Is it against the law to write a home loan for more than you are selling the house for?
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Is it against the law to write a home loan for more than you are selling the house for?
I am buying a house. I have a defaulted student loan that is preventing me from closing on the house. The seller happens to be married to the loan officer. He told me to borrow the money from someone to pay back the student loan and that he would have his wife write the home loan for extra to cover the cost of the money I borrow. He said as soon as we close on the house he will then pay the money back to whomever we borrow the money from. When I asked him to put it in writing, he said he had to word it like it’s a gift other wise it’s illegal. Is it against the law to write the home loan for larger than what the home is being sold for? If so, am I breaking the law if I accept the money to give it back to whomever I borrow it from?
Asked on April 25, 2018 under Real Estate Law, Utah
Answers:
SJZ, Member, New York Bar / FreeAdvice Contributing Attorney
Answered 6 years ago | Contributor
1) It is not illegal in the sense that a lender can write a loan for any amount it likes.
2) If you do not provide inaccurate information, you have not violated the law: anyone can ask for any size loan they want, so long as they disclose facts fully and accurately. If you lie or mistate anything on the application, however, you will have committed fraud.
This also means that if the loan officer prepares a false or misleading document for you to sign, you can't sign it--if you ratify someone else's lies, you will be also committing fraud.
Fraud is both a basis to sue you and possibly, depending on the circumstances, a crime, too.
3) If the loan officer violates her company's policy or lies about your application, you are not liable for that, so long as you do not sign, ratify, etc. the misleading documents, but clearly if discovered, the officer can be fired, sued--potentially even have charges pressed against her.
So: you can (to oversimplify) say: "This is the house I want to buy. I am putting $X of my own money down. This is the price. I want a loan for $Y"--and if they give you that loan, that is fine. But if you lie about the home price, about how much you are putting down, about the sources of your money, etc., you are committing fraud.
It is difficult to see how you would get an excess value loan without lying: commercial lenders are not in the habit of lending money without good cause or collateral. Therefore, while theoretically or legally they *could* lend you the surplus, it is not likely unless you do lie in some way.
Hint: if someone says they can't put something in writing, it's generally improper or illegal, or they have to do something improper or illegal (like lie) to make it happen.
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