Investing in Real Estate

Cash Back Scam = Don't Pass go, don’t Collect $200, go directly to Jail

Unfortunately an ever-present evil in our industry is the scammer that will find every possible avenue, some legal, many not to squeeze every last sent out of a property. Those ‘Get Rich Quick’ types have taken a once very useful and legitimate way of cashing out equity and have ruined it for the rest of us. What I am talking about is ‘Cash back at closing’. For decades people have been agreeing to a set price to purchase a property, but borrow slightly more from the bank so they can use it to fix up the property or have an additional put on. This was all well and good as long as the bank knew the full set of numbers and approved the additional funds for the improvements.

During the boom of the market, lazy investors became accustomed to snatching a foreclosure for pennies, slapping on a coat of paint and doubling their money in 30 days. Once the market began to return to normal, these same investors came up with the idea of 'cooking the numbers' and presenting the bank with appraisals dramatically higher than the true value of the property and taking the difference between the sales price and the financed price as cash in their pockets. This money should have been used for the improvements of the property, not the thickening of the wallet.

There are many names for this scam some are 'rebate', 'cash-back', 'seller allowance', 'rehab allowance', but let me set the records straight any money that is given to you at closing that is not specifically listed on the HUD Settlement Statement is FRAUD period! Every penny at the closing table must be accounted for and laid out specific in the Settlement Statement, any deviation is - yip you guessed it - FRAUD and someone is going to jail.

Please, my friends, do not get swept up in this. A few hundred thousand in quick cash is not worth going to jail for ten years. There are so many excellent deals you can make on the honest side of the law, why even bother with this junk?

Find yourselves reputable people to deal with and work with them exclusively and keep in mind, if a deal sounds too good to be true, it probably is.