Generally, I find it easier to do what I do than to talk about what I do.  One thing that I do is to prowl for possible examples of real estate fraud to use during presentations.  It's not as cut and dry as it might sound.  Last week, Tom Weiss shared one such example in the form of an ambiguous loan product known as PayoutOne (Advance Home Value Access).  Tom wrote a post asking for our opinions concerning the legitimacy of the product.  Another thing that I do is to deconstruct the big picture into a verbal lexicon of practical do's and don'ts for anyone who cares to listen.  Let's give it a try with PayoutOne  and see what happens.

Don't mistake PayoutOne for a Nehemiah type concept where a non-profit provides closing assistance to buyers based on fully disclosed contributions made by sellers.  Funds aren't made available to buyers using Nehemiah type programs until the time of closing and can be used only for the reduction of closing costs as they appear on the settlement sheet. 

PayoutOne doesn't purport to be a closing assistance program, which it's not.  PayoutOne, however, maintains that it's not a lender, which it clearly is. 

PayoutOne's website is a tribute to man's ability to use words to confuse and mislead the uninformed.  It's a temple of plausible ambiguity. The company claims to offer a marketing program that gives contract purchasers access to the equity of the homes they have under contract.  It's not a marketing program by any stretch of the imagination.  The funds are advanced for extremely short periods of time, less than five day, and earn interest, disguised as fees, at usurious rates.   The minimum fee charged is $1,250 regardless of loan amount. 

The funds advanced to buyers are stringently controlled by PayoutOne.  Primarily, the funds are used to give the appearance of a down payment that the buyers really don't have.  In other cases, the funds are used to deceitfully improve the buyers lending profile by reducing credit card debt.  In every instance, the funds provided by PayoutOne are introduced into the loan approval process at the last possible minute to coincide with the submission of a single missing verification. 

Excerpts from PayoutOnes's website:

PayoutOne's CMP program provides private contributions to homebuyers in advance of the purchase. These funds empower the buyer/investor with access to the equity in the property, thus minimizing the out of pocket costs typically associated with down payment and closing costs.

And:

PayoutOne (before funding it's own loan) also requires a clear to close or a final stipulations sheet showing no unsatisfied stipulations other than a Verification of Deposit (VOD).

Yes, there's clearly a problem with the representations made on 1003's by borrowers using the program.  Buyers have an obligation to disclose the funds even though the loan was conceptually made by the sellers.  PayoutOne suggest that buyer's are somehow magically entitled to use the equity in their future home as though it's been parked in a bank account.   The loan from PayoutOne is not a tool used by sellers to market a house.  The money is used for the buyers sole benefit, any other explanation is a play on words and an insult to human intellect.  The PayoutOne website portrays the situation in a way that's both confusing and ambiguous.  It's no different than the sellers taking money from a savings account to make an undisclosed loan to the buyers.  People have spent time in federal prisons for doing exactly that. 

There's a great deal of planning involved to insure that relevant facts are concealed from the actual mortgage lender when the PayoutOne program is employed.  As a practical matter, sellers are originating unsecured loans to facilitate a scheme that intentionally misleads lenders into believing that buyers are financially qualified when they may not be.

It should come as no surprise that the program can be used only with mortgage products that don't have a seasoning requirement. 

PayoutOne collects its fees and initial investment from sellers at the time of closing.  Buyers are responsible to repay PayoutOne should a deal not close. The website asserts that full disclosure is made because PayoutOne is paid from seller's proceeds with dispersement shown on settlement sheets.  That's an absurd oversimplification of a complex scenario.  A properly drafted settlement sheet would show that a seller gave the buyers money prior to closing.  We know that's not going to happen because lenders can't know that the exchange of funds ever occurred.  Buyers, sellers, and closing agents are committing fraud when they sign settlement sheets because material facts have been intentionally misrepresented.

Don't allow the cleverly drafted content of PayoutOne's site to eclipse your sound judgment.  The program is wholly dependent upon secrecy, deceit, and side agreements between all parties involved in the transaction.

My advice:  Be afraid of the program!  Be very afraid!