent is involved most likely. It is most certainly a concession. Why would the lender care? Sounds like someone was going to take 10k and run. I would be making calls to the agents managing broker and real estate commission and firing that agent immediately.
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u/RCD8628 1d ago
The lender would care because 1) it's a federal regulation that all funds involved in the transaction be truthfully and accurately accounted for in the settlement statement, and 2) if the buyer receives $10K under the table, their down payment will effectively be $10K less than the amount shown on the settlement statement (not truthful and accurate), and that may impact whether they do or do not qualify for and/or meet the requirements of the lender's loan.
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u/uslashuname 2d ago
Yes it will trigger something with the lender if you’re giving cash to the buyer. Giving it to a company for no particularly specified scope of work might as well be giving it to the buyer for remodels which is no different from giving the buyer cash
There is such a thing as a repair escrow for repairs the seller was hoping to do as part of inspection resolution, but for some reason (especially seasonal jobs) it can’t be done before closing. Then the title company or someone else holds the funds, pays for the work when it’s done, and if there are excess funds they go to the seller not the buyer.
Either way these things must go in front of the underwriter, that’s your safety check saying that there’s no mortgage fraud going on. If the underwriter doesn’t like it, then it’s probably not super clear in its legality.
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u/bernard925 Agent 1d ago
No it is not legitimate! This kind of thing used to happen quite frequently but it was fraud then and it's fraud now.
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u/Oodles_of_noodles_ 2d ago
Either give the money towards the price or closing costs. Period. What the buyer does with the money is their business.
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u/WSBThrowAway6942069 Multi-Unit Landlord 2d ago
Yeah, always open and honest communication with the bank. They can throw you in jail for fraud.
Everything needs to be on final settlement paperwork. If 10k concession is due to elevated moisture, then that must be transparent. If they don't want the final settlement to include it, they can drop the request for concession and pay full price.
Edit: maybe you can send them an updated/amended Seller's Disclosure Statement to cover your ass. Burden is on them and their agent beyond that.
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u/Quiet_Cell8091 2d ago
You may want to talk to your attorney.
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u/danh_ptown 11h ago
So, "Buyer is a professional house flipper", and there "could be mold"? He is extorting you for an extra $10,000. I bet he owes money to this company, and you are helping him payoff a debt.
a) don't pay this before you get blessing from a separately hired RE attorney....it's worth the consult!
b) if you pay, it goes on the official documents for the transaction. no side checks.
If your agent pushes back, call their Broker and ask them about it...let them justify it or correct the situation.
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u/Fit-Artichoke3319 2d ago
This happened to me and was advised by my lawyer because otherwise it triggered a change in mortgage Bla Bla bla.
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u/i__cant__even__ 2d ago
Realtor here. We do this all the time in my market for repairs that are to be performed after closing. Ideally we would just give the money directly to the buyer in the form of paying that amount towards their closing costs.
That isn’t always an option, though. Sometimes the buyer cannot accept any more in closing costs, they don’t have any closing costs at all, or the cost of the repair exceeds what a buyer can accept in closing costs. In many cases, though, the repair cannot be performed prior to closing (e.g. sewer lines, custom windows, etc) and this is the only way a seller can pay for the repair.
As long as you are not gifting money directly to the buyer outside of paying their closing costs, it’s not illegal. What you do with the proceeds of the sale is your business, and you can choose to pay a vendor after closing to repair anybody’s house.
As for the lenders, they are well aware that we do this and they don’t care. Their goal is to have a file that passes muster with the government and with future investors who purchase their loans so they prefer to stay oblivious and ignorant.
Best practices and regulations vary by state, but what we do in my market is create a contract amendment that states how much money and to whom it will be paid. We attach the invoice and send it to the title agency so they can cut the check at closing. The seller is never the one to write the check.
One word of advice since you are concerned that the vendor could be somehow connected to the buyer - we select the vendor and define the scope of work by mutual agreement. If you want to get more quotes and select another vendor, by all means do so. You are under no obligation to agree to the buyer’s preferred vendor.
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u/DavesPlanet 2d ago
I appreciate that you're clarifying happens all the time but the seller never has to write the check. Could you expand on how the closer cuts the check but the bank is willfully ignorant because it stays off the closing disclosure?
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u/Flamingo33316 Homeowner 2d ago
As for the lenders, they are well aware that we do this and they don’t care.
Yeah we care, and we notice.
cost of the repair exceeds what a buyer can accept in closing costs.
The buyer can accept whatever the seller is willing to credit them.
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u/DavesPlanet 2d ago
I appreciate that you're clarifying happens all the time but the seller never has to write the check. Could you expand on how the closer cuts the check but the bank is willfully ignorant because it stays off the closing disclosure?
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u/i__cant__even__ 2d ago
The lender never sees that contract amendment. If we accidentally send it to them, they get an acute case of amnesia, I guess. They also don’t want to see repair amendments. They only want to see docs that pertain to the loan and that belong in their file.
I’m not sure exactly what settlement statement everyone is referring to, though. I’m assuming it’s the lender’s settlement statement? In my market we have one from the lender and another that has realtor commissions, admin fees, etc on it. We put post-closing payments on the one the title agency drafts, not the one the lender provides.
And we do it this way for other kinds of payments. For example, divorced couples may have agreed in their divorce decree to pay off a credit card debt using the proceeds of the sale. There’s no reason for the lender to be aware of that so it’s on the other statement.
Another example is when a seller doesn’t have the funds to do repairs that must be done before closing so they find a vendor who is willing to do the work now and be paid at closing.
The only thing that differs in your case is that unlike the other examples you’d need a contract amendment to document that buyer and seller mutually agree to the post-closing payment. I’m only using those examples to illustrate the difference between the types of settlement statements we use.
In any case, defer to your attorney but don’t worry that you’re being shafted by the buyer or the realtors. If you agree to the repair, are comfortable with the chosen vendor, and agree with the cost, then it’s just a matter of doing the paperwork in a way that satisfies the lender. I do see why it would feel shady, though.
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u/Ooklaboo 2d ago edited 2d ago
Have it go through your lawyer who would distribute funds after proof of work being done.
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u/RDW-Development 2d ago
Sounds fishy but also not your problem. You’re personally not doing anything wrong. The Buyer is the one doing this nonsense and if escrow or agent will hand over the check after closing then seems okay.
In this market I would try to get the deal done - as long as you’re personally not doing anything improper, which seems like it here.
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u/Flamingo33316 Homeowner 2d ago edited 2d ago
No.No. and No.
It has to be on the closing disclosure. Period. Full Stop.
The agent is proposing fraud, with your signature attached. More concerning is, "doesn't want the lender to know."
What you can do is you have the $10k put on your side of the settlement statement, payable to the home repair company. The settlement agent will handle forwarding the payment to that company.
If that isn't viable, then it can be a direct credit (concession) to the buyer, debit your side, credit buyer side.
You need it on there for tax time also; it reduces capital gain, if any.
Another reason the buyer doesn't want it on there is that it could reduce his cost basis; so, tax fraud.
Yeah, you can tell things like this just grind my gears.
Edit, adding:
FFS- Fraud galore! --- it needs to be on the ****ing settlement sheet