Expert: Jessica Bryan - 7/20/2006

Question
I have been pre-approved to bay a home I have been looking for home in the 100,000-125, 000 range. I have been looking at homes with a realtor but have yet to sign anything as of yet.

I have a friend that has a home for sale listed at 104,900 but has agreed to sell it to me at 100,000. I like the home, and it would suit my family well, but it needs some repairs, and I would like to have them done to it to make suitable i.e. carpet, fence yard, paint, and the fact that the location being much further for my our work we would need to buy a cheep vehicle to drive back and forth to work.  He first approached me with the idea of purchasing his house he said I could still purchase the house at 115,000 and after closing he would give return 15,000 to me as a repair allowance. I said that would be fine and agreed to the deal, the he went to his real state agent, and his and told him the deal, and his agent said it was illegal? Is it?

I understand that I could put it in Escrow through the lender, but I was planning on doing all the work myself, I do stuff like that for a living and am a real handy-man when it comes to home repairs. Plus I would have to take out a ARM on the Escrow account & provide receipt and what not. It just sounds like a huge hassle when I would rather just get the money back after closing. The seller is a really good friend of mine I trust him completely and know that he would never rip me off. I was just wondering if this deal is in fact illegal and if not why is this agent saying it is illegal. I have talk to a lot of people that have experience in real estate they all said no it is perfectly legal.

&  should I use an Agent? If I am buying from a friend I know?


Answer
Dear Chris;
The problem with getting money back after closing is that you are making a representation to the lender that the home is being purchased for $115,000.  The lender is basing their ratios and loan to value on that amount.  Getting money back is like you didn't pay the full amount that you represented and it is fraudulent.  The lender needs to be aware of the agreement and can then decide the best way to handle it.  go to the lender and discuss your options.  The lender will then advise you of the way they want you to handle this.  Lending policies are very strict and the last thing you want to do is something that would appear to be fraudulent.

As for using an agent...the best way to lose a friend is to enter into a business deal with him without an agent checking the paperwork and the agreement.  However, an attorney can also do this and can make sure that neither of you signs something you didn't understand.

Good luck.

~Jessica Bryan