CASH BACK can be Problematic

Cash back is a dangerous piece of terminology and should be avoided as it may invite suggestions of fraudulent pricing. 

Recent conversations with lawyers and mortgage brokers have lead me to believe that agreements of purchase and sale that include arrangements for "cash back" are no longer acceptable. 

“Price adjustments” are acceptable but only if they do not surpass a certain nominal financial point*. Once any “price adjustment” passes that nominal financial point then all parties involved risk facing charges of mortgage fraud. 

This nominal financial point* is not carved in stone and might vary slightly from one lawyer to the next. However it is probably fair to suggest that the farther you go over $2,500 the greater the chances will be that the purchaser will be disappointed with the final outcome. 

If the “nominal point” is exceeded then, despite the precise wording of the agreed upon amendment, the intended “cash back” may be converted to a simple "price reduction" or alternatively, the monies may be held in trust (by the lawyer) until proper receipts, relative to the price adjustment, have been submitted and approved. Many purchasers would be upset with either of these arrangements since they no doubt would have had plans for the money they had hoped to receive in cash on closing. 

Just remember that “price adjustments” in smaller (nominal) amounts do not appear to be problematic. However, once that “nominal” amount is exceeded then the monies will have to be held in trust by the lawyer and released only once proper receipts have been provided OR the amount involved will have to be changed to a simple price reduction which means the purchaser will NOT see any cash in hand on closing. 

Ben Vallis

Century 21 Seller’s Choice Inc

St. John’s NL

Tel: 709 699 5714




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