Don't be Complicit in Fraudulent Activity
By Jim Palmer Jr.

When a buyer signs an offer crafted by a Realtor® they certify or warrant that “buyer has sufficient funds to close this sale in accordance with this Agreement and is not relying on any contingent source of funds, including funds from loans, the sale of other property, gifts, retirement or future earnings.”  Because of the intense competition for homes in the current market, some buyers are tempted and even encouraged to be less than truthful concerning their source of funds. 

A buyer’s failure to disclose reliance on contingent funds in the Purchase and Sale Agreement constitutes misrepresentation at best, or might even be considered outright fraud.  A broker should be careful to ask a few questions about a buyers financial status before an offer is presented; 1) “Where are you getting your down payment funds from?”  2) “Is your lender satisfied with your source of down payment funds?” 3)”Are you sure your down payment funds will be available at closing?” 4)”What is the backup plan if your down payment funds don’t come through”?

For these reasons, a broker should be careful to include an Evidence of Funds Addendum, prompting the buyer to identify fund sources and requiring that (within a certain time frame) they show proof those funds are available.  Some buyers become quite indignant when asked to prove their source of funds, when others carelessly show un-redacted copies of bank accounts including account numbers.

What if the buyer says that down payments funds will be a gift from grandma, but then grandma gets mad for some reason and withdraws that gift offer before closing?  Sellers should take care to insist (in writing) that contingent funds like this, not currently in buyer’s possession, be placed in buyers account as soon as possible. 

In a recent transaction, a buyer who had cash (in their home safe) which was proceeds from a previous real estate transaction, was unable to gain lender approval for those funds to be used as down payment in the purchase of a replacement property.  For whatever the reason was the lender didn’t consider the funds seasoned in buyers account and refused to do the loan. 

This dilemma caused this legitimate buyer to scramble and adjust, but the bottom line was their lender was not satisfied with the source of their down payment, creating a circumstance where seller became suspicious of their source of money.