The Glade 4.0

So a friend of mine and his wife (who have 4 kids) are currently renting a house for $800 a month. It is 3 small bedrooms, 1 bath, small living room, and small kitchen. Very little room. A neighbor who they are friends with approached them with an offer. They are buying a new house and want to rent out their current house. Their house is 4 bedrooms, 2 floors and a finished basement. They are offering to rent them the house for two years at $1000 which is significantly under market (my friend says it could probably be rented out for $1500 a month). Here is the catch though. To get the loan on the new house, the neighbors need to show the bank that they have rented the house for at least $1200. They want my friend to sign a lease agreement for $1200, they'll then show that to the bank, get the loan, then they'll shred the $1200 lease agreement and write one for $1000.

That, to me, sounds like fraud. What risk is there to my friend in this fraud. Do they become party to it, and therefore at risk of being charged if it is discovered?

Yes it's fraud. The fact that your friends know about the fraud and knowingly participate I'm it would make them liable.

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"Dress cops up as soldiers, give them military equipment, train them in military tactics, tell them they’re fighting a ‘war,’ and the consequences are predictable." —Radley Balko

Not only is it fraud, but it also legally puts them on the hook for $1200/mo.

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Ezekiel 23:19-20 

Tell your friend to never sign a contract that he is not ready to honor.

These owner "friends" of his are either going to A) commit fraud and include him or B) going to not commit fraud, and make him pay 1200 a month.

If he signs a contract on a promise of fraud, he's a major idiot.

Write the lease for $1200 on a month to month basis. Next month, re-write the lease.

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In time, this too shall pass.

It's fraud, but if the renting party is trustworthy, it might be worth the risk for your friends.

If the renting party is knowingly committing fraud then they clearly aren't trustworthy...

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Ezekiel 23:19-20 

"Honor among thieves," and all that. I'm sure there are master criminals who would trust each other with their lives...or their money.

Still wouldn't sign it. Too much could go wrong.

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Well Ali Baba had them forty thieves, Scheherezade had a thousand tales
But master you in luck 'cause up your sleeves you got a brand of magic never fails...
...Mister Aladdin, sir, What will your pleasure be?
Let me take your order, Jot it down -You ain't never had a friend like me
█ ♣ █

It's a judgement call, but the risk is fairly limited unless the renting party defaults on their new home loan, or if they become pricks and want the full $1200/mo.

I know I would do the same for friends that could use a little help. But they would have to be friends, not "friends."

this

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"None is more important, none more legitimate, than that of rendering the people safe as they are the
ultimate guardians of their own liberty."- Thomas Jefferson

"Yeah, I'm rehearsing my poker face. I don't handle stupid well. *sigh*" - Farsky

You would enter into a contract in bad faith for the sole purpose of helping a friend defraud someone?

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Ezekiel 23:19-20 

I wouldn't go near a deal that involved signing a contract, expecting it to be shredded and then signing a new one. If the bank needs to see $1200 a month, sign a contract that says $1200 a month and then honor it. Maybe they can agree to an additional contract that says the owner will pay the tenant $200/month to aid in maintaining the property for a period of two years.

More specifically, it's theft by diversion.

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This seems like the best solution to me.

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"Aaaah! Emotions are weird!" - Amdee
"... Mirrorshades prevent the forces of normalcy from realizing that one is crazed and possibly dangerous. They are the symbol of the sun-staring visionary, the biker, the rocker, the policeman, and similar outlaws." - Bruce Sterling, preface to Mirrorshades

Paying $1200 a month is not an option for them. They can barely manage $1000 and wouldn't be considering it if they weren't desperate for more space, and they will be getting an $800 deposit back from their current landlord which would offset the difference for 4 months.

I don't know the neighbors. I've never met them and can't speak to how trustworthy they are. But there wouldn't be much benefit to trying to screw my friends, as they don't have money and wouldn't pay the higher amount anyway. It would cause big problems for my friends, but wouldn't result in any benefit that I can think of for the neighbors.

There are some reasons why the neighbors would want to rent to them (aside from the friendship angle). My friend is an extreme neat freak, takes pride in maintaining his residence, and is fairly handy so he can take care of most minor maintenance issues himself. That eliminates the risk that they get someone to rent the place that ends up trashing it.

The $200 maintenance fee is an interesting idea.

So an update. My friend texted me and told me that they signed the $1000 lease, and only that one. Don't know the details yet, but that is good news.

I'd still be careful if I was them. I have the sneaking suspicion that the bank still thinks the home owners are entertaining renters for $1200. Unless they made the difference up in a down payment or otherwise negotiated with the bank. Your friends are in the clear now, but they should continue not to do anything to support the idea that the owners are indeed collecting $1200 in rent.

The right Tenant is worth $2400 a year though. The ones before my ones my folks have right now cost them three times that for living there a year, though they eventually got the money back through the courts.

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I prefer to think of them as "Fighting evil in another dimension"

Absolutely. **** the Man.

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Holy shitsnacks!

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Ezekiel 23:19-20 

Especially if it was Bank of America.

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Holy shitsnacks!

What is being stolen?

No, I wouldn't help a friend defraud someone with bad intent. Ultimately this is about the the landlord being able to make his mortgage payment. It looks to me as if the landlord plans to make his payments and the renter pay him $1000/month. If in my judgment the landlord can make good on his mortgage, then it might be worth the risk. What are the consequences if the landlord defaults?

There are friends I would do this for, and friends I wouldn't because I know which friends will (barring acts of god) make their payments and those who always seem to fall on hard luck.

Make three rental agreements, for three separate months.

The first one, legal and binding, is for $1200 for the month of February. Use this one with the bank. Actually pay the $1200.

The second one make for march. This rental agreement is for $800. Hold to that one as well for the month it is valid for. Do not show the bank.

Make a third for the month of april, from that month forward, for $1000. Don't bring that one to the attention of the bank either.

There, now everyone is telling the truth. Nobody is defrauding anyone of anything.

Conversely, make a rental agreement for $1200 a month.
Make a rebate second agreement where the landlord owes the tennant a $200 a month bonus for paying their rent on time, to be deducted from the cost of the rent.

All this is also legal.

There are ways to do this without lying.

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Well Ali Baba had them forty thieves, Scheherezade had a thousand tales
But master you in luck 'cause up your sleeves you got a brand of magic never fails...
...Mister Aladdin, sir, What will your pleasure be?
Let me take your order, Jot it down -You ain't never had a friend like me
█ ♣ █

Those are all fraudulent. If you have to make the statements "Use this one with the bank", "Do not show the bank" and "Don't bring that one to the attention of the bank either" you are knowingly not disclosing information, it's an active act of fraud. Finally, I have a feeling that the bank wants to see more than a one month lease agreement.

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"Dress cops up as soldiers, give them military equipment, train them in military tactics, tell them they’re fighting a ‘war,’ and the consequences are predictable." —Radley Balko

I don't see how it would be fraudulent, if the bank was satisfied with a single month's agreement. You are showing the bank the truth, and what it asked for. The other items are none of the bank's business unless it asks.

If it wasn't enough, though, and they needed to see a longer agreement, use the latter option. Actually pay $1200 a month, but create a second agreement not legally related to the rent that rebates the tenant $200 a month. The bank doesn't need to see that because it is none of its business.

Both agreements are valid, and the bank did not ask if you have any other financial contracts with the tenant.

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Well Ali Baba had them forty thieves, Scheherezade had a thousand tales
But master you in luck 'cause up your sleeves you got a brand of magic never fails...
...Mister Aladdin, sir, What will your pleasure be?
Let me take your order, Jot it down -You ain't never had a friend like me
█ ♣ █