When sellers contributions to closing costs is a scam?Answer:
Undeclared seller's contribution to closing costs and down payment is clearly a scam.
How seller contribution to down payment and closing costs constitutes mortgage fraud?
If you are buying a house at $300,000 and you have no cash for a 5% down payment, required by the lender, your real estate agent could tell the house price was increased to $320,000 and you could declare that you are taking a second mortgage of $20,000 towards down payment and closing costs when in fact there is no second mortgage. The first mortgage lender believes they have 5% equity protection when they have none.
Anyone who takes part in this scam is legally responsible. The fraud may be exposed before or after the loan goes through.
Usually, mortgage loans contain an acceleration clause allowing for the lender to demand full repayment of the loan if any of the provided information turns to be deliberately incorrect.
There are legitimate ways to provide down payment and closing costs assistance. For example, 80-20 loans, 100% LTV loans, government and charitable down payment assistance grants. Not to mention friends and family gifts are an excellent resource for closing costs contribution.
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