Metro Buyers Group - Is it a Scam or Just Creative Financing?

Written By: Karen Deis

They’ve gone to a lot of trouble to make it look legit (who knows, maybe it is?). They call themselves an “Asset Purchasing Company”. I would liken it to a hybrid Rapid Refund Loan or a complicated down payment assistance program. But, this involves HUD, RESPA, the tax preparation code of ethics, a real estate company, lenders and lots of fees.

What is it? The best way I would describe the purpose of the company is kind of like an “escrow company” who withholds money from the seller and “lends the sellers’ money” to the first time homebuyer. It’s explained to the seller that they will be repaid part of their funds when the buyer gets their tax credit refund check. In anticipation of the FTHB filing an amended return and assigning their refund back to Metro Buyers Group, MBG cashes the buyer’s tax refund check and pays back the seller (less $500 fee) and refunds the balance to the purchasers (less $125 fee). But wait! There are more fees even before it gets to this stage of the game.

They claim it only works on FHA loans due to the fact that the tax return is a “loan against a secured asset”. In FHA underwriting circles, this seems to be okay.

However, here’s how the process works and where the fees get a little steep.

1. The seller has to agree to participate in the program and pay fees.

a. 1.25% Marketing Fee to City Realty (For what we can’t figure out other than Metro Buyers Group is listed on their website)
b. $9.12/M of the sales price is deducted from the seller’s proceeds and paid to MBG ($100,000 = $912)
c. Warranty Reserve LLC holds $23.37/M of the sales price in escrow. ($100,000 = $2337) When the MBG gets the tax credit refund from the buyer, the seller is reimbursed the “reserve fund” less $500 processing fee.
d. MBG keeps the $912 + $500 and City Realty Gets $1250.

So, on a $165,000 sales price (based upon their own HUD example attached), it costs the seller an ADDITIONAL $4,066 to sell their home this way.

2. The buyer has to agree to participate in the program and pay fees.

a. They buy a home, get approved for a loan and prepare an amended tax return PRIOR to closing
b. MBG will “advance” 3.5% of the sales price, up to $7875
c. Processing Fee of $125 paid by buyer (that’s why the max dollar amount is $7875)
d. FTHB must use a “registered” Tax Preparer and pay them $150 to create an amended return
e. Tax prepared not allowed to give the tax return document to the buyer…must be given to MBG to “hold”.
f. FTHB assigns entire tax credit (even if it exceeds 3.5%) to Metro Buyers Group.
g. Buyer must sign Asset Purchase Agreement
h. Buyer must sign IRS Form 2848 (more on this form below)
i. When refund has been received by MBG, a $125 processing fee is deducted.

Looks like the seller is fronting the money and if you do the math, the money being withheld from the seller is approximately 3.2% of the sales price, or “most” of the money needed for the 3.5% down payment.

3. The Tax Preparer has to register online.

a. FTHB must use one of the tax preparers registered on the MBG website
b. Tax preparer determines if FTHB qualifies for refund
c. An amended return is prepared & signed
d. Tax preparer MUST turn over the tax return to MBG and cannot give it to the client

In interviewing several CPAs – they say it’s against their code of ethics to give the tax return to ANYONE other than the client. In addition, in reading IRS 2848 Form (also required to be signed by the home buyer) called Power of Attorney and Declaration of Representative, there are 2 issues.

Line 6 says: Receipt of refund checks. If you want to authorize a representative named on line 2 to receive, BUT NOT TO ENDORSE OR CASH, refund checks, initial here and list the name of the representative below.

However, the “Asset Purchase Agreement” signed by the buyer says they will give MBG the right to ENDORSE, CASH and deposit in the MBG account.

Part II: Declaration of Representative – the representative must make certain certifications, including that they are one of the following:

Attorney
Certified Public Accountant
Enrolled Agent
Officer of Taxpayers Organization
Full Time Employee of the Tax Payer
Family Member
Enrolled Actuary
Unenrolled Return Preparer

So how is it that the funds can be endorsed by the MBG based upon the 2848 form’s definition of a qualified representative? We don’t know! We were not able to find an insurance license or a financial institutions license for MBG in the State of Georgia. I’m NOT saying that they don’t have one—I just could not find either company having a financial or insurance license. I would recommend that you do your research ahead of time as to the financial soundness of the company.

4. Lenders must register on the website.

a. No lender approval process.
b. Lender does not receive training.

In all fairness, they have only been in business since around April 1 but I talked with at least a dozen mortgage companies and loan officers and found that the reason they signed up on the site was that they heard a conference call with MBG and Think Big-Work Small.

None of them have received any documents or instructions from MBG on how the program works (other than trying to find info on their website), there are no lenders that they know of, who have approved the “asset purchase plan”.

I interviewed David Abramson, America Home Key Mortgage, Vice President of Operations (who is mentioned in the press release, dated April 10, 2009) and he said “that not only did he NOT give that quote in the article, his compliance department rejected the concept as too risky”.

I also spoke with Rose Lummert, Broker for City Realty in Georgia, about how she earned the 1.25% fee that the seller must pay in ADDITION to the real estate commission. She said that it’s a “transaction fee”. While this program started as a way to get builders in her area to sell more homes, she gets a “transaction fee” even if someone if California uses the MBG asset purchase program for a home in California. What she does to earn the 1.25% is yet to be explained.

She also stated that they have no contracts or loans in process at this time and does not know of any wholesale lending companies who have approved the program. In her defense, she said that loan officers would be the ones responsible for getting wholesalers to buy into this program.

I could go on and on but I want to mention one more thing. All of the paperwork was submitted to Dr. Gary Lacefield, RESPA Investigator who used to work for HUD and now in private practice and here’s what he says:

1. While the transaction fee of 1.25% paid to City Realty for referring business appears in compliance with RESPA under the exemption granted for realtor to realtor referrals, but even under the exemption, the fee charged must be representative of services rendered and it’s not clear what City Realty does for a 1.25% fee, especially for an out-of-state transaction.
   
2. The $500 fee deducted from the seller appears excessive unless there are additional services not mentioned in the promo materials. I would need to see details as to what services are provided other than holding money in an escrow account.
   
3. What services are provided for the $125 deducted from the buyer’s tax refund?
   
4. The $150 fee seems to be excessive for a simple tax return and even MORE excessive if it’s an amended return. The most troubling to me (and most CPAs) is that the tax preparer must agree NOT to release the tax return to their client.
   
5. The fee of $9.12 per thousand of the sales price looks like a “commission” collected by MBG. It does not appear that the services provided should change with the sales price, but be one flat fee.
   
6. The $23.37 per thousand of the sales price “Warranty Reserve” fee might be considered “insurance” in most states and may cause problems of selling insurance without a license.

One more thing — here’s the website link (www.metrobuyersgroup.com/forms/tcpa.pdf) to read the Asset Purchase Agreement form. It will scare the hell out of you and personally, I would NEVER have a client sign it, especially the indemnifications and representations sections.

Bottom Line: Get a gift or loan from a relative and pay them back when the tax refund has been received.

Copyright - 2009 - LoanOfficerMagazine.com

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