How to Avoid Mortgage Loan Fraud: Keep Your Home, Don’t Go to Jail!
The Federal Mortgage Fraud Task Force is looking for corrupt mortgage brokers, rogue realtors, and cheating home buyers and real estate investors. While most people play straight and narrow, good deeds can be mistaken for bad deeds. Stay away from the hotbeds of mortgage fraud by using a few simple techniques!
In today’s home buying climate, deals are hot, financing is hot, and buyers are in trouble. The buyers?
Yes. If they can get the loan, they can take advantage of some great deals. The question is, can they get the loan? Some buyers want financing so much that they are willing to manipulate numbers or take shortcuts to get there. Sometimes you don’t even need that. In general, you have committed mortgage fraud if:
- Withdrawn cash from the bank and canceled the debt without informing the lender;
- You bought a car before your loan closed and did not tell the lender;
- You are receiving credit for anything at closing and did not tell the lender;
- You make any agreement that the lender is not aware of at closing, generally called a “side agreement”;
- An adjustment you make at closing is not reflected in the HUD-1 settlement statement;
- Part of your down payment or closing costs comes from the work you will do on the property;
- For bond loans, if you get a substantial INCREASE!
- Any part of the down payment is borrowed;
- You have had a significant job change, quit your job, or started a new job without informing the lender;
- You do not move into the property when you certify to the lender that it will be an owner-occupier;
The Real Estate Settlement Procedures Act (RESPA) is very specific about how a closing should proceed,
especially one that is subject to funding.
It is easy to fall for mortgage fraud and it is difficult to get out of it. Even the judges have fallen into the trap. For example, in Tampa, Florida, Judge Thomas E. Stringer pleaded guilty on August 6, 2009 to bank fraud. He was helping a young dancer “protect” her assets. In the process, he bought her a house in Hawaii. Things got ugly with the disreputable dancer and the deal was reported. Judge Stringer had not been completely frank in his loan application. It did not disclose that it had borrowed all or part of the initial payment. That’s a big “no no!”
Judge Stringer’s case represents the proposition that you do not have to submit to foreclosure to commit fraud. He was current on his loan payments. That was not the problem. Your only mistake was not telling your lender that you had borrowed the down payment. The lender reported no losses!
In the simplest terms, any statement made to the lender that is not 100% accurate can be considered fraudulent. Any change in the borrower’s financial health, for example buying a car or incurring additional medical bills without notifying the lender, can be fraudulent. Any decrease, and in some cases any increase, in income without notifying the lender may be fraudulent. For example, some loans are aimed at low-income buyers. If the borrower makes too much money, they will not qualify. What do you do if before closing you get a big raise? I better reveal the fact!
The HUD-1 statement lists all charges and all credits from your sale. If the money changes hands and is not listed on the settlement statement, it is likely that fraud has been committed. For example, what if the buyer discovers that the panoramic window in the front room was broken the night before closing? It will cost $ 600 to fix. The seller agrees to pay. If you write the buyer a check at closing to “keep things simple,” fraud is likely. The panoramic window repair should be on the settlement sheet, just like every hundred spent.
Another fraud trap that is easy to fall into is the representations made by the buyer in other loan documents. Do you plan to occupy the property? If you answer “yes,” then you better have a good excuse why you didn’t if you’re not fat and cheeky in the house a year later.
But what happens if you get a last minute job transfer or change your life circumstances? Should you live in the home alone to resolve the possible fraud charge? Of course, no! The question is what your intentions were when you signed the loan documents. If you said you were moving into the property but got a job transfer 2 days after closing, then you have met the intent portion of the law. He planned to live in the house when he bought it. Depending on the destination, a job transfer to another city 2 days later makes it impossible to live in the house. No fraud.
Proving your intention is not always as easy as it sounds. Let’s say you bought a home, closed it down, and then your dream home hits the market two blocks away. The price is too good to pass up. Can you live in the new house or do you have to live in the old one?
This is a more difficult argument to present to an investigator, as it is difficult to prove your intentions. Should you buy the second home and take a chance? Assuming you’ve documented your path, why not buy the second home? However, if you do it 13 times over a period of several years, as happened recently in Colorado, you are probably in trouble. As a general rule of thumb, if you are not living in the home after the first year, even though you certified that you were going to live in the home, make sure you have your documentation ready! You could easily be knocked on the carpet as many loans are verified for occupancy.
Unfortunately, everyone in the chain of a real estate business, from the loan originator to the closing agent to the brokers and attorneys in between, are potential fraudulent actors. For example, if the figures at closing are significantly different from the fees charged at closing, you may be the victim of loan fraud. Be on the lookout for fixes and changes where sellers make big profits from the house. In these cases, you’ll want to double-check the comparisons and perhaps even hire another appraisal company to verify the true market value. One has to wonder how a house that was worth $ 400,000 a month ago is now worth the $ 550,000 that you agreed to pay for it. There may be appraisal games in progress with the property.
The easiest way to get caught by the http://www.mortgagefraudtaskforce.com/ Task Force is through foreclosure. Properties up for auction are frequently scrutinized to see if the underlying loan was legitimate. However, just like Judge Stinger, you don’t need to be discouraged to get free room and board at the crime school. Hopefully those who end up in prison for their illegal activities don’t come up with a new fraud scheme!