Does this sound unethical?

pixiesis

pixiesis

Cathlete
So, DH and I have put an offer on a house and its been accepted. The bank appraised the house and it appraised for 10K more than the price we agreed on. In this market with all the foreclosures, this can mean that the bank wants us to put more $$ down (we have 5%, they may want 10%). This doesn't seem logical to me but whatever. Well, we can't really put 10% down, but we can put significantly more down if the seller agrees to pay closing costs. We should hear from the bank today about whether they need more of a down payment.

So here's where things get fishy. Yesterday we spoke to our buying agent about it. She was assuring us that we can still make it happen (well, of course she really wants it to happen). Then she threw out the idea that we'll just up the buying price and then the sellers will use that additional money towards the additional down payment we need. I asked whether we'd still finance the same amount with the bank and she replied that we'd finance MORE. This was her only suggestion. She did not suggest that the sellers pay closing costs, which benefits us and is ethical and normal.

WHY on earth would DH and I agree to this? This deal benefits our agent, the sellers, and the sellers agent, and it costs US more! We are close to walking away from the whole thing, and I'm thinking about reporting her and the sellers agent. I asked the mortgage guy at the bank what he thought of her suggestion. He said that it's actually not legal in the traditional loan that we're doing. I also told him that I found something unethical about her suggestion but that I wasn't sure I understood it correctly (I do, but I wanted his reaction). He said that I understood her suggestion just fine.

So, WTH should we do? TIA ya'll.
 
I'd call her on it. Tell them what you will offer/do and be prepared to walk away if you have to. This kind of behavior is what has gotten so many people into hot water with the sub-prime crap. I would totally call her on it.
 
Banks, well the bank I work for, uses the lesser of the appraised value or the purchase price to base LTV/CLTV on... so, if the purchase price is lower than the value & you have 5% of the purchase price & the bank was fine with that before, what has changed now?

If you qualified before for a 95% LTV or 80/15 or 75/25, however they are financing you, then the value shouldn't make a difference to the bank... they'll have more equity just by having a higher value home than what you paid.

Is it the sellers that are asking for more money now?
 
A higher selling prices benefits everyone...but YOU.....this is a buyers market....give the terms that work best for you and be prepared to walk away.....they may call you back!
 
That sounds uncomfortably close to mortgage fraud, a crime that is getting increased attention in prosecuting authorities all over the country.

IMHO, you have a valid purchase agreement at a price that was agreed to by all parties, none of whom were under duress at the time it was executed. I cannot see where the bank would have the capacity to force you to increase your downpayment if the purchase price was underneath the appraised value. You bought the house for X, and your mortgage loan application was for X minus a stated downpayment at the time of the purchase agreement. Done deal.

Methinks you have problems not only with your agent (who sounds like a rotten fish to me) but also your bank if it tries to make you increase your downpayment strictly because of a higher appraised value. While I cannot suggest that you walk away from the transaction with the current facts (you might stand to lose your earnest money if you do, or the nuclear option of being compelled to complete the transaction), I do think at the very least you should report the agents to whatever state department governs licensure of real estate salespersons and brokers, not to mention their area Board of Realtors.

A-Jock
 
>Banks, well the bank I work for, uses the lesser of the
>appraised value or the purchase price to base LTV/CLTV on...
>so, if the purchase price is lower than the value & you have
>5% of the purchase price & the bank was fine with that before,
>what has changed now?

>If you qualified before for a 95% LTV or 80/15 or 75/25,
>however they are financing you, then the value shouldn't make
>a difference to the bank... they'll have more equity just by
>having a higher value home than what you paid.

Jen, I don't understand it, and it makes me feel better that you agree. According to my mortgage broker, the bank's underwriter, Taylor Bean, may now want to reduce the lending amount by 5%, meaning we have to pick up the difference. He explained that it had to do with foreclosures and banks trying to be more cautious, but the logic of it still escapes me. What you said about them having more equity is true, and I actually think the banks reaction is exactly opposite of what would make sense. Anyway, Taylor Bean is reviewing the file and it may be that nothing changes.

>Is it the sellers that are asking for more money now?

The sellers haven't come out and openly asked for more money, but since our agent made that suggestion I worry that they and their agent are in cahoots with our agent to up the price on us naive first-time buyers. The high appraisal may have excited them and made them greedy. But we'll walk away first. There are no other buyers-we're in Western Michigan and the economy is bad!
 
>A higher selling prices benefits everyone...but YOU.....this
>is a buyers market....give the terms that work best for you
>and be prepared to walk away.....they may call you back!

This is exactly my reaction! And yes, we have the more powerful position and we'll walk away no prob...if they call back, I can't say I'd still be interested. Things seem to be turning sour.
 
>A higher selling prices benefits everyone...but YOU.....this
>is a buyers market....give the terms that work best for you
>and be prepared to walk away.....they may call you back!

This is exactly my reaction! And yes, we have the more powerful position and we'll walk away no prob...if they call back, I can't say I'd still be interested. Things seem to be turning sour.
 
I think TBW is a good bank (not who I work for though), but you did mention you are going through a mortgage broker, which is completely fine! Actually I work in the wholesale lending area so mortgage brokers are my customers so I think they are great...that being said though, you have the ones out there that are CLUELESS about the mortgage industry & are just in it to make money & don't care about anything but that so just be careful.

Couple things I'd ask your mortgage broker:

1. Did he prequal you through TBW? If yes, for how much $ and what max LTV/CLTV do they allow?

2. What is their policy for distressed markets? A lot of banks, including the one I work for, do take 5% off the max financing allowed if in certain counties. BUT your mortgage broker & lender would've know this prior to any contract if you knew what county you were buying in. If in a distressed market with my bank, the max financing allowed is 95% so 5% reduction would be 90%... but again, the value of the home has nothing to do with that.

3. If he can't give you these answers then I would drop him or at least make him get these answers to you prior to doing anything. If TBW does have the 5% reduction & you are in a distressed market & he didn't let you know that before hand then yes, it could be that their policy is an additional 5% down... again, none of this though should matter with value.

If you want to let me know what county you are in, assuming east coast since TBW, I could let you know if our bank considers it distressed area. Just be careful & if you aren't comfortable with it, walk away!

OOPS just noticed you said buying agent... anyway, if she is working with TBW retail side (direct to the bank) someone still should have notified you of this possibilty!
 
>That sounds uncomfortably close to mortgage fraud, a crime
>that is getting increased attention in prosecuting authorities
>all over the country.

Thanks A-jock for your reply. Yeah, it does sound like mortgage fraud. Although I'm no expert on this stuff, I was immediately suspicious. I want no part of any kind of shady deal and I have no problem reporting this.

>IMHO, you have a valid purchase agreement at a price that was
>agreed to by all parties, none of whom were under duress at
>the time it was executed. I cannot see where the bank would
>have the capacity to force you to increase your downpayment if
>the purchase price was underneath the appraised value. You
>bought the house for X, and your mortgage loan application was
>for X minus a stated downpayment at the time of the purchase
>agreement. Done deal.

This is my reaction too. I'm waiting to hear from the bank, and if they want us to increase the down payment we have no problem walking. There's plenty of banks that would love our business. Plus, we don't *need* a house. It seems like a good time to buy, but we don't care if it doesn't happen. I think everyone else cares more that we buy this house than we do at this point.

>Methinks you have problems not only with your agent (who
>sounds like a rotten fish to me) but also your bank if it
>tries to make you increase your downpayment strictly because
>of a higher appraised value. While I cannot suggest that you
>walk away from the transaction with the current facts (you
>might stand to lose your earnest money if you do, or the
>nuclear option of being compelled to complete the
>transaction)

I'm worried about the bank too. Everyone seems to have their own greedy corrupt and self-interested scheme going. It's starting to seem icky. But, like you said, I'd hate to lose the earnest money, plus we've already plunked down more on an inspection.

>I do think at the very least you should report
>the agents to whatever state department governs licensure of
>real estate salespersons and brokers, not to mention their
>area Board of Realtors.

I'm thinking about doing this. I'm pretty disturbed about the whole thing. :-(
 
Amy, the more I read your descriptions the more confused I get too, especially the funding bank's position. If the house appraised for more than the purchase price, that simply means you have more equity in the house going into it because the loan-to-value ratio is lower. You'll also stand a better chance of being able to avoid private mortgage insurance (if you're going with conventional financing) if your LTV is 80% of less.

Maybe, not only do you have to crack the whip with the agents (and their brokers, if the agents are salespersons whose licenses are held by brokers) but also see if you can switch funding banks. Something just does not make sense here.

A-Jock
 
>that being said though, you have the ones out there
>that are CLUELESS about the mortgage industry & are just in it
>to make money & don't care about anything but that so just be
>careful.

Well, I think our broker is possibly clueless about this problem, but he is also not great at explaining things. Not sure whether he's a good guy or a bad guy...but I did make it clear to him that our agent's suggestion disturbed me and that my husband and I have no problem walking away.

>BUT your mortgage
>broker & lender would've know this prior to any contract if
>you knew what county you were buying in. If in a distressed
>market with my bank, the max financing allowed is 95% so 5%
>reduction would be 90%... but again, the value of the home has
>nothing to do with that.

Good point. He did not mention anything at all about this prior to the appraisal. And I still don't get why the value of the home should affect it.

>If you want to let me know what county you are in, assuming
>east coast since TBW, I could let you know if our bank
>considers it distressed area. Just be careful & if you aren't
>comfortable with it, walk away!

Thanks for the suggestions and I'll ask him those questions. We are in Mason County (Michigan). Thanks for checking on it!

>OOPS just noticed you said buying agent... anyway, if she is
>working with TBW retail side (direct to the bank) someone
>still should have notified you of this possibilty!

Actually, we are lucky enough to count a buying agent and a mortgage broker in our cast of characters. So it's the mortgage broker who is working with TBW, unless I'm even more confused than I thought I was!
 
I think by you asking the questions that alone will let you know if they have a clue or not! If they can't answer those basic questions then be very careful! Mason county is actually not on the list, there are about 10 counties in MI on it & I know some others are going down in value. Also, ask your agent/broker what the appraiser marked on the appraisal for the market conditions... stable/increasing/decreasing, time on market average, less than 3, 3-6, or over 6 months, & what is status on pending homes on market- in balance, over-supply, or under-supply. That could also require a 5% reduction is declining values, over 6 months on market, or oversupply of homes from a bank/lender standpoint.

Feel free to PM or e-mail me if you have any questions, while I don't know everything by any means, I've worked in the bank I am at for 11 years now & been in sales for 7 so I know enough to be dangerous, LOL!!
 
<<There's plenty of banks that would love our business. Plus, we don't *need* a house.>>

I'm so happy to see you write this line!!

I didn't read all of the other posts, but this sounds REALLY fishy to me. Be the Alpha dog in this transaction and tell the bank what YOUR terms are. If they don't agree, walk.

We had to take that route with a refinance a few months ago. We made it crystal clear that we were talking to other lenders, and they gave us the terms we wanted.
 
I guess I am a little confused as to why, if the appraisal comes in $ 10k higher, the bank would require additional down payment. It would make sense if the appraisal is lower or at purchase price in a declining market to require additional funds.

I don't know your local area, but in my area the buyer gets approval through the lender for a certain price (range) and a specified down payment before they make an offer on the house. If the house is in an area that is effected by the lender requiring additional funds, the lender already knows that when they run the approval.

Let's say the house is $ 200,000 with a 5 % down payment the downpayment is $ 10,000 and the loan amount $ 190,000. The lender confirms this in a Loan Status Report or PreApproval Letter which accompanies the purchase offer (in other counties or states it is not on a separate paper but in the purchase contract). This means that you as the Buyer agree to purchase the house under these conditions with a 5 % down payment. Our contracts state that if the Buyer despite of a good faith effort fails to obtain financing under these conditions the Loan Contingency is not fulfilled and the buyer can cancel the contract and have the earnest money released. What you may lose though is the appraisal fee (if you agreed in the contract to pay for it) and any fees for home inspections.

Under most conventional loan programs the Seller cannot pay for the Buyer's down payment. They can pay for the closing cost, however, with a 5 % down payment the seller contribution is usually limited to a maximum of 3 % of the purchase price. So I don't know why your agent would even suggest this :eek:

I guess what she is trying to do, is to up the price by $ 10,000 and then have the Seller apply this towards your down payment. Technically, it would be a wash but aside from the fact that I don't know any loan program that would allow this, I don't think it is advisable in a declining market.

If you need to keep your down payment low, an FHA loan may be the way to go, it only requires 3 % down at this point and is fairly easy to qualify for. If you are a first-time home buyer you may want to check around. Many counties offer down payment and assistance / bond programs for first-time home buyers (it is "free" money, usually you don't have to pay it back).

As to your agent I would ask her why she would suggest that, what would be the benefit for you? After all, she is YOUR agent and is supposed to work in YOUR best interest. This is a good market to negotiate, don't let your agent doublecross you. If you feel that she is not representing you, call her broker immediately.

I am not sure that it amounts to unethical but it sure sounds questionable and suggests a lack of knowledge on your agent's part, unless I am missing something.

Good luck!
 
Thanks for weighing in here Carola. I was hoping you would. I still don't really understand why there may be an additional down payment required. We did get approval from the bank for a certain price and we did specify the amount down (5%) before making an offer. So this comes as a total surprise.

When I ran the agent's suggestion by the mortgage broker, he did say that under our conventional loan, the seller cannot pay for our down payment, so you're absolutely right there. I can't figure out why she did suggest this, since it doesn't benefit us, and since the most obvious idea would be to have the seller pay closing costs. I'm worried about who exactly she's working for here, and I'm right with you in suspecting that she may be double-crossing us. I hate to be in this situation, because she's been fairly helpful and nice so far. It's no fun feeling like you now must suspect someone you've been working with and trusted.

Initially we were interested in an FHA loan, but the banks I spoke to didn't offer them and we do have the money for a 5% down payment, so for the sake of convenience I went with a local bank, but now it looks like we may soon be looking at banks again and if we do we will look into FHA loans some more. There's nothing wrong with free money, right? ;)

Thanks for your reply!
 
Okay, this kept bugging me and I had to find out :), here is what I found. I am not familiar with Taylor Bean, not a bank that is represented in my area. However, I found Taylor Bean's underwriting guidelines online. Their maximum LTV (Loan to Value Ratio) is 95 % for a first mortgage (it appears that with a second mortgage they allow a maximum total LTV of 97 % - but it is not clear what the lending requirements are for that).

According to their underwriting guidelines, if the appraiser says that the property is located in a "declining market" (probably 85 % of the markets in the US are declining and most appraisers are extremely careful and rather mark declining market) the maximum LTV will be reduced by an additional 5 %, in other words, your down payment goes from 5 % to 10 %

Here is the link to their underwriting guidelines

http://www.taylorbeanonline.com/RateSheets/Newsletter/Conventional.pdf

Now, there was a recent news release from Fannie Mae that they will do away with their policy that declining markets require higher down payments (like it appears to be in your case) starting June 1, 2008.

http://www.fanniemae.com/newsreleases/2008/4370.jhtml?p=Media&s=News+Releases

Different lenders have varying underwriting guidelines, just because Taylor Bean does it this way doesn't mean that another lender is doing the same. If you have a good credit score and solid work history you may still find a lender who can underwrite the loan as it was originally planned. You may even be able to renegotiate your contract and/or switch to an FHA loan. But you REALLY will need an agent who knows what she is doing, there are timelines that need to be observed and legalities need to be covered otherwise you could be in a real crunch and lose your earnest money on top of everything else you already spent.

Please understand this is just general advice, without knowing the specifics of your contract and your local real estate market I can't really say any more than this.

What I would do is to ask your lender to get a copy of the appraisal (you are entitled to get a copy, it's not just a courtesy), look at the appraisal if anything states that this is a declining market. Also ask your mortgage broker if he put you through automated underwriting (if he did, it should have come up with a red flag stating the condition on the appraisal). Even if it was manual underwriting (an underwriter actually looking at the file) and he has worked with the lender before, he should have known that and warned you about the possibility.

There is still a possibility that the lender may override this requirement if there is enough value in the house but there is no guarantee. I would try and get an answer from the lender as fast as possible and in writing. If the 10 % down payment remains, you still would like to buy the house and you still trust your mortgage broker, ask him if there are any other lender programs that may work for you. FHA by the way, does not require the additional down payment if the Buyer is well within their qualifying guidelines.

I don't know, I have never run into that problem, I guess I can thank my lucky stars that my two lenders always have this kind of stuff covered and it has never happened that my clients or I were presented with an unpleasant surprise.

About the value of the appraisal, in all liklihood the seller is not aware of the appraised value, unless the lender or your agent have disclosed that to the Seller's Agent which they shouldn't. I know you are frustrated with your agent but I would give her the benefit of the doubt. I would suggest that you have an open conversation with her and share your concerns and frustration with her. It may be beneficial for you to get her broker involved if you feel that there is a lack of knowledge on her part. If you feel she is double-crossing you definitely contact her broker.

Good luck! I am certain whatever happens will turn out for the best for you and your DH.
 
Amy,

It sounds like you've gotten some good advice here. Jason's aunt runs her own real estate business and was president of the Michigan State Realtors Association. She knows other agents who can help you if you want. It sounds like you should have taken Jason up on his offer earlier huh? :)
The agent she found for us in Virginia was great and there was never any doubt who she was working for.
It sounds to me like you need a new agent and possibly a new bank. Or maybe you should lay down the law and tell them what you want. Make sure they are crystal clear on the fact that you will walk away if the original terms are not met.

Carolyn
 
Thanks Carola for explaining the policies of Taylor Bean. What still annoys me is the the mortgage broker did not alert us to this possibility in the first place.

I'm pretty sure I remember the agent telling me that she would talk over the problem with the seller's agent! So I guess this is a big no-no huh? Well, since she was so open about it, maybe she is not double-crossing me at all, maybe she's just kind of dumb? Anyway, I'm almost positive that the sellers know about the appraisal, unfortunately.
 
Yes Carolyn I do remember Jason's offer, and we probably should have gone with it. Maybe we still will. If the bank ends up allowing the loan to go through with a 5% down payment, we're happy and we'll proceed as planned. If not, I think we'll be looking for a new agent AND a new bank. Although, Daddy said that we don't need a buying agent at all. I'm sure it would be an inconvenience, but maybe it's a good idea to be agent-less? I already told the mortgage broker that we're not happy with the bank problem our with our agent and that we have no problem walking away if we cannot get the original terms. He's in touch with the agent so she probably knows we aren't pleased with her. Sigh...this is such a pain.
 
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