Helping a friend with a downpayment - need experienced advice.

[Apocalyptica602]

Hi all,

My fiancee (wife in a little over 1 month!) was approached by a close friend who's having some issues getting a mortgage. As I am not currently a homeowner or even started looking at it I have very little knowledge in this realm. The situation seems odd to me at best and illegal at worst and I wanted to run through it with you guys and get some advice.

Specifically, she was asked to write him a check "for any amount we're comfortable with" likely on the order of $5 to 10 thousand, and he will reimburse us with cash-in-hand at the same time we hand the check.

According to him, his lending company isn't allowing him to count his liquid assets in another bank account for some unknown reason (I asked her to get a straight answer as to why this is the case, what do you guys think?), so we'd write him a check and letter to the bank (claiming a gift?) and he'd pay us in cash out of his other bank account.

Originally when she approached me (our finances are combined at this point as we're getting married next month) my initial response was 'Hell no!' then when I figured as long as we had cash payment IN FULL before the check left our fingers it wasn't too big a risk.

However, overall this still seems very fishy to me and a number of red flags jump out:

1) The letter we'd write to the bank would call our check a 'gift' with no expectation of repayment, the fact that he would in fact pay us seems like he is trying to misrepresent his finances to the  bank. This alone seems like fraud to me. Is this a legal risk in any way shape or form? If so that makes my answer really easy.

2) Why wouldn't the lender factor in the liquid assets in his other account?

3) From what I researched about 'gifting' down payment funds, it's the lendee's responsibility to show that the funds are seasoned or sourced appropriately, can we even do this as a 'friend'? Originally he asked my fiancee to claim she's his cousin, to which I responded 'are you fucking nuts?'

I think I'm pretty confident that this is something we're not going to do but I wanted for my own knowledge get a better understanding from more experienced homeowners and real estate investors to what might be going on here?

Also FWIW: He's making a terrible decision anyway from a mustachian point of view. He's 26 and single, makes no more than $150,000 with minimal earnings growth potential, and is trying to buy a $1MM property in a HCOL area with a 20% down payment. My fiancee made me very proud when she was like "You and I make just around $200,000 and even a $500,000 house seems crazy."

But that aside, I'd really appreciate any insight.

Thanks for all and any advice.

[celticmyst08]

Run. This sounds fishy as all hell and I wonder if he's trying to hide the assets in his other bank account because they were obtained through dubious means, or because he can't provide a paper trail to the bank to source the funds. He may very well have the money to pay you back immediately but you don't want to be involved in potential mortgage fraud.

Plus, he's an idiot with his money, so I wouldn't want to be enabling his poor decisions if I were you!

[ShoulderThingThatGoesUp]

No way. This is way too sketchy. The fact he asked her to say she's his cousin means this guy is bad news.

[Bracken_Joy]

I would run. There is no way this would go well, and many ways it could go poorly. Lots of risk, no reward? No thank you.

[ShoulderThingThatGoesUp]

I wonder if he's trying to hide the assets in his other bank account because they were obtained through dubious means

Yeah, it does kind of sound like money laundering, doesn't it?

[celticmyst08]

I wonder if he's trying to hide the assets in his other bank account because they were obtained through dubious means

Yeah, it does kind of sound like money laundering, doesn't it?

To be fair, I work as a fraud investigator, so my mind immediately jumps to the dark side, lol. But...I'd be shocked if there wasn't some kind of monkey business going on here.

[Insanity]

I wonder if he's trying to hide the assets in his other bank account because they were obtained through dubious means

Yeah, it does kind of sound like money laundering, doesn't it?

To be fair, I work as a fraud investigator, so my mind immediately jumps to the dark side, lol. But...I'd be shocked if there wasn't some kind of monkey business going on here.

Info security guy thinking the same thing.  Sounds like money laundering. 

That said, any large bank deposit within a certain date will almost be questioned and need to be answered.  Since you are giving a check, it will be linked very easily to you.

If they are getting the cash, they can jus as easily deposit into their own account.

[ShoulderThingThatGoesUp]

Also transactions right in the range of $10,000 tend to attract attention that can lead to people who did nothing wrong going to jail for "structuring".

[Midwest]

Money laundering, illicit funds or some other issue.  If people can't answer questions or give unbelievable answers, I avoid the situation.  I would pass on getting involved. 

Also, what you supposed to do with $10k in cash?  Take it to your bank and have a report filled out on you?

[simplified]

This is one possibility. The bank already counted this money in the other bank from which you will be paid from. This is likely a way to make that money get counted twice, by depositing it into the first account.

It is also possible that this is not fishy at all. Lets say you owe 10k to your friend for whatever reason. It will be very difficult for your friend to prove this to the bank. If you just wrote a letter saying this is a gift, it will be easier. He may not be laundering the money. The banks are anal when it comes to stuff like this.

I would advise you to stay away from this because it is still illegal to say that it is a gift when in fact it is not. Also, I agree that someone making 150k should not be buying a million dollar home.

[Leanthree]

So if this was all well and good, why couldn't they just deposit their own cash into the bank account the lender is looking at? None of this makes any sense.

If you are going to launder money on their behalf, at least collect a 20% fee.

[rmendpara]

Are you a moron? If you're going to get caught up in a money laundering scheme, don't offer to do it for free!

All jokes aside, why bother? The minute I start getting wind of someone trying to involve me in defrauding or "misrepresenting" someone else, I'm running in the opposite direction.

To your other question, I'm not really sure why that may be the case.Excluding property tax, an 800k mortgage (1mm property value) at 4% for 30 years would be 3.8k/month. If he contributes zero to a 401k and pays ~30% effective taxes, then he takes home around 105k (8.75k/mo). 3.8k plus taxes at 1% of 1mm (10k per yr or .8k/mo), gets you to 4.6k for mortgage plus property taxes. 4.6k in payments on a 8.75k salary is over 50% of disposable income. That's very borderline in terms of what a bank would be willing to offer.  It could be that he's trying to inflate his income, since presumably he has the liquid cash to get to the down payment, but it's almost impossible for him to be able to afford that mortgage. Anyway, just a wild guess.

[cripzychiken]

My quick thought is this is one of 4 things in decreasing level of likelihood.

1. Money is illegally gained (drugs is my first thought) so he can't tell the bank about it
2. Money is legal but he didn't pay taxes on it (maybe from side jobs or gambling winnings).  So showing 10k would be weird if it has no paper trail (not sure if bank would care but IRS probably would)
3. He sold something recently - like a car - and doesn't want to raise flags as why there is a 10k deposit right before buying a house (though a bill of sale would fix that)
4. He's a doomsday type that doesn't believe in the banking system and has all his money buried in his backyard (but then why get a mortgage?)


Overall, I'd walk away, or better yet run.

But if your future-wife still wants to help, both of you should meet with him and ask why the bank doesn't want to count the liquid assets and where they came from.  Your bank is going to ask you these questions when you try to deposit 10k, so you need to know the answers.  If he has problems answering you, then straight up call him out and let him know that you think it is illegal money and you are trying to protect yourself and know the answers for when the cops come talking to you.

Lastly, as a friend, let him know that he should start depositing all his liquid cash in his bank so he can invest it.  If he has 10k to give you, he likely has more.


As for some other points - any large deposit (over 2 or 3k) needs to have a reason when trying to get a mortgage.  So the letter saying it is a gift is actually a normal requirement when getting help from parents or something.  The bank doesn't want you to get loaned 10k from mom to pay your down payment.  That makes it more of a "0 down" situation where stuff like 2008 starts to happen again.   If I was loaning friend/family money for a reason like this, I wouldn't have a problem with writing the letter.  Yes it is illegal, but so is selling a car for '$100' on paper and $5k in real life to save on taxes (not that I ever did something like this).

[ShoulderThingThatGoesUp]

Seriously, this is how decent people go to federal prison.

[Cycling Stache]

Do NOT do this.  Nothing you described about the situation sounds good.  I don't want to disclose my occupation, but seriously, do NOT do this.

[Exflyboy]

I wouldn't touch this with a 10 foot pole.

Even if it wasn't illegal, I have fell into loaning money to a friend who I never saw again... $6500 also never seen again..

NEVER NEVER NEVER loan anyone substantial sums of money.. And even more important NEVER co-sign a loan for ANYONE.. not even family.

[GizmoTX]

I wouldn't touch this with a 10 foot pole.

Even if it wasn't illegal, I have fell into loaning money to a friend who I never saw again... $6500 also never seen again..

NEVER NEVER NEVER loan anyone substantial sums of money.. And even more important NEVER co-sign a loan for ANYONE.. not even family.

+1

You are not a bank. There is no upside to this.

[frugaldrummer]

Yeah, I agree with all the cautions above.  If he really has liquid assets in a bank account in his own name, why wouldn't the bank count them?  Why couldn't he simply transfer the funds into his other account (and show the bank the paper trail of it coming from his other account?).

Either he's money laundering, counterfeiting the bills, or simply doing some shenanigans to convince the bank he's more able than he really is to meet this financial obligation.  I see only downside here, potential legal consequences for her that wouldn't be pretty. 

[Daleth]

Seriously, this is how decent people go to federal prison.

Yep. Seriously. Conspiracy to commit mortgage fraud. You ALREADY KNOW he wants a letter saying it's a gift when in fact it's supposed to be a loan, and you have already thought "hey, isn't that fraudulent?" and asked us here to confirm that it is... and yep, it is.

So, knowing all that, if you then go ahead and DO it... my friend, you and your future wife have just committed bank fraud or at least conspiracy to commit bank fraud, which, either way, is a federal crime. A felony, to be exact.

A handy dandy overview of bank fraud and conspiracy: http://www.theblanchlawfirm.com/?practice-areas=bank-fraud-conspiracy *

So I would NOT recommend getting together with him and asking to explain the scheme in more detail. Given what he has said already, there is no explaining he can do that will make it ok, and even an amazingly convincing new explanation is NOT WORTH THE RISK THAT YOU AND YOUR WIFE WILL BE COMMITTING A FEDERAL CRIME! Just tell him you looked into it, got some legal advice and were advised to NOT do it in any way shape or form, and that's that: you cannot "help" him.


* That link takes you to the web site of a law firm that appears to have the expertise necessary to defend you against federal bank fraud charges! Might want to pass the link on to your friend, since he may be needing it...

[jeromedawg]

Even if there was only one red flag, one is enough to stay away. The fact that you listed out multiple red flags yourself should be enough to inform you not to. So don't do it - you're just asking for trouble.

[CommonCents]

My quick thought is this is one of 4 things in decreasing level of likelihood.

1. Money is illegally gained (drugs is my first thought) so he can't tell the bank about it
2. Money is legal but he didn't pay taxes on it (maybe from side jobs or gambling winnings).  So showing 10k would be weird if it has no paper trail (not sure if bank would care but IRS probably would)
3. He sold something recently - like a car - and doesn't want to raise flags as why there is a 10k deposit right before buying a house (though a bill of sale would fix that)
4. He's a doomsday type that doesn't believe in the banking system and has all his money buried in his backyard (but then why get a mortgage?)


Overall, I'd walk away, or better yet run.

But if your future-wife still wants to help, both of you should meet with him and ask why the bank doesn't want to count the liquid assets and where they came from.  Your bank is going to ask you these questions when you try to deposit 10k, so you need to know the answers.  If he has problems answering you, then straight up call him out and let him know that you think it is illegal money and you are trying to protect yourself and know the answers for when the cops come talking to you.

Lastly, as a friend, let him know that he should start depositing all his liquid cash in his bank so he can invest it.  If he has 10k to give you, he likely has more.


As for some other points - any large deposit (over 2 or 3k) needs to have a reason when trying to get a mortgage.  So the letter saying it is a gift is actually a normal requirement when getting help from parents or something.  The bank doesn't want you to get loaned 10k from mom to pay your down payment.  That makes it more of a "0 down" situation where stuff like 2008 starts to happen again.   If I was loaning friend/family money for a reason like this, I wouldn't have a problem with writing the letter.  Yes it is illegal, but so is selling a car for '$100' on paper and $5k in real life to save on taxes (not that I ever did something like this).

+1
To add to the last...I had a situation where I bought $100 tickets for 9 friends and family, to my non-profit's annual gal fundraiser so they would be counted as a group (with my husband and I) for a discount.  I explained to the mortgage person I was President and being reimbursed for the tickets - this was not a gift, and I had receipts to prove it.  We had **well over** the downpayments in our accounts.  (They were very impressed and told us we were well qualified, and we didn't even bother giving them all of our account info.)  Even so, she still told me not to bother depositing this until after the house purchase went through because it could be raised as a red flag (as a gift) by the person who audits their transactions.

[cpa cat]

The other possibility is that he doesn't have the $10,000 to give her and when she shows up with the check he'll have some sob story about how the bank wouldn't let him withdraw that much, but he'll get it to her after a couple days, when the bank releases a hold. And if she doesn't hand over the check, he'll lose the mortgage and it will be all her fault.

Or - he'll hand her money, but it will be a fake cashier's check or fraudulent money order (after all, you weren't just expecting him to turn up with $10,000 in cash, right?), but he'll be ignorant of that fact when it gets yanked out of your bank account, with a different sob story.

Not to mention, if he actually did show up with $10,000 of legitimate cash, you're going to spend an hour at your bank answering questions and filling out paperwork, because that happens to be the magic cut off for when cash deposits are tracked. What are you going to write on that paperwork? "Money obtained while helping my friend trick his mortgage lender." "Money obtained from totally legit 1 day interest-free loan." "Traded check for cash for reasons that don't sound suspicious at all."

[BlueHouse]

So, knowing all that, if you then go ahead and DO it... my friend, you and your future wife have just committed bank fraud or at least conspiracy to commit bank fraud, which, either way, is a federal crime. A felony, to be exact.

Yeah, this is the most important part, I think.  He's not asking your future wife to help him obtain a mortgage fraudulently.  He's asking your future wife to commit fraud.  That's a big no-no for a friendship, IMO. 

[psinguine]

So if he's perfectly capable of withdrawing $10,000, presumably from this magical account the bank is ignoring for reasons that have been left to your imagination, then what stops him from just depositing that same $10,000 into an account the bank considers legit? He's pretty obviously trying to run a scam here. If I had to guess, I'd say that he already has a Statement Of Account from his account the $10,000 is coming out of. He will then deposit your cheque and get a Statement of Account from that account, allowing him to fraudulently claim that same $10,000 twice.

Of course even the most cursory examination by the bank will reveal the fraud. But he doesn't sound like a person who thinks very far ahead as it is.

[ShoulderThingThatGoesUp]

It shouldn't need to be said, but this person is not your friend, and not your fiancee's friend. The two of you should have no further contact with him. He is a bad person who tries to get people that trust him to do bad things on his behalf.

[rubybeth]

It shouldn't need to be said, but this person is not your friend, and not your fiancee's friend. The two of you should have no further contact with him. He is a bad person who tries to get people that trust him to do bad things on his behalf.

Exactly what I was going to say. What kind of 'friend' asks for this kind of 'help'? I'd say no to his plan and cut him out of your lives.

[Apocalyptica602]

OP here with an update.

Wow, some strong responses in this thread and I agree wholeheartedly. We flatly denied him stating we weren't comfortable misrepresenting anything, including his false relation to my future wife or the fact that we'd be giving him a gift when in fact are expecting to be paid back. He accepted that pretty well.

Turns out the 'other account' isn't an account, he has a "large sum of money" that his parents pulled out of an old business in cash years ago because they don't trust banks (late in life immigrants from a country where there's no such thing as deposit insurance) and can't exactly just deposit it all in the bank because its been years and he's not sure where the paper trail is for it. (*alarm sounds*)

That being settled, we also took the opportunity to give him some advice on not needing to buy a $1MM home especially on his single income. What happens if he loses his job, what happens if the housing market crashes simultaneously and he can't unload his house for what he paid for it, etc.

Not sure if we got through to him but it's out of our hands.

Thank you all for the reinforcing opinions!

[waffle]

So this guy is making 150k a year, supposedly has the 20% down payment for a 1mm house, and somehow your 5-10k is going to make all the difference in him getting his mortgage?

One month of pay should be well over 10k. Tell the guy to live off of his liquid assets in this magic bank account that the mortgage company wont count and bank his paycheck into the one that they will count.

Also get a new friend. This guy is sounds pretty sketchy...

[ShoulderThingThatGoesUp]

Why can't this guy spend $10,000 in cash? If you pay the car mechanic in cash, pay for groceries in cash, pay restaurant bills in cash, it should be gone within a couple of years at most.

[Mother Fussbudget]

Even if you gift someone large sums of money, it never works out well for the friendship. 

I gave money to an old friend to help him get out of the credit card debt his ex-wife dumped on him, and he thanked me, but has been ashamed / embarrassed about it ever since.   We haven't seen each other in years, and I now regret giving him the money.   I'd rather have the friendship.

[Mr Dumpster Stache]

His last name wouldn't happen to be Corleone, would it? ;)

[Bicycle_B]

OP here with an update.

Wow, some strong responses in this thread and I agree wholeheartedly. We flatly denied him stating we weren't comfortable misrepresenting anything, including his false relation to my future wife or the fact that we'd be giving him a gift when in fact are expecting to be paid back. He accepted that pretty well.

Turns out the 'other account' isn't an account, he has a "large sum of money" that his parents pulled out of an old business in cash years ago because they don't trust banks (late in life immigrants from a country where there's no such thing as deposit insurance) and can't exactly just deposit it all in the bank because its been years and he's not sure where the paper trail is for it. (*alarm sounds*)

That being settled, we also took the opportunity to give him some advice on not needing to buy a $1MM home especially on his single income. What happens if he loses his job, what happens if the housing market crashes simultaneously and he can't unload his house for what he paid for it, etc.

Not sure if we got through to him but it's out of our hands.

Thank you all for the reinforcing opinions!

Good for you.  Uniting on a weird experience like this strengthens the foundation for your marriage, financially and emotionally.  Congratulations on dodging the bullet, and thanks for posting the update.