Way around deposit?

D

dollydrops

Guest
Has anyone ever heard of the below or has anyone ever done the below. Apologies if I get all confused and muddled in what I am going to explain because I seem to be living in a muddle cloud of confusion at the moment.

Basically myself and my partner are currently looking for our first house to buy.
We have seen a house we want to buy and we have been in contact with the builder and we have bargained him and haggled with him and he is willing to sell the house to us at a price we would be happy to buy at.
Our problem is our deposit! It’s a nightmare! We are trying our best to save but its hard esp. this time of year, also the fact that we are paying rent and helping my Mam pay her mortgage every month because she isn't working at the moment.
Anyway the builder contacted my partner yesterday about the house and wondering if we are still interested.
This is his solution to our problem with our deposit:

These are not the real figures but just as an example.
We buy the house at €310000 but he values the house at €340000 so we get a mortgage off the bank for €312800 which is 92% of the value he is putting on the house.
We tell the bank and he confirms with our solicitor that he has already received €27200 off us as our deposit and then he rest off the bank.
He said he has done this before and that it is a loophole some first time buyers can go through.
He would be a reputable well known builder and he deals with the company I work for.
We haven't got all the info as we have to meet with the builder to discuss it further. Of course we are going to get advice from our solicitor about the legality of it. But I just wanted to see what your views on it are?!?

Ever heard of anyone doing this?
 
I doubt any bank would give it to you without proving that the money was in your bank account at some stage. I got a mortgage at the start of the year, and they looked into EVERYTHING. And added up everything, despite my broker insisting they wouldn't. I can only assume they'll be even more cautious now.
 
A bank will give a mortgage for 92% of the valuation or the purchase price, whichever is lower.

Thebuilder is not describing a loophole, he is describing a way of lying on a motgage application.

The bank will see the documentation which shows the purchase price to be 310K in your example. They will check all the details, and not take your or the builders word for it.

If you intend colluding with the builder to falsify documents, which you will sign, you should be aware of the legal ramifications if you are caught.
 
I await the legal opinion on this with interest :).

To me it's basic fraud on the bank perpetrated by the buyer, the solicitor and the builder.
 
I think what is being suggested is that the builder will ask the buyer to sign a contract for 340,000, pretend the deposit has already been paid as a booking deposit and then the balance payable on closing would be the loan drawdown. Of course the contract would be void and unenforceable as it is fraudulent but I can see how the solicitor might not be aware that this was going on- unless they were told. If they were told there is no way they would be iinvolved. There is no loss to the state if FTB. I wonder how the builder would get over an audit on his own books, though, saying he sold a house for 340 but only received 92% of it?

Anyway legally- fraudulent transaction, keep miles away from it. Besides the recent downturn should have persuaded every one to be more careful about 100% mortgages and the possibility both of negative equity and borrowing more than you can afford.
 
Clearly, as yourself and builder would be collaborating in providing false information to the bank, this would be a fraudulent transaction and no respectable solicitor would have any part in it. As HuskerDu and Norf say, this is not a loophole - this is the builder wanting you to act dishonestly so that he can make a sale.

If you cannot save for a deposit, maybe you need to consider whether or not you are really ready to buy?
 
I have to assume that the mortgage repayments would be higher than your current rent. How will you afford this if you can't afford to save?
 
dollydrops said:
Has anyone ever heard of the below or has anyone ever done the below. Apologies if I get all confused and muddled in what I am going to explain because I seem to be living in a muddle cloud of confusion at the moment.

Basically myself and my partner are currently looking for our first house to buy.
We have seen a house we want to buy and we have been in contact with the builder and we have bargained him and haggled with him and he is willing to sell the house to us at a price we would be happy to buy at.
Our problem is our deposit! It’s a nightmare! We are trying our best to save but its hard esp. this time of year, also the fact that we are paying rent and helping my Mam pay her mortgage every month because she isn't working at the moment.
Anyway the builder contacted my partner yesterday about the house and wondering if we are still interested.
This is his solution to our problem with our deposit:

These are not the real figures but just as an example.
We buy the house at €310000 but he values the house at €340000 so we get a mortgage off the bank for €312800 which is 92% of the value he is putting on the house.
We tell the bank and he confirms with our solicitor that he has already received €27200 off us as our deposit and then he rest off the bank.
He said he has done this before and that it is a loophole some first time buyers can go through.
He would be a reputable well known builder and he deals with the company I work for.
We haven't got all the info as we have to meet with the builder to discuss it further. Of course we are going to get advice from our solicitor about the legality of it. But I just wanted to see what your views on it are?!?

Ever heard of anyone doing this?
Click to expand...

I have heard of it, its called fraud
 
Is the Mortagage above 35% of your take home for both ? If so, forget about it, prices are still going down, so don't panic buy, another house will come.
 
The alternative would be that rather than say there has been money handed over that you need a loan of €312,000 and you will pay the rest to the builder on completion (which he will waive) or that he could provide a gift of the money (he is basically paying himself) either way check with your solicitor but there are loopholes to be taken advantage of (or to get yourself in trouble) depends on how you look at it.
 
Thanks for all your replies.
The reason we are having trouble saving at the moment is because my mother has lost her job and I am currently paying her mortgage as well as paying my own rent.
We have been mortgage approved and we can afford the mortgage repayments. The repayments would only be €300 more than our rent.
TBH I don't think this house is going to be bought even if the one we want is bought there is another 20 still in the estate.
We have to go meet with the builder next week I don't have the full information yet. Maybe if we were to put it to him about him giving us the deposit as a 'gift' as MrMan said. Would that be fraud?
I came here looking for advice as I don't want to get involved in anything fraudulent or have any future trouble with the banks.
 
MrMan said:
The alternative would be that rather than say there has been money handed over that you need a loan of €312,000 and you will pay the rest to the builder on completion (which he will waive) or that he could provide a gift of the money (he is basically paying himself) either way check with your solicitor but there are loopholes to be taken advantage of (or to get yourself in trouble) depends on how you look at it.
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I can't believe you are actually endorsing this MrMan. This is fraud and possibly tax evasion.

You would have to lie to the banks, possibly lawyers and most importantly the Revenue.

If you could just come up with scams like this everyone would say they purchased investment properties for twice what they actually paid and avoid capital gains tax in the future.
 
I have come across this before.

When we bought our first house in Derry in 2001, the developers advertised the estate as 'We pay your 5% deposit to the bank'.

It was not hidden in any way - the mortgage broker and solicitor were aware of it.

Would this still be classed as fraud? It was common at the time and I have seen this sort of advertising a few times over the past couple of months in this part of the country. (Donegal)
 
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If you can't afford the house, you can't afford the house. You need to haggle further to reduce the price or figure out a way to earn more money and wait another year until you have the deposit (when prices will be less anyway). To be honest you must be totally unaware of what has gone on over the past number of years if this is what your planning on.
And on another note, the builder is not reputable if this is what he is up to.
 
I think that's what most banks would view as being an acceptable risk on a mortgage, if the mortgage repayment is not more than 35% of your take home pay.
 
Say you get the deposit together have you considered what would happen here.

1. The reason we are having trouble saving at the moment is because my mother has lost her job and I am currently paying her mortgage as well as paying my own rent.

Is your mother likely to get a job soon.

2. The repayments would only be €300 more than our rent.

Will you have to continue paying your mothers mortage plus €300 extra.

3. TBH I don't think this house is going to be bought even if the one we want is bought there is another 20 still in the estate.

So what's the rush. I'd say the builder is ringing you because there are 20 unsold houses on the estate and he needs the cash.
 
Tomorrow said:
I have come across this before.

When we bought our first house in Derry in 2001, the developers advertised the estate as 'We pay your 5% deposit to the bank'.

It was not hidden in any way - the mortgage broker and solicitor were aware of it.

Would this still be classed as fraud? It was common at the time and I have seen this sort of advertising a few times over the past couple of months in this part of the country. (Donegal)
Click to expand...

But Tomorrow, this is not what the OP is describing. The proposition here is that regardless of the total agreed sale price of the house, the OP can only draw down a max mortgage of 92% of that amount but has no deposit to make up the other 8%. The builder wants his sale. He is therefore suggesting that the OP apply for a mortgage in excess of the agreed sale price in order that 92% of the amount applied for is equivalent to the sale price. He is not offering to contribute the deposit, of course - he doesn't want to incur the expense. If he did, provided the applicable tax regs are adhered to (CAT Group C? Not sure on this) and the money is paid directly to the bank by the builder, it would presumably be legitimate. As a roundabout way of discounting the real price of the house, it is very different to what is being described here.

The original proposition is fraudulent, and would presumably be easily detected by the bank who will require evidence of deposit and total consideration for the purchase by looking at the contract. It would be insane to even consider getting tangled up in this mess given the state of the market and the fact that the builder presumably needs this sale far more than the OP needs this particular house, yet as the mortgage applicant the OP would bear primary liability for breaches of contract law, which were abetted and facilitated by the builder. The builder, for his part, will well have to explain the disparity between the stated contract price and the payment received to his accountant and Revenue at some stage. He is clearly in dire need of sales.

The suggestion that the Builder would gift the money to the purchaser which would then be paid back to him raises a number of issues from a tax treatment perspective, all of which would result in a charge on both the buyer and the builder, and he would be unlikely to agree to this. Again, very dodgy territory which would be shown up in even a cursory audit IMHO.
 
Aside from the obvious fraud aspect and you possibly needing to pay a fortune in solicitors in future to get represented in a fraud case, you need to consider the following:
(a) if the builder asks you to sign a contract for 340 000, he might well expect you to give him 340 000 and won't care how you can afford it once he has you committed to 340 000
(b) if the builder is that desperate to commit such an obvious crime, then he really is desperate and if I were you, I would try to negotiate an even lower price for the property
If he weren't desperate, he would not be making such suggestions. Remember, trust no-one. The builder may appear to be acting in your best interests, but really he is watching his own pocket and does not care about you beyond the fact that he can get another house off his books. So, don't be sucked in by his apparent kindness.
 
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