patrick.net

Aside form the legalities of this situation, which are at best sketchy, I have a rule of thumb involving personal unsecured loans to friends and family. I will not make the loan if I expect that it will be paid back. In other words I make it as a loan but my mind set is that it is a gift. This keeps much ridiculous mental garbage out of my brain.
Sometimes I am paid back sometimes not, it does not matter.

Since you're not comfortable, it seems you've found your answer. I'd be shocked if you found anyone in these forums that would say "sh*t yeah, man, go for it!"

Why not have him post his situation on the forum and get advice. I skimmed it but another person I know has what sounds similar. He's renting out the two places and waiting for his ARM reset. Worst case, he gives it back to to bank ($100K underwater on one I know). they already refused a refi. Or just keep renting it out. Its in FL so I guess he can do like many others there and just stop paying and keep renting it and then even file to fight the foreclosure and drag it out towards two years. Probably not legal nor ethical but what people in FL are doing from what I've read. Read about one couple who'd filed for bankruptcy numerous times and been in the house 8 years without paying. I wonder how much they paid the lawyers however!

elliemae says

Serpentor says
Sounds like he wants you to sign a fake rental agreement on the condo he already owns - that makes more sense. It also makes sense that he would ask for a fake deposit check, because a real renter would have to pay a deposit. In order to qualify for a loan on the new place, if he’s claiming to have the condo rented he would need to show that a deposit was made and was being held in an account for that purpose.

If he wanted him to do this, I don't see why he can't use his own money for it. If it's just a check that he wanted to show the bank, then be it. But it sounds like he wants hard cash.

Is this also the same type of friend that invites you to a "party" and shows the group a DVD that lets you know how to get rich working from home, and all you have to do is pay $30 so that they can mail you a DVD?

I don't see why he needs YOUR money. If it's money he needed to borrow, why the excuse and the bait/switch tactic? I don't think he really needs to have a bank representative to witness you handing money over to him.

I don't think he's asking for money. Like I said before I'd have no problem lending him or even giving him some money to help him out. He'd do the same for me. Its the fact that there is potential exposure to charges of fraud (bank, wire, mail etc), conspiracy, falsification of documents, and overall just being against my beliefs and ethics. With the money we're talking about (6 figures of debt) waking away from, we're talking about potential felony charges here... I haven't heard of anyone getting prosecuted but since so many people are doing it, its just a matter of time before banks and law enforcement start making an example out of people.

I think it's relatively safe to do this small fraud for him. Worse that can happen is that you really do move into his rental. Nothing wrong with renting 2 places at once. I doubt he really would charge you rent since this whole thing stirred up from a favor you did for him. As long as you both get your stories straight if anything does come down on you, which I doubt will happen.

But I am just having trouble understanding why it needs to be YOUR money that he holds as a deposit. Can't he use his own money and claim it was a deposit given to him by you?

I think its the fact that he can't really write a check to himself for a deposit. His bank will see that there is no change in his balance. Unless he has an large overseas account or a stash of cash somewhere, there's no way to show that unless someone else deposits their money. Even if he withdrawals the amount for me to deposit into my bank account then I write a check to him, the net affect is $0 change in his account balance...and the transactions will be documented and easily Subpoenaed in an investigation.

and he probably needs show as much as he can in his bank account to get the loan approved.

its really not like he's going to be out in the street. they can afford their main residence... even though its underwater, its a decent sized house (while I'm living in a small apt.) I have no problem with him walking away from his other rental house

Then it depends on how close this friend is with you. Personally if it was someone I grew up with, got in trouble with, and all that good stuff, I'd do it.

Loaning money to friends is one thing. Certainly helps you find out who your real friends are (hint- the ones who pay you back). Your friend is in panic mode trying to figure a way out. This can go on for a while robbing Peter to pay Paul, credit cards, selling stuff or whatever. But in the end failure is usually the outcome. Lend him the money if it makes you feel better but don't expect to be paid back.

I have a policy with my friends. I won't lie for them when it comes money and the law. If they're not happy with me over it, maybe they're not the kind of people I want for friends.

robertoaribas says

If you want to help your friend, really rent his home. As in pay the deposit, sign the lease, move into the home;
Then, you are helping your friend, and not breaking any laws. He/she can release you from the lease a few months later.

hellz no, I have no need for a giant house 2-3 hours from my work. I love my 10 minute commute.

deanrite says

Loaning money to friends is one thing. Certainly helps you find out who your real friends are (hint- the ones who pay you back). Your friend is in panic mode trying to figure a way out. This can go on for a while robbing Peter to pay Paul, credit cards, selling stuff or whatever. But in the end failure is usually the outcome. Lend him the money if it makes you feel better but don’t expect to be paid back.
I have a policy with my friends. I won’t lie for them when it comes money and the law. If they’re not happy with me over it, maybe they’re not the kind of people I want for friends.

thats how I feel too. When I loan out money, I don't expect it to be paid back but if it does get paid back I know who I trust

Vain says

Then it depends on how close this friend is with you. Personally if it was someone I grew up with, got in trouble with, and all that good stuff, I’d do it.

well getting detention is one thing, pound me in the ass prison is totally another. I'm cool with taking him in if he is out on the street, all he's trying to do is screw the bank, he's fine where he is.

How much are we talking about here?

I do agree with deanrite. At least he told you what he is gonna do with your money, and that's his part of honesty even if it does not make a good sense or totally lawful. I did lend a friend of mine some money when he asked me a favor. He paid me back, so everything was ok, right? Not really. At the time, I expected him using it for what he told me he is going to use it for, not for something else stupid. That made me uncomfortable about doing the same for him again.

As a personal level, I can understand his action, but why he is trying to get a loan? For what purpose?

He already is underwater, and getting another loan is adding debt on top of already exisiting debt that made him struggling. If it's like paying off debt by getting loan and think about the loan later kind of stuff, that won't help him in the long run.

he's trying to get a loan because he is underwater on both of their houses. He's wants to walk away but wants a nicer place with a shorter commute. So he is going to buy a third house, tells the bank that he's going to rent 2 of the houses out (I'm not sure which 2.. ) and live in the 3rd. Then when he gets the loan, he's going to move to the new house, and stop paying the mortgage on the 2 underwater houses.

I am glad I stumbled on to this discussion.. if you can call it that. I am actually in the same boat.. except.. I am the guy who is trying to get the loan.. actually I DID get the loan.. and I have moved into my new house. My original house is down in southern california.. and my new house is in Sacramento.. I HAD to move because of change of jobs.. and the only way I could qualify for a house in Sac area is by renting out the house in socal... so I got my sister to sign a lease agreement with me.
My sister now has changed her mind because of her own job situation and also is planning on living outside the country for a few months with my parents..
The deposit HAS to come from the tenant because the lender wants to see your bank statements right up until closing.. so that means, if you write a check for yourself.. obviously the bank will notice. Also, lenders need to see a copy of the security deposit check that you got from your tenant.. so obviously it has to be a legit bank account and a legit check..
so it makes sense that the guy wants YOUR money down as security deposit.
I closed on my new home in sacramento a couple of weeks ago and I have already moved.. Now, I am frantically googling to see if I'll get into trouble... Ironically my other loan for the Sacramento house has been sold to the same bank which owns my mortgage for the socal house.
I am planning on stopping payments to my socal house because honestly, I can't seem to rent it out...
Now I am trying to know if I'll get into trouble. Has anyone ever done this? Bear in mind.. in my case.. I am walking away because I am physically relocated 450 miles away from my original home.

saket,

you need not worry about the fake loan docs and rental agreement, that is really not relevant and you will not need to worry about the FBI or anything.

Before you default on SoCal, you better review whether that loan is non-recourse. Otherwise, the lender will just slap a lien on your Sac property for which you paid probably paid heavy Down payment and wipe out the equity there.

how is that not relevant? I mean.. I wrote a letter saying that I intend to keep my house.. and I produced a lease agreement.. which now is not going to be honored.

My socal loan is non-recourse.. I never refinanced it. Please tell me your background when you guys are reassuring me that nothing would happen so that I know it's from someone credible.

also bear in mind.. I would be stopping payments on my socal house the very first month that I am supposed to receive my rental dues (which I will never get)..

I mean.. wouldn't all this look just too suspicious to the bank?

my socal home loan was thru CalHFA.. I did not put any down payment.. it was thru another cal program of some sort that basically got rolled into my loan.. for which I am not required to make any payments monthly.. but only a balloon payment at the end.. I am guessing that is a non-recourse loan (?).. and yes.. never refinanced it.

I will get my first mortgage bill for the new house due August 1st.. I made the payment for the old house for June.. but was not going to make a payment for july.. the lease is supposed to be effective from August 1st onward.. which now will not happen..

It seems to me that the bank will view this very suspiciously.. and I worry that they'll turn the feds loose on me.

If there are any fraud issues, they ONLY CONCERN THE SECOND LOAN. You will never ever ever hear a peep about the second loan as long as you keep the payments current.

thats true.. I will NOT default on the new loan.. but wouldn't the bank..(which is seeing both of my accounts now) say "aha.. you are not making your mortgage payment for the socal house.. and you said you'll rent it.. and we don't see any rental income coming into your bank account (which is also thru them).. and so we suspect you tricked us into funding the new home"..

saket says

It seems to me that the bank will view this very suspiciously.. and I worry that they’ll turn the feds loose on me.

No no no no no no no. NO ONE will touch your second mortgage for any reason unless it becomes late. You really think the feds care about something that wasn’t even a real misrepresentation on a loan where the payments are current?
You’re bullet proof.

I know they will not touch my second mortgage.. but they will sniff around the first mortgage and discover that I have bought and bailed!.. what then?
Again, I am NOT worried about them touching my 2nd mortgage.. I am only worried about them trying to pursue me legally on the 1st mortgage only because they think I bought and bailed with no lease income coming in.

E-man says

Everyone is missing the point except Robert and SF ace. Here is the scoup...Now he is trying to buy another house for $300k and would likely claim that he will rent his currently home to you for let’s say $2k/month in rent.

Please read the Original Post again. It's simple.

The guy owns two places now. Hasn't yet defaulted, but plans to. So before he defaults he will buy a new place, claiming that it's a rental. The OP is happy where he lives, has sufficient savings for whatever he wishes to do with it.

The guy trying to buy the new place, who intends to walk, bought one of them (the condo) against the advice of the OP and then held onto it, refusing to sell even though he was advised to do so before it became upside down. The OP says that this guy is a good friend:

"He’s been absolutely reliable for me in the past if I needed any favors (picking up from airport, moving, rides etc)"

So the dilemma is this: does the OP give his reliable friend the money for a down and sign a lie of a lease agreement for the NEW home so that guy can buy it, then deed in lieu the first two places - or does he allow the friend to make stupid choices on his own?

I'd say that a good friend would never ask this of another friend. This is asking someone to participate in fraud. I don't care if everyone does it and no one ever gets caught. Let the friend buy his own place or rent for awhile in a tiny place until he can afford to make better choices.

jacksong2k10 says

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Spamdelicious!

I don't think that you are likely to get hurt by the law in this case. It's your friend that's committing the fraud, not you.

However, that said, your friend is a scumbag piece of shit. A constant speculative housing gambler that wants to bail on his commitments while taking money from the same people he's screwing over to make another bet. People have accused me of being overly sanctimonious when it comes to strategic defaulters, but your friend epitomizes why I wish these deadbeats were committed for life to paying back the losses they've created, just like they were student loans.