Need help - tricky situation

[Nick Baker]

Ok - so this is a little tricky but ill try to be as brief as possible. Bottom line - my neighbor is about to sell his house and was going to use a realtor. Since rates are low and he told me this I decided to make him an offer. I offered to pay him his proposed list price (it will appraise - i'm certain) if he will give me the 6% back that he would have had to pay the realtors. I have the cash to do this on my own I assure you - but that is not an option as I have promised the wife to use it for other purposes. With that said, I've run into a snag. I wanted to use the 6% incentive to pay all of the closing costs and prepaids (about $5400) and use the remaining $3-4K towards the 5% down required which would leave me only about 2-3K out of pocket. The bank has said they won't allow him to give me cash above the amount of the prepaids and closing costs and that he should just lower the price if I want anything beyond the closing costs, etc. That doesn't help me though because I want the cash for the downpayment rather than using my own. My immediate thought was just have him pay me in cash at closing and not have it on the HUD 1. However, as I look into this it is clearly illegal (mortgage fraud). I'm not looking to do anything unethical or illegal. Do any of you have any ideas on how I can still get all 6% out of him so I can use as little cash as possible?

[Dion DePaoli]

One other note I meant to say. The money outside of closing is a violation of RESPA. The mortgage fraud is lying to your lender to get a loan. The RESPA is settling the transaction outside of the rules of settlement practices which deals with kick backs.