Normally the investor would change the selling price to 195k.If they were supposed to buy in 1 year, and in that year they improved their credit, but could only save $2000, they would be buying a house for $195k with $2k down.It would look a lot better, from a lender's perspective, if i gave them back their option money at settlement, by applying it towards their down payment.So they would be buying a 200k house with $7k down (5k option money + 2k saved), which looks a lot better.So what do you all think?

You're going to have to explain long and hard why that's not boot and taxable.It would have been far better and a much easier legal paper trail to put a line item on the settlement statement labeled "return of earnest money" for $17K.  

You'll have settlement/filing fees with a TIC as well.If it's not a good deal, just walk, plenty others out there. :)

While it doesn't happen often for RCG, we did pay the fines and penalties for one customer because of a misunderstanding of a state law that ran around $27,000 as part of a negotiated settlement with state regulators.

Paradise settlement services.  

More often than not, you will find the judge far more sympathetic if you are able to present documented attempts at a peaceful settlement.

Not worth that risk for us.Fortunately/unfortunately there were other items that came up during DD that forced us to try to renegotiate and we were unable to reach settlement on terms with seller.  

So if I do that, am I just putting my neck on the line for a possible $30 million dollar settlement split among all the homeowners?

But what we typically refer to as "closing costs" actually consists of actual settlement costs on the transaction as well as "prepaids" (for the buyer) and commissions (for the seller).As the buyer, in addition to paying the taxes and recording fees on your mortgage, processing fees to the title company or attorney, loan origination costs, lender's title insurance policy, etc.

It ended by the bank finally settling on getting a large cash settlement.