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A Builder's Special Incentive: My Response to Today's Earlier Post

By
Real Estate Agent with Integrity Real Estate

Earlier today, I asked for your collective opinion regarding a builders' rebate.  The willingness of the Active Rain community to contribute will never cease to amaze me.  I've spent the day preparing for two upcoming presentations in Florida and now have better and more relevant information than I could have gathered in any other manner.  Thank you.  My gratitude is heart felt.

The scenario in the initial post developed around a builder who solicits buyers by agreeing to make a year's worth of mortgage payments.  The questions arise from the ability of the builder to make the concessions legally.   Full disclosure, or lack thereof, to the buyer's lender is the paramount issue.  The builder described in the post is very real.  The fact pattern is completely accurate. 

Click here to read the original post titled A Builder's Special Incentive ... Your Opinion Please.  The comment thread is well worth reading.  It's a living testament to the experience, judgment, and knowledge of this community. 

My response:   The case portrayed earlier is an example of fraud for housing as defined by the FBI.  It's important to note that the buyer intends to make regular monthly payments and live in the house.  As harmless as this situation might appear, it’s contains warning signs of an inflated appraisal and possibly other criminal acts.  A common fallacy to avoid at all costs is one incumbent on the right of buyers and sellers to have side agreements that aren't disclosed to lenders.  Again, the participation of a loan officer in a creative scheme does not imply that the source of funds has actual knowledge of material facts.  One can safely assume the opposite to be true.

If a deal is above board, why not fully disclose it's elements to the lender?  The players in this scenario have demonstrated a willingness to conspire and deceive.  Where does the cheating end? 

Always keep in mind that every settlement statement contains the following language:

It is a crime to knowingly make false statements to the United States on this or any other similar form. Penalties upon conviction can include a fine and imprisonment.

The misrepresentation of the commission and the silent rebate of funds is clearly a case of knowingly making false statements.

Many incidents of mortgage fraud remain undetected, and/or unreported, and are therefor not prosecuted.  Most people, industry insiders included, are unable to recognize the real warning signs of mortgage fraud.   The well intended pamphlets that are handed out are a great start, but we need to do much more.  Education is the key, but awareness is the first step. 

A community based approach to fraud prevention is, in my opinion, the most effective avenue available.  An informed consumer is the fraudsters worst enemy.

This nation’s real estate community is uniquely positioned to make a contribution through vigilance and training. Most forms of mortgage fraud could not exist without the participation of an industry insider. You can make a difference by learning everything possible about fraud prevention and reporting any criminal activity, known or suspected. 

Every time one of you stops an incidence of mortgage fraud, you make it “that much easier” for federal agents to continue their struggle against terrorist, drug dealers, and other criminals.

If that’s not the act of a patriot, I really don’t know one that is!

I realize that it’s often difficult to report white collar crime. The criminal is often a neighbor, friend, colleague, or customer. A criminal doesn’t have to carry a gun or a knife to be dangerous.  We’ve all seen the numbers representing the staggering cost of mortgage fraud to financial institutions and society in general. 

If for some reason anyone is reluctant to report this particular type of crime, ask yourself one simple question: What type of crime would you report?

 


Comments (32)

Mary McGraw
GLREA - Rockford, MI
2015: Solar Energy Is Still A Simple Machine!

ED - I am able to offer a 6 month PITI Abatement - from the lender. The funds are set aside at escrow with a title company who makes the first 6 months payments. It seems to me, especially after reading your post, that this is a better way to go about this "rebate". I would like to hear your thoughts on this. I can explain in more detail if necessaryl

 

Jun 10, 2007 05:03 PM
Chris Griffith
Downing-Frye Realty, Bonita Springs, FL - Bonita Springs, FL
Bonita Springs Listing Specialist - Agent
Ed are the buydowns ever legal?  I'm confused.  Are seller's paying the buyers closing costs legal?
Jun 10, 2007 11:07 PM
Ed Rybczynski
Integrity Real Estate - Havre de Grace, MD
Your Source for Local Real Estate

Ashley

I'm glad the you and Paula shared this fact with me.  I assumed, incorrectly, that real estate agents were inundated with continuing education classes targeting mortgage fraud.  It's a project that I'd be interested in undertaking because my current audiences are primarlily comprised of title agents, attorneys, corporate executives, and loan officers.  We could easily alter the presentations to make them work for real estate agents.  Maybe we can do something to raise the level of awareness.  Thank you.

Jun 11, 2007 02:16 AM
Ed Rybczynski
Integrity Real Estate - Havre de Grace, MD
Your Source for Local Real Estate

Tony

I'd love to hear more about the details of the schemes if you ever have any free time.  Total anonymity is part of the deal. 

Jun 11, 2007 02:17 AM
Ed Rybczynski
Integrity Real Estate - Havre de Grace, MD
Your Source for Local Real Estate

Mary

Thanks for sharing this program with me.  I haven't heard of a scenario where a title company escrows funds and subsequently makes regular payments.  I'll get back to you. 

Jun 11, 2007 02:23 AM
Ed Rybczynski
Integrity Real Estate - Havre de Grace, MD
Your Source for Local Real Estate

Chris

Buy downs are definitely legal.  The confusion, I think, arose from yesterday's conversation meandering so much.   It's fine for sellers to contribute towards buyers' closing costs as long as it's disclosed in the contract and appears on the settlement sheet.  

Jun 11, 2007 02:55 AM
Ed Rybczynski
Integrity Real Estate - Havre de Grace, MD
Your Source for Local Real Estate

Chris

You might want to glance at this post written by Larry Morris about 2 weeks ago.  Click here.   I don't think it's worth taking chances and have decided to place a great deal of emphasis on the information shared by Larry.

Jun 11, 2007 02:58 AM
Chris Griffith
Downing-Frye Realty, Bonita Springs, FL - Bonita Springs, FL
Bonita Springs Listing Specialist - Agent
Thanx Ed, I had heart palpitations due to the confusion!
Jun 11, 2007 03:02 AM
Paula Henry
Home to Indy Team @ HomeSmart Realty Group - Avon, IN
Realtor - Indianapolis Real Estate - 317-605-4174

Ed - Thought this may interest you.

http://www.kold.com/Global/story.asp?S=6642855

Jun 11, 2007 03:19 PM
Kaye Thomas
Real Estate West - Manhattan Beach, CA
e-PRO, Manhattan Beach CA
Mortgage fraud is just bad business for everyone.. buyers, seller and agents.  Much of the problems we are going to see in many markets is the direct result of fraud. and it won't be pretty.  We had a major 3 year investigation in the South Bay by the FBI on silent seconds and people went to jail..honesty is usually much  easier  then dishonesty in most cases... besides  it's just plain stupid to jeopardize your license..
Jun 11, 2007 06:51 PM
Ed Rybczynski
Integrity Real Estate - Havre de Grace, MD
Your Source for Local Real Estate

Paula

Thanks for sharing the link.  I'm preparing to leave for a presentation as I type and needed another example of new legislation.  I appreciate it. 

Jun 11, 2007 09:41 PM
Ed Rybczynski
Integrity Real Estate - Havre de Grace, MD
Your Source for Local Real Estate

Kaye

I wasn't aware of an FBI investigation into silent seconds.  Thanks for sharing. 

Jun 11, 2007 09:45 PM
Beth Butler
Beth Butler - Big Mouth Consulting - Miami, FL
Ed - your post saved the day - Monday after your initial posting, this very scenario came up, just a bit more "inflated".  I emailed your post to the manager who printed it for the seller, and the selling agent - and off they went. It is always nice to have an outside authority to help hold the line.  Thank you.
Jun 13, 2007 12:59 AM
Ed Rybczynski
Integrity Real Estate - Havre de Grace, MD
Your Source for Local Real Estate

Beth

You've just made my day. 

Jun 13, 2007 01:11 AM
Anonymous
Ralph Hicky

Seems to me the crime is inflating the commission in an attempt to kick it back to the buyer & not informing the lender. Also, the listing broker is connected to the seller which looks shady. For example, if the buyer had his own buyer's agent and there was a normal commission being paid by the seller (say 6%), then the buyer's agent would earn 3% and that would be recorded on the HUD. The buyer's agent could then send a rebate of 1% or 2% to the buyer as a means of competing for the buyer's business on price. According to the USDOJ, this is acceptable. You see, the listing broker is not competing to be the buyer's agent, but instead is using the rebate practice that the USDOJ is fighting vehemently to protect to kick inflated funds back the buyer. It's the conspiracy of this situation that that makes this fraud.

Jun 15, 2007 07:31 AM
#27
Ed Rybczynski
Integrity Real Estate - Havre de Grace, MD
Your Source for Local Real Estate

Ralph

Well said.  Thank you. 

Jun 15, 2007 11:55 PM
Susie Roscoe
Signature Realty Associates - Brandon, FL
Real Estate Specialist | Brandon, FL

I couldn't agree more and am thrilled to hear you confirm that.  YOU are the expert afterall!!  Learn from your mistakes...we all try!  YOU seem to have chosen a field of expertise to SHARE YOUR ACCIDENTAL KNOWLEDGE and help us all avoid the same potential mistakes. 

THANKS VERY MUCH!!!  :-)

Jun 16, 2007 10:57 PM
Ed Rybczynski
Integrity Real Estate - Havre de Grace, MD
Your Source for Local Real Estate

Susie

It's my pleasure entirely.  I'm really glad that you've found these posts helpful.   

Jun 16, 2007 11:38 PM
Lola Audu
Lola Audu~Audu Real Estate~Grand Rapids, MI Real Estate - Grand Rapids, MI
Audu Real Estate~Grand Rapids, MI ~Welcome Home!

Excellent post!  This is the type of scenario that seems to be "creative" but is actually flawed & fraudulent.  Its better to avoid altogether that which cannot be transparently stated on legal documents.

Jun 18, 2007 02:22 PM
Ed Rybczynski
Integrity Real Estate - Havre de Grace, MD
Your Source for Local Real Estate

Lola

Very good point about avoiding anything that cannot be emphasized in print.  Thank you. 

Jun 18, 2007 09:34 PM