Buying a house with bank financing and no money down?
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Can you buy a house with bank financing with no money down? Is that possible?
On December 30, I received a call from someone referred to me by a fellow countryman of his. This buyer was interested in a FireSale property in Escazu I had listed and wanted to see it on December 31st, New Year’s Eve.
I was really on vacation as I always close the office on December 18th.
But I was at home anyway, so I said “what the heck, it’s not a bad idea to make a sale on New Year’s Eve”. The buyer said he lives in Escazu himself, so it would be an in-and-out showing anyway. Yeah right.
A Motivated Seller
The seller listed the house originally with me at $375,000. But, he had just come down to $349,000 a couple of days before, now quite a bit under regular market price. The reason the seller was very motivated is that he foreclosed on the former owner and wanted to dump it quickly. The seller knows this is an older home and that mainly the kitchen and the bathrooms need some work, Therefore, he is open to an offer and will even offer some owner financing.
The property we are talking about is a 4,600 sq feet home on a ¼ acre of land in Escazu with views of San Jose. The land only is valued at the municipality at $250,000.
After waiting for an hour in my car, a foreigner who adapted quickly to Tico Time, the client showed up with the whole family. I know, it sounds like a day in the mall. Now I understood why it took so long to get there with zero traffic in Escazu during the holidays.
No money down?
While I am showing the property, to the buyer and his family, the husband tells me his story. He has a loan officer lined up at a bank who will help to get the property appraised at 135%. This is necessary because he has NO money down and the bank wants him to put down 30% plus closing cost.
Hmmm…. that is interesting. I’ve heard a few, but this is a new one.
So this is a loan officer is willing to commit fraud together with the appraiser. That’s the only way to make the purchase of property possible. And of course, supposing that the buyer has enough income to cover the monthly payments.
Apparently, the loan officer either doesn’t know what happened with the 2006 -2008 bubble, why it happened and just doesn’t care.
A foreign resident and 100% loan
This buyer is a foreign resident and wants a local bank to finance his home purchase 100%. Of course, there is no risk to the buyer. When he can’t make his payments, he can just walk away and leave the country. All the risk is for the bank.
Wow, I’m amazed and I thought I’d seen it all after 35 years in the business.
Money laundering laws in Costa Rica make it difficult for a transaction like that to function. That is because the proceeds of the sale have to be documented.
That means, that to make this scam work, the seller would have to return the extra 35% to the bank at/after closing. Because the disbursement check that the seller receives is for 135% of the actual sales price.
I guess the loan officer is able to make miracles happen.
Capital gain tax
The seller, if the property is not his/her residence, will have to pay capital gain tax in Costa Rica, over an extra 35%. Besides, if the seller is a US citizen he will also have to pay capital gain tax in the U.S.
I explained all that to the buyer. But he insisted he could make it work. Since he had no money down for the purchase, I asked him if he had at least 10% earnest money to secure the deal with the seller. He said he did not have any earnest money but nonetheless wanted me to make the seller an offer for $275,000.
What a deal
Ok now, I have a buyer on my hands with NO money. This buyer makes an offer that is 21% lower than the already reduced asking price. He doesn’t want to make an earnest money deposit, but the bank wants the house off the market for 3 months. This is the normal time frame for the option to purchase when bank financing is involved. He wants the seller to play along with him on a fraudulent deal. The seller will have to return the 35% extra to the bank
AND the seller will have to pay extra capital gain taxes too.
The buyer has not contacted me anymore. Of course, he will be trying the same thing with another seller, until he finds one desperate enough. Maybe he should take the course “How to become a killer real estate buyer” first.
I’m pretty sure that this loan officer will either lose his job or end up in jail, as soon as his boss finds out about this fraudulent lending practice.
For those who are looking for a bargain and want to make a lowball offer on Costa Rica real estate, I have one recommendation: CASH IS KING. With that, I mean buying without financing.
Now you all know how I spent my New Year’s Eve 2014. While other realtors were lying on the beach with a piña colada, I was dealing with a buyer with no money down but at least I got a topic for a blog out of it (big deal eh).
Contact me now if you are a buyer with money down, we love your business.
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I DO want to remind our readers that we appreciate any referrals you can send us. Also, remember GoDutch Realty when talking about your home in Costa Rica to friends and family. We appreciate it.