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Side agreement

Discussion in 'Real Estate' started by redrover, 25th Jul, 2009.

  1. redrover

    redrover Well-Known Member

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    Is this kocher? House price advertised for $600K. Buyer agrees to pay full purchase price but insists on a side agreement that the vendor will allow a rebate of $40K at settlement. Although they have to pay stamp duty on the full $600K thereby satisfying OSR, their argument is that the bank only sees a contract with $600K (not the side agreement) on it and thereby does their valuation based on $600K allowing the purchaser to actually buy the property for very little money down. Question is have they defrauded the bank by not fully disclosing all material matters affecting the transaction?
     
  2. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    This was all the rage a few years back with some spruikers recommending this approach for no-money-down buying.

    There has been a lot of debate about whether this actually constitutes fraud - I'm not sure if it has ever been challenged in court with residential property. Certainly the bank will have clauses in its contract to cover deception which could leave you exposed somewhat if it is discovered. That being said, the bank should be doing its own due dilligence and valuing based on factors other than the "headline" sale price.
     
  3. Nigel Ward

    Nigel Ward Team InvestEd

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    Not kosher. Fraud - quite likely.
     
  4. Jacque

    Jacque Team InvestEd

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    It actually constitutes as mortgage fraud as you clearly aren't disclosing all of the relevant details regarding the sale to your lender. However, it still happens in many RE transactions, especially when buyers are short of borrowings.
     
  5. Billv

    Billv Getting there

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    I had an offer like that for 1 of my IP's and after talking to my solicitor I declined because it could be seen as fraud.

    The buyer wanted to use the rebate money to pay back his relatives who had given him the money for the deposit.