Fake deposit? Legal?

I have done something similar to this, however it was done all above board and legally. All appropriate stamp duty and taxes were paid.

Essentially fast rising market, I bought the property off my mum for the price she bought it for 12 months earlier. The bank took the difference in price as my deposit. Ie. property valued at $400k, I bought it for $300k with loan of $300k. No lmi. Everything declared.

 

I don't like this kind of stuff. People like to say that bank valuations always come back at purchase price, that's because by purchasing the property, you've definined the value of the property on that day. I see lots of people who tell me they've bought a bargain. In most cases it's more likely they've paid a good price but this can have a 5% - 10% variation on it.

By all means put $400k on the contract and have a handshake agreement with the vendor to only pay $300k. It's hard to prove a handshake agreement, so you're ultimately going to have to pay the vendor $400k at settlement.

Of course, the valuer will see that you've paid $100k too much, they'll value the property lower, which will leave you with a $100k shortfall. Unable to settle the deal, the vendor will likely keep the deposit, sell the property to someone else and then possibly sue for the difference.

There is a way around all this, simply put the arrangement in writing, then it can be legally enforced. The place to do this would be in the special conditions of the contract. It will obviously be seen by the bank and the valuer, so the property will definitely be valued with consideration to the rebate.

The moral of the story is don't try getting creative in this manner. It rarely works and there's a significant chance it can go very, very wrong.

 

These sorts of things are known as 'favourable purchases' and when between family members it is usually ok if declared.

With strangers it is more frequently done as a rebate and usually a rebate for early settlement. The purchase price might be $80,000 with the contract saying $100,000 but if you settle by 01 March then a $20,000 discount can apply.

If you disclose this to the bank then all is ok. Stamp duty and CGT would be worked out on market values usually, but where there is just a 10% differences the price on the contract would generally be considered to be the market value.

Where settlement gets unexpectedly delayed there would be a sudden extra $20k you would be legally obliged to pay.

And where this strategy is used to deceive a bank into lending more then there are potential fraud issues.

One way around this, perhaps, would be to pay cash for the property using a LOC and then wait a month or so to get a loan to pay out the LOC money. The valuer may be more inclined to value it at this higher price after settlement.

 

Not the same thing. Favourable purchase from a family member. Most lenders will recognise that a family member might sell you a property under market value.

 

Did this recently for a client, they settled on cash and financed a few weeks later. The challenge is the valuer sees the original purchase price and uses that as the basis of their valuation. The bank actually did ask for the contract to demonstrate the purchase of the large amount of cash out. That would make it tricky to build a rebate into the contract.

 

Depends on the valuation.

$400k probably no worries.

$300k (or less due to bank conservatism...), 5 minutes after the banks rings you to discuss the "reconsidered" LVR your reaction could be something like

 

I had vendor request something like this. Wanted a separate sale contract then an agreement outside of the sale in which I would pay him directly. Can't remember why, didn't want the bank to get his money or maybe an ex wife.

 

You also have to worried about money laundering offences, and/or assisting in tax evasion. Pretty serious stuff.

 

Within family, an arm and length principle must be used.
Property must be valued by Registered Valuer for two reasons whichever applicable.
1. To determine stamp duty liability
2. To determine CGT liability

 

Crimes Act 1900 (NSW)

192G Intention to defraud by false or misleading statement - Maximum penalty: Imprisonment for 5 years.

192E Fraud - Maximum penalty: Imprisonment for 10 years.
(1) A person who, by any deception, dishonestly:
(a) obtains property belonging to another, or
(b) obtains any financial advantage or causes any financial disadvantage,is guilty of the offence of fraud.

 

Can he then borrow 110% from the piggie bank ??

 

that's one potential offence, but there are more serious charges that could be laid.

 

Yep.....add to that a Fed charge like money laundering or structuring...and you might not see day light for a while.....

 

10 years would be enough to give me pause

But not many people consider the potential consequences of a quick buck.

 

Just not worth it.....stupid....stupid.....the sentences for white collar crimes. Besides...if you have going to fight people like the Tax office..it will cost you a motza...pay your share of tax.

 

Prime example from VIC:

Broker gets four years’ jail for low-doc fraud

 

Yep...it is also a massive issue in NSW....lots of dodgy brokers...worse still lots of incompetent ones.

 

Aside from the gaol aspect: Goodbye credit rating & goodbye any high flying career prospects!

 

Three different appraisal with the same figure?
If not the same, which one to choose for tax liability?