In Charlotte, NC, officials are taking a closer look at home builders selling to FHA borrowers. According to a recent story in the Charlotte Observer, there are some shady deals going done all over the country, especially in Charlotte. Since 2000 about 15,000 Charlotte residents have put down a down payment on an FHA loan with money given as a gift by the seller.

Now, according to the Department of Housing and Urban Development this is strictly not allowed UNLESS (of course, there is always an “unless”) the gift is indirect. That’s correct; a seller may not give a direct gift to a buyer, but by using an intermediary the seller may give an indirect gift to be used as a down payment. In turn, sellers hike up the price of the house and sell it for more than its worth. If the buyer happens to fall upon hard times, they’re stuck with a house that they are paying too much for and is nearly impossible to get rid of.

In the Charlotte area 60% of FHA borrowers made down payments with money provided by the seller and 40% of failed FHA loans involved a seller’s gift. You do the math.

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