Q. We have purchased a home from an individual who is buying it the same day from another vendor. Our lawyer has stated that this transaction is problematic because there is a substantial increase from the original sale price to the price we are paying. I can’t see how this is an issue if our lender is giving us the money. Why would this cause problems?
A. There are a few problems here that need to be considered. The main one is that technically what you are involved in is called a “flip.” If all parties are aware of the two transactions and the increase in the value of the property in one day, it would not be such a problem. However, more often than not, the lender at the end of the deal — that being your mortgage company — is often not aware that the property was bought and then resold the same day. Banks that see this type of transaction after the fact have serious issues with lawyers who are supposed to be acting on their behalf and do not divulge the increase in value in one day. If we have a client who is in this type of deal we insist that we get written instructions from the mortgage company that they are aware of the first transaction, the dollar amount involved and they are still allowing the funding.
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