A buyer gives the seller an undisclosed $30,000 note for the down payment on a $300,000 purchase. What fraudulent financing arrangement is created by concealing this seller-carried downpayment debt?
Correct Answer
A) A silent second: the lender priced a down payment it never saw
A silent second is undisclosed subordinate financing used to cover the down payment, and it defeats the first lender underwriting because the borrower has no equity and carries a debt the ratios never saw. Other choices: seller financing is lawful when disclosed, and the concealment is the offense; a gift of equity is disclosed and reduces the price rather than hiding a note; and recording the $30,000 after closing conceals it at the moment it mattered. Source: Mortgage fraud schemes: the silent second
Why This Is the Correct Answer
A silent second is undisclosed subordinate financing used to cover the down payment, and it defeats the first lender underwriting because the borrower has no equity and carries a debt the ratios never saw. Other choices: seller financing is lawful when disclosed, and the concealment is the offense; a gift of equity is disclosed and reduces the price rather than hiding a note; and recording the $30,000 after closing conceals it at the moment it mattered. Source: Mortgage fraud schemes: the silent second
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