Non traditional seller takeback: Originial contract sales price was a $230k. Buyer was approved for $198k loan by ABC mortgage company. Contract was amended changing the sales price to $198k. The Settlement Statement will reflect the new contract sales price of $198k only. After settlement, the seller would like the buyer to execute a promissory note and Deed of Trust for $32k and that Deed of Trust would be filed in second lien position. Is such an arrangement legal?

The way I see it, this arrangement is highly unusual because it will never reflect the original price of the house. If the house was appraised to sell at 230K and the buyer could only be approved for mortgage money of l98K, then the seller takes back a standard second mortgage for the difference.

What is the underlying reason to make an arrangement as you explain it?

Or am I missing something here and this transaction is handled differently in the US real estate market ?

I am curious.

Tick

It's not illegal if the agreement hasn't been put in writing. If it was put in writing then it was an increase in the purchase price acknowledged prior to closing and the seller would have been responsible for payment of additional state and possibly federal taxes on the sale.

But if the agreement isn't put in writing, what's to prevent the buyer from refusing to sign a promissory note and deed of trust after the closing? If the seller tries to enforce the verbal agreement he will be out of luck due to the statute of frauds.