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An improper or fraudulent contract to buy property that contains terms and financial conditions that differ from the original or true agreement and falsely represents the parties’ true intentions. The fraudulent dual contract may then be submitted to a lending institution in hopes of obtaining a larger loan. This fraudulent practice is sometimes known as kiting. An example of such a contract might be one in which the parties show a lower purchase price than was actually agreed on so that the buyer is eligible for a maximum FHA loan or the broker may accept a large earnest money deposit in the form of a check, which he or she agrees never to deposit, in an attempt to impress the mortgage company with the buyer’s financial resources. In addition to notifying the seller about the agreement not to deposit, the broker must take steps to ensure that the mortgagee is not defrauded.

A broker who participates in any way in the preparation of a dual contract may be subject to license suspension or revocation, a fine for misconduct, or civil damages. Also, the broker cannot be a party to the naming of a false consideration.

Some brokers have been accused of using an addendum that commits the seller to provide a sum of money to the buyer at closing for replacing carpeting or repairing fences when, in fact, there is no intention to use this money for the stated purpose. Instead, the buyer assigns the funds to the closing agent as all or part of the equity investment in the property being purchased. Such addendum is not shown with the FHA application, because such a kickback effectively lowers the purchase price to the buyer and the buyer is not providing an equity investment out of his own funds. When a federally chartered lender is involved, this type of dual contract practice is a federal criminal offense
Dearborn Real Estate Education
This "Word of the day" is excerpted from The Language of Real Estate, 6th Edition by John Reilly (published by Dearborn Real Estate Education, 2006 copyright). To purchase the complete book, with over 2800 key terms and definitions, or to browse through Dearborn's hundreds of other professional real estate titles, including Real Estate Technology Guide by Klein, Barnett, Reilly, click here.