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, dishonest real estate brokers, and cheating homebuyers and real estate investors. While most people play straight and narrow, good deeds can be mistaken for bad. Stay out of the mortgage fraud spotlight 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 badly that they are willing to fudge the numbers or take shortcuts to get there. Sometimes it doesn’t even take that. In general, you have committed mortgage fraud if:

• You took cash out of the bank and paid off the debt without telling the lender;
• You bought a car before your loan closing and didn’t tell the lender;
• You are receiving credit for anything at closing and you did not tell the lender;
• make any agreement not known to the lender at closing, usually called a “side agreement”;
• An adjustment you make at closing is not reflected in your HUD-1 settlement statement;
• Part of your down payment or closing costs comes from the work you’ll 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 you will be an owner occupant;

The Real Estate Settlement Procedures Act (RESPA) is very specific about how a closing should proceed,
especially one that is subject to funding.

Mortgage fraud is easy to fall into and hard to get out of. 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 turned ugly with the disreputable dancer and the deal was reported. Judge Stringer had not been entirely truthful in his loan request. He did not disclose that he had borrowed all or part of the down payment. That’s a big “no, no!”

Judge Stringer’s case represents the proposition that foreclosure is not necessary to commit fraud. He was up to date on his loan payments. That was not the problem. His only mistake was not telling his lender that he 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 financial health of the borrower, 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 geared toward low-income buyers. If the borrower earns too much money, he will not qualify. What do you do if you get a big raise before closing? You better reveal the fact!

The HUD-1 settlement statement lists all charges and all credits on 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 window in the front room was broken the night before closing. It’s going to cost me $600 to fix it. The seller agrees to pay. If you write a check to the buyer at closing to ‘keep things simple’, fraud is likely. The window repair should be on the settlement sheet, as should every penny spent.

Another fraud trap that is easy to fall into is representations made by the buyer in other loan documents. Do you plan to occupy the property? If you answer “yes,” you better have a good excuse for why you didn’t if you’re not fat and sassy in the house a year later.

But what if you get a last-minute job transfer or change in life circumstances? Do you have to live in the house just to settle the possible accusation of fraud? Of course, no! The question is what your intentions were when you signed the loan documents. If she said she was going to move into the property but got a job transfer 2 days after closing, then he has met the intent part of the law. You planned to live in the house when you bought it. As fate would have it, a job transfer to another city 2 days later prevents living in the house. Without cheats

Proving your intent isn’t always as easy as it seems. Let’s say he bought a house, closed it, and then his dream house shows up on 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 his intentions. Should you buy the second home and take the risk? Assuming you’ve documented your way, why not buy the second home? However, if you do that 13 times over a period of a few years, as happened recently in Colorado, you’re probably in trouble. As a general rule, if you don’t live 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 paperwork ready! You could easily get a carpet call as occupancy is verified for many loans.

Unfortunately, everyone in the chain of a real estate deal, from the loan originator to the closing agent and brokers and attorneys in between, is a potential fraudster. For example, if the figures at closing are significantly different from the fees you are charged at settlement, then you may be a victim of loan fraud. Keep an eye out for fixes and changes where sellers are making a big profit on the house. In these cases, you’ll want to double-check comparable parables and perhaps even hire another appraisal company to verify true market value. One has to wonder how a house that was worth $400,000 a month ago is now worth the $550,000 you agreed to pay for it. There may be appraisal games with the property.

The easiest way to get caught by the http://www.mortgagefraudtaskforce.com/ Task Force is through foreclosure. Properties going to the auction block are frequently examined to see if the underlying loan was legitimate. However, as in the case of Judge Stinger, you don’t have to be discouraged to get free room and board at crime school. Let’s hope that those who end up in prison for their illegal activities don’t get away with a new fraud scheme!