Ethics · 18% of the SAFE examhard
Correct answer: The $30,000 side payment must be disclosed and treated as an interested party contribution; it effectively reduces the net sales price, potentially affecting LTV calculations and requiring underwriter review
An undisclosed side payment from the seller to the buyer (or for the buyer's benefit) outside of closing is a classic form of mortgage fraud known as an undisclosed interested party contribution or 'kickback agreement.' All contributions from the seller, real estate agent, builder, or other interested party must be disclosed to the lender and treated as interested party contributions (IPCs), which are limited by loan program guidelines (e.g., Fannie Mae limits seller concessions based on LTV). A $30,000 undisclosed payment on a $425,000 transaction effectively means the net purchase price is $395,000, which would impact the LTV ratio — with 5% down on $425,000, the loan is $403,750, but the true value may be closer to $395,000, making the LTV exceed 100%. The MLO has a duty to disclose this to the lender. "The $30,000 side payment must be disclosed and treat..." is incorrect because any payment with a nexus to the real estate transaction must be disclosed. "The furniture payment is irrelevant to the mortgage..." is incorrect — advising parties to time the payment to avoid disclosure is conspiracy to commit mortgage fraud. "Since the appraised value supports the sales price,..." is incorrect because the appraisal value reflects the stated contract price; the undisclosed side payment undermines the arm's-length nature of the transaction.
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