If it sounds too good to be true it probably is!  Fraudulent incentives like this are one of the primary reasons for the current mortgage crisis, and the tightening of credit for ALL homebuyers.

Manufacturers and retailers often offer cash back deals or rebates as further enticements to purchase anything from computers to automobiles. In recent years, such cash back deals are growing in popularity in the real estate market. Unfortunately, when applied to real estate, these cash back deals are illegal.

Illegal???!!!

Yes, illegal.

Many homeowners, home buyers, real estate professionals, and even attorneys who should know better will tell you that getting cash back when you purchase real estate is legal and perfectly acceptable. People do it all the time. It’s a great deal for everyone involved. The buyer simply pays a little more for the property, and the seller agrees to kick back the surplus cash to the buyer. The buyer gets some cash to pay off outstanding credit card debt, cover home repairs and renovations, or whatever. The seller unloads the house at close to or better than the asking price. The real estate agent gets a bigger commission. The mortgage broker earns a commission on the loan. And the lender scores a larger loan and stands to earn more interest over the life of the loan.

The problem is that a cash back deal misleads the lender into approving a loan for which the collateral (the house) is insufficient to secure the loan. If the homeowners default on the loan and the lender forecloses, the lender is less likely to be able to sell the home for enough money to cover the balance owed on the loan.

These cash back deals also inflate house prices, property taxes (which are based on property values), and insurance, making homes less affordable. Over time, they increase foreclosure rates resulting in deflated property values. As homeowners leave, neighborhoods erode.

If you are selling your home, refuse to go along with any deal in which the buyer is receiving cash back at closing. If you’re having trouble selling your home, you may need to hire a professional stager to make your home look more inviting, hire a top-producing agent to market your property more effectively, or drop your asking price. Going along with a cash-back arrangement is no way to attract a buyer.

If you are buying a home and stand to receive cash back in any way, shape, or form, put a stop to the transaction immediately. Many sellers will try to cover their tracks by offering cash back in other forms, such as lease back payments (for investment properties), paying you for an option to buy the property back (when they have no intention of ever buying the property back), cash for repairs and renovations, or even free furniture or a car or a vacation package.

Here are some of the warning signs that a cash back deal is in progress: