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Don't Screw Up Your Loan With Untraceable Deposits

Dang! It just happened again! My buyer's daughter transferred $20K into their account, because they're really buying the condo for the daughter with her money. (The daughter has bad credit, but a wad of money, so Mom and Dad are making the purchase for her).

Loan paper trails can drive you crazy Now we need to show proof of where the money came from - which means copies of the original check, copies of the cashed check, copies of her birth certificate, marriage license, and dog's vaccination. OK... I jest about the last 3, but DON'T MAKE DEPOSITS WITHOUT SPEAKING TO YOUR LENDER ABOUT THE CONSEQUENCES TO YOUR LOAN. Federal guidelines mandate we need a paper trail for every cent of money that goes through your bank account.

Getting these verifications take time... time that can throw a serious wrench into your loan process. So while it may not be a problem getting down payment assistance from elsewhere, the timing of it causes the real problem.

So what do you do, if someone else is giving you money for your down payment?

1. Be sure your lender approves the amount.

2. Provide a gift letter, promising to put up the money as a gift.

3. Get a cashiers check written directly to the title company.

4. Wait until you have loan approval, and have signed your loan documents.

5. THEN deposit your cashier's check directly into the title company. (check with your local customs, as not all states handle title and escrow the way we do here in Fair Oaks). Having the gift money going directly into the title company means only one paper trail... from the gifter to the title coompany. But if it first goes to the person buying the house, there is an extra layer of paper trail involved, which takes more time.

You do this, and you will avoid a bundle of paperwork that can drive you crazy. Just make sure you have run this by your lender... then do as they say!

OR... go buy a lottery ticket tonight, then pay cash!

_______________________________________________________________________________________________

Your Fair Oaks Realtor for homes for sale in Fair Oaks and the Sacramento Area of California.... I'm your gal (Sally Dunbar). I'm occasionally knowledgable, periodically humorous, and always willing to tell you everything I know. What more could you ask for?

Sally Dunbar, 30 year Broker Associate, Lyon Real Estate, Fair Oaks, CA (916) 535-0356, SDunbar@GoLyon.com "Your Fair Oaks Realtor"

Posted by Sally Dunbar, Fair Oaks Realtor - Fair Oaks Homes for Sale on 07/23/2010 09:24 PM

Comments (52)

Buyer's Down Payment in the Mortgage / Finance Channel

buying a home in fair oaks, deposit money, gift letter, escrow, title

Originally posted at: Sally Dunbar's FairOaksHomesAndMore.com: Don't Screw Up Your Loan With Untraceable Deposits

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52 Comments on Don't Screw Up Your Loan With Untraceable Deposits

JUL

2010

This is one of the biggest challenges that we face. Buyers end up getting frustrated by their own actions.

I have a whole sheet that I send to all of my buyers about NO DEPOSITS, NO CREDIT CARD USAGE, NO PURCHASES and the "why"s for the entire time I work with them, for this very reason.....

Had something a little similar recently. They buyer received an annuity each quarter so the money "suddenly appeared" in his account a few days before closing. The lender definitely wanted an explanation.

It is so unfortunate when situations like this come about at the time of underwriting. However, even if the money has been given prior, as long as it can be properly documented as a gift (evidence of transfer like a copy of the check, donors ability to give and a gift letter) it still may be able to be used!

Sally, It is so interesting how folks mess up their own lives isn't it...

Sally, sometimes I think buyers need a big fat handbook, and someone to hold their hand.. oh wait, that is what we are doing, isn't it?

JUL

2010

Once you have applied for a home loan, don't do anything financial that is our of the ordinary - without checking with your loan officer.

okay do these go together?

she has bad credit

and

a lot of money.

maybe she shouldn't get a house, and her parents should be careful, could be for the best.

Hmmmm, this is a good post, I may re-blog it. Thank you for getting it out to us. I don't think people even think of this happening.

Patricia

Sally - I put this in the same cateogory as making big purchases before closing, No No No.

Great post! Seems like more people have mattress money around these days and they just don't seem to understand the problems it causes.

I just sat in on a consultation with a lender and some new buyers yesterday where this came up. It's not as easy as giving someone money. Documentation must always follow.

Good point- I see buyer's all the time moving money without asking.

Don't mess with the money once you have applied for the loan....

Sally, a letter of credit works fine too....

Thanks Sally. Another reminder why it is so important for us to be in touch with our buyers every step of the way.

In my last experience, the lender knew right up front about the 'gift', but the buyer still had to jump through hoops..and she complied fully with the lender's requirements. The closing was delayed a week due to the way the 'gift' was handled.

So true, I did not realize how serious they were about tracing All deposits until recently, even very small amounts have to be verified.

Thanks for the advise. The industry seems to still be in turmoil so todays's jest could be next week's reality.

Great post, I'm going to reblog it.

Tracking funds is a huge issue and can cause big problems with transactions, and sometimes clients just don't understand how important it can be even when they've told.

JUL

2010

Hi Sally, it is a sign of the current times! Thank you for the excellent post!

My clients are going through something similar as they made one deposit that was 3 checks and some cash. The lender wants to know the source of the cash (under $100.00) and it was just cash... no paper trail, just some funds from a couple ATM withdrawels that was around the house in their wallets, pockets, and beach bag that they decided would serve them better in the bank!

Happened tice in the last 3 months. One was on the esrow money coming from Mom because she lived here and could get the check in that day to escrow. The other buyers sold a boat for a substantial amount and put it in their account. The buyer of the boat wrote a personal check and the bank took over a week to get them a copy of the check. No matter how many times and ways I explain the deposit thing I am sure it will happen again.

Thanks all for weighing in. What makes all this so complicated from a buyer's standi\point, is that none of this is intuitive. who would think that a hundred bucks floating around the house would need to be tracked! and who would think that a simple check from Mom to son would take 4 verifications - a copy of the cashed check/ a copy of the deposit, a copy of the transfer to escrow, and a verification of receipt.

Directly into escrow by the gifter means only two verifications.... much easier.

And Gary... what is a letter of credit?

Yep we are seeing this here, too. I had a young guy who sold his motorcycle 6 months before buying a house. His buddy gave him $5000 for the motorcycle and we had to prove where it came from. Ugh.

Sally,

Great Blog and a very common issue right now. I hope this gives more Realtors cause to give the buyer's Lender more time to produce a pre-approval letter. This entire issue can be avoided if the Lender performs a quality pre-approval rather than taking the customer for their word.

Also, this may go without saying but 95% of "professionals" in the mortgage industry do not take time to educate themselves with current underwriting guidelines. They are more concerned with getting a loan submitted, then actually submitting a loan properly.

If you are a Realtor and you want to avoid unforeseen issues like this, make sure your Loan Officer is performing a quality pre-approval by verifying all income and asset documentation up-front. This includes Tax returns even for salaried borrowers.

Another issue to look out for right now is 2009 tax returns for self-employed buyers. All tax returns must be verified by the IRS via 4506-T. If your self-employed buyer recently filed taxes, they may have to wait 4-6 weeks before the IRS can validate the taxes for the Lender. This can cause delays in loan approval unless the buyer can qualify on 2007 and 2008 taxes.

One last note of caution.......as of June 1, 2010 Fannie Mae is requiring a new credit report "the day of closing". There has been some flexibility given allowing the credit report to be pulled a day before in some cases. However, if the buyer has any new credit, or has any increased payments on credit cards or any revolving debt, then the loan may have to go back to underwriting and delay the closing.

Warn all your buyers to NOT use their credit cards for any large purchases prior to closing, and of course no new debt of any type.

It seems no matter how many times we tell them, they still do these things.. and then guess who gets the blame for delays !!!!!!!!! I do have a checklist I give them, that seems to really help with a lot of issues, and questions. RE/MAX 1ST Olympic

Well, as a Realtor and mortgage officer, if both told the buyer beon a shadow of doubt that do not buy anything or move any money...then it is totally the buyers fault and any extra work they have to do is because they do not listen.

Glad to know about this hitch in the funding process as I would easily do something like this.

I always advise my clients to make a photocopy of any large checks they are depositing, together with a paper trail. Money from a 401K, copy of the release form, copy of the check, copy of the deposit slip, etc. Income tax return check, copy of tax return, copy of check from the IRS, copy of deposit slip, copy of bank statement. Check from mom and dad, copy of the check, copy of the bank statement from where the money was withdrawn from, copy of deposit slip, and copy of bank statement for the account it was deposited into, etc. Not to say the lender won't require more "proof", but at least it's a start!

I had a client move money from one Bank of America Account to another and it took them two weeks to figure out.

Lending is getting to be such a mess. Anymore I tell clients that if their nose is itching they better ask the lender if it is ok to scratch prior to closing. Really the whole thing is kind of crazy.

I once had a buyer sell a motor home to raise down payment money. The bill of sale wasn't enough to satisfy the bank... the motor home's buyer had to send a copy of the new registration before the bank would believe them.

This is probably all in reaction to attempts at halting money laundering... but it sure gets overboard.

These people who do garage sales and such and end up with a bunch of money have a hard time understanding why there is a need for documentation -- they say "money is money" -- nooooo,not the way the lenders look at it.

Sally, I feel sorry for your daughter, but the buyers were committing loan fraud and got caught.

Many of the previous comments, seemed amazed that lenders are looking under every rock. Now maybe they don't have a problem with foreclosures in their market, but in SoCal this "straw buyer" scam accounted for a huge number of the bank owned properties we have.

If a buyers financial picture changes prior to closing, that includes employment, credit and cash to close, are you surprised that a lender would want to verify they still qualify?

actually, the parents are commiting fraud if they dont intend to occupy as their primary and are buying this as a primary - based on your story they are "straw buyers". also, all u would need is a gift letter from the daughter to source those funds, depending on the nature and type of the loan. your blog left out a lot of important info, such as how much money they need in total for down payment and what type of financing they were getting, and if it was an primary residence loan.

i realize you are trying to tell people about sourcing funds, and i think most of us in the industry know how it works. its the borrowers who need to be educated, and perhaps some realtors as well. although, i do agree some lenders can be over scrutinous as well. many will not even accept a vod, only bank statements. good luck with your purchase.

Hold on you guys... There is no loan fraud. The lender knows about the money. It's the timing of the transfer and the fact the daughter transferred directly to the parents instead of directly to escrow that is the issue. The way she did it caused the tracing of funds to take more time. Had it gone directly to escrow, it would have been easier. Also, the daughter is a responsible kid. She owned a home, got divorced, was upside down, and now has a short sale. Then her dad died and left her some money. She's working her butt off to provide for a baby as a single mom, and her parents trust her enough to help her buy this.

BTW, the parents are getting an investor loan.

I like the comments of some of the agents who gave their clients a checklist. I'm going to have to get with my lender to get something drawn up as this has happened to me before too. I know my lender told them what not to do, but they don't listen! Maybe a checklist will help!

Thanks for the reminder of this issue!

The comment about the boat sale brought back memories of 30+ years ago, before I was in real est ate. We sold our sailboat on Lake Ontario to move to Maryland and had accounted for that, but at the last minute we had to account not just for the sale of the boat, but how much some guy down another dock paid for the spinnaker, etc. Almost immediately the house sold and we could have kept the boat, but that's another story.

A lot of the info in this blog will be added to my buyer education book. Thanks to all.

Sorry, but it IS loan fraud if these buyers are getting a owner-occupied loan in their name and not moving into the property. Good intentions or not, it's loan fraud.

Steve - see above. They ARE getting an investor loan. THERE IS NO LOAN FRAUD HERE.... it's the timing of the deposit, and the fact it should have gone directly to Escrow that is the point. My blog is about simplifying the paper trail.

Hello, everyone, Steve Harkness here, and I have 17 years experience as a Mortgage Lender. This is one of the biggest issues that seem to pop-up at the last minute, and it drives me crazy. I instruct the borrowers up front in great detail about how imperative it is to account for all deposits, especially during these trying times!

I do a lot of FHA loans here in Kitsap County where the funds to close will come from a family member. I give my borrowers a sheet of paper that shows how to document a money trail for the underwriter. It starts with a gift letter from the parent. Lenders are now even asking for a copy of the parents bank statement to show they have the ability to make the gift. Then they need a copy of the cashiers check from the parents accounts. Then need a copy of the deposit slip showing the cashiers check was deposited in the home buyers account. Then the next bank statement better show the gift funds being deposited. DID YOU ALL GET THAT LAST PART? That means don't wait until the last minute to transfer funds to the purchaser's account because many lenders will not accept a computer print out (to easy to forge).

Another thing that gives lenders gray hairs are people that have numerous bank accounts and move money around for no valid reason. You can't tell how much money they actually have because the same funds will show on several off their many accounts.

If you want your loans to close I strongly suggest you partner up with an experienced mortgage broker, or banker that has the ability to broker. The days of having an attitude that all lenders are the same and handing out three business cards are over. This isn't just about rate anymore; it's about who has the knowledge to close your loan. Rules and regulations are changing weekly. In addition, many of the investors that purchase these loans are overlaying their own rules on top of HUD's, VA.s or FNMA & FHLMC. This is why it's so important to work with someone that can broker. He/She can choose the best lender that fits what your borrower has to work with.

Great post and comments. My son is getting ready to buy a home and my daughter and son-in-law are helping with the purchase. Now I know to give them some warning about possible pit falls.

Steven - GREAT comment. You are so right. So many buyers just shop rates, unaware of the complicated details involved in actually closing a loan. USE AN EXPERIEMCED LOAN OFFICER WHO CAN GET YOUR LOAN CLOSED!

JUL

2010

Sally - this is a good point, however, I do feel that it is the Loan officer's responsibility for items like this. Bank statements need to be dated within certain time frames (ie: 45 days from date of application, and usually 90 days from settlement). However, a good loan officer should know as soon as they see large deposits during a pre-qualification (usually at least 30 days prior to a settlement), that they will need to document them - so this shouldn't really never delay settlement.

Yes it requires the borrowers to be cooperative and a little bit of patience on their end. Yes, it is ridiculous especially when you are asking borrowers who make a good money to document a few hundred dollar deposit into a certain account. But in my opinion the Realtor's should never really feel that they need to control these things. A good LO should make the job easy on the Realtor!

Sally, Thanks for the great information. Good to know.

Sally, more information has come to the front since I made my comment about loan fraud.

Even if they were buying as an investment property, gift funds are not allowed for that type transaction. (Fannie Mae guidelines)

Those who commented that this was the LOs responsibility are right on point. How do you do a pre-approval without verification of funds?

Nick and Greg - I agree there should have been more guidance from the Loan Officer. this was someone they chose from out of the blue. Then she went to France, with another person completing the transaction. So I imagine the control slipped some.

As agents, there are so many scenarios that come up, it's hard enough to guide buyers through the home-related issues, let alone backing up the issues involved with the loan. I totally agree, that a good loan officer is critical... one who knows how to get the loan closed. If you lose your interest rate because of delays caused by inaadequate advise regarding documentation needed, and interest rates rise, you didn't save in the end anyway.

As always.... chose wisely - both your agent and your lender.

JUL

2010

thank you for the timely reminder! I have a list of "do's and dont's for homebuyers".. I think I will add this to the list.

JUL

2010

I also agree with Steven's post. #43. While rates are great right now, they won't do any good if you can't close the loan and right now investors are putting borrowers under the microscope.

Great post to put out there for people who are about to purchase a home and a great reminder of one more thing NOT to do.

SEP

2010

This is an informative post with some good comments. Thanks.

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Sally Dunbar, Fair Oaks Realtor - Fair Oaks Homes for Sale

Fair Oaks, CA

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Lyon Real Estate, Fair Oaks CA (Sacramento Area)

Address: 6815 Madison Avenue, Fair Oaks, CA, 95628

Office Phone: (916) 535-0356

Cell Phone: (916) 524-1548

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Fair Oaks homes for sale by Realtor Sally Dunbar, who's been hoofin' it through the homes of Fair Oaks and the surrounding areas, matching up eager buyers with ready-to-move sellers, since 1979.

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