Is what I'm proposing illegal?

[Steve Cheslock]

Can I use someone else's money (that wasn't gifted or loaned to me) for my down payment on a bank loan?  Situation explained below as briefly as possible. 

I have a family friend that wants to get out of their 2 family and willing to accept $700K (which is at or close to market value). They will jump at $700K tomorrow (not at the price, more at the freedom to be out of land lording) 

New tenant just moved in (Sept - 2 year lease) to 1st floor unit and approached friend about seller financing.  In brief discussion with friend he mentioned the tenants offering a $300K down payment, he did not mention if they talked sale price.  Friend is done with land lording and not interested in seller financing and just wants to get out.  He will let me talk to the tenant about what the tenant had in mind regarding seller financing.  

It seems to me if the tenant truly is willing to offer up $300K down that he is serious about the property and that he is confident they will have financing set up by the time their lease is up (22 months).  

My question (I'm new to this and just trying to get creative) is lets say there is a deal here (whatever the numbers say)... is it legal for me to sign a contract to get equitable rights to the property.  Then agree to the seller financing that the tenant proposes.  I then take the $300K down payment he gives me and use that for the down payment on a traditional loan.  

Obviously there is a lot of factors left out of this (will bank approve, you name another etc) but just from a theoretical standpoint is what I proposed (using tenants $300K down payment as a down payment for my traditional loan) illegal or just not feasible and I've completely missed something here that more experienced people can explain to me when they are done having their chuckle.  You're welcome, we should all laugh at least once a day to keep us young. 

Thanks in advance.    

[Mike Cumbie]

Hi @Steve Cheslock

I will say I appreciate your "creative thinking thought process". That being said, if not legal I would think at the least unethical. If anyone stops paying 2 months down the road the 300K belongs to someone else and they lose it all to a lien holder. For that matter if you decide to just take the money every month and not pay the loan, they lose the 300K, you get it and the monthly payments until the bank takes back the property. So I would stay a thousand miles away from that transaction.

Good to see you are thinking though, Keep the thoughts running!