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Is it Mortgage Fraud?

By
Real Estate Agent with Mezzina Real Estate & Insurance

Is it mortgage fraud to declare income and fail to disclose expenses? I am just wondering. Did the applicant deliberately try to mislead the real estate agent, the mortgage representative, the home seller, and herself?

Here is a single woman trying to buy into the American Dream. Well, the part of the dream that includes owning a home. She declared to the other agent that she wanted to get in on the tax credit before it expired and the agent she had been working with is not responsive to her. Like a flash of lighting the agent has her out looking at homes because the information she provided the mortgage representative would indicate she was eligible to buy a home at a certain dollar value. Heck, with the current inventory of homes available a good agent can negotiate the best deal for a buyer at twenty percent off of the asking price.

The home owner, of course, is not going to "give it away" and will try with his agent to come to an agreeable figure for getting rid of a house they really don't want. And, that is what happened to me two months ago. My listing, my seller, wanted to get the house sold and move on with their lives. Along come the buyer's agent and a pre-qualification letter from a local, reputable, lender. They try hard to get a discount and a concession but we all agree to accept part of the discounted price and let the buyer come up with the closing costs on her own. Seeing that she can do that solidifies the deal for all parties. A buyer with a prequalification letter and money in her pocket to go forward is indeed a wonderful combination to any real estate agent.

There is an attorney review of the contracts, small deposit is transferred to the attorney's escrow account and a second deposit has been deposited. The buyer does a home inspection that reveals the home to be in good repair. The township goes out and issues a Certificate of Occupancy. The sellers have begun to empty the house and then the second shoe drops. The attorney wants to delay the closing because there is a hold up in getting the mortgage. The buyer's agent declares it to be nothing just a routine check of the buyer's tax returns and we need to wait for the IRS to provide documentation. The seller's attorney issues a "time is of the essences" letter giving the buyer ten days to perform and sends me a copy by fax.

Bam! The fax is picked up off the machine by another agent and you will never guess the connection to the story. O.K., so you got it. The agent just so happens to be that "non responsive" agent the buyer ditched. Well, you won't believe the "insider" information I was provided. Wow, you are good.

It turns out the other agent had been working with the buyer for several months. She got her into a rental unit and hooked her up with a mortgage representative that had been working with her to restore her credit. That mortgage representative had declared her to be NOT loan worthy after six months because she had not taken the steps repaired her credit and co-signed a loan for her live in boyfriend to buy a truck to use in a landscaping business he had just started. The real estate agent that was "non responsive" had been sending the boyfriend business cutting lawns of vacant homes and other sellers.

As the saying goes, "No good deed goes unpunished". The agent further explained how she had told the "buyer" that she needed to see a pre-qualification letter prior to taking her out house shopping for a second time because she didn't want to get her hopes up on buying a home only to find out she couldn't get a mortgage for her again. Yes, I will say it again. The other agent had been out with her before found her a house that she had put an offer on and was told by the mortgage representative she did not qualify.

So, did the buyer commit a fraud on the "new" mortgage representative, the "new" real estate agent, and the "new" home seller/victim? Or, does a buyer have the right to expect different results if she leaves out some information?    

Sam Kader MLO 130505 MB 78982
Pacific Coast Financial LLC Lic# MB78982 - Seattle, WA
Real Estate NMLS 91980 Mortgage Broker Lic MB78982

Thanks for sharing. In general - it is adviseable to obtain a Pre-Approval before hand. The process will validate credit score, employment history, and liquidity (not to mention saving us from a lot of heart burn).

http://www.pacificcoastfin.com/Loan+lock+process.+

Jun 21, 2010 07:02 AM
Russell Benson
Old Republic Title - Norman, OK
We'd love to close your deal at Old Republic!

I know one mistake for sure was co-signing a loan for a BOYFRIEND?  Are you kidding me?  Sounds like this lady is in for many more surprises in her life if she keeps this up.

Jun 21, 2010 08:04 AM
Jason Allen Gardner
Exit Realty Imoti - Las Vegas, NV

Great Article Gregory. Without being an attorney, I am not sure if it is suitable for a fraud case. However, the loan officer should have been able to see the truck, if she really did co-sign for her boyfriend, on her credit report. If the reporting time was not long enought, there should have been at least a hard hit to the score. However, buyers need to be aware of the chances they are taking when they do not report all the information! 

Jun 21, 2010 08:08 AM
Tom Waite
Thomas Waite Real Estate Broker - Cypress, CA
So Cal-Apartment Bldg Investments

Gregory: Very well thought out and presented information.

Jun 21, 2010 08:13 AM
Paul Francis
Francis Group Real Estate - Las Vegas, NV
Las Vegas Real Estate Agent - Summerlin Homes

Well... not sure about the laws in California concerning the seller's right to collect but I can tell you, in one particular state that I was licensed in, the seller could possibly sue this buyer for all damages caused from conveniently leaving some information out to obtain that new Pre-Qualification letter.

Especially since this proposed buyer already went through the system once and learned how to work it.

If I was the Listing Agent with all of this information... I think it would be safe to say that the buyer could kiss the Earnest Money Deposit Bye Bye at the very least.

Fraud? I don't know and it's really not up for real estate agents to decide but more to report suspicion of illegal activity. You can report it to the FBI's Mortgage Fraud Hotline and let them determine that. However... I hear they are pretty busy right now on cases four + years back so waiting around for them to determine fraud may take awhile.

 

Jun 21, 2010 08:44 AM
Marshall Brown
Mid America Inspection Services, LLC - Fargo, ND
BSEE, CHI

Technically fraud or not, it is obviously an attempt to improperly influence the loan companies decision by misleading them about her circumstances.

 

I'd vote for at least slimy.

Jun 21, 2010 09:05 AM
Stephanie Stringer
First Choice Loan Services NMLS#210764 - San Antonio, TX
Mortgage Loan Originator

It is the loan officer responsibility to take a full complete application but for pre -approval purposes we are only going by what the client tells us.  Now when the file is in underwriting everything is checked so thoroughly now a days with the tax returns so it will catch up to this person. 

Jun 21, 2010 09:24 AM
Kyle Jan
Scottsdale, AZ
Phoenix AZ Homes for Sale

It becomes fraud when credit is obtained by not providing complete and accurate information.  Once she signs the 1003 with omittied information, she has committed fraud.  Let's hope it is only the buyer who is behind this.

Jun 21, 2010 09:49 AM
Kwesi Childress
Childress Investment Group/Keller Williams Beverly Hills - Beverly Hills, CA
Kwesi Childress R.E. and Investment Specialist

YES!!!! It is Fraud!! And you want to be careful because you and everyone in connection with that poisonous client can be made accountable for their actions!!  First, what clients/borrowers fail to understand is EVERYTHING comes out when getting a mortgage loan!!! EVERYTHING!! Especially now, with all the market changes! That client has wasted alot of peoples time and energy with their bootleg shenanigans!  That's why I give my clients a PRE-APPROVAL letter vs. a PRE_Qual letter. Big difference between the two! Pre-Approval is saying " we looked at all their information(credit, income, etc.) and they are APPROVED for the mortgage loan. The Pre-Qual is saying " We looked on the surface of their income, their score is blah blah, and they said they have blah blah money, they would qualify if these statements are true! BIG Difference!!  Work smarter not harder!! Clients will have you spinning your wheels taking advantage of you and your time thinking " they are desperate for business cause of the market, so they'll do anything for me", and your suppose to do everything for your clients, HOWEVER if you want me to jump through hoops- "Show me the MONEY!!!" lolol  The time wasted on a bootleg client can be used positively to get more fresh business. Time is money.

Jun 21, 2010 10:19 AM
Gene Riemenschneider
Home Point Real Estate - Brentwood, CA
Turning Houses into Homes

I think it is fraud.  She changed the facts just to get the loan.

Jun 21, 2010 10:19 AM
Cari Anderson
Danville, CA

It's going to be harder to do this in the future because lenders will be pulling credit reports just prior to closing. If you co-sign for a loan, you'd better have the income to back it up! And yes, a material omission IS in fact fraud! (I just took my Fed and State NMLS tests so I've boned up on all this!!!) ;-)

Jun 21, 2010 10:30 AM
Anonymous
Mark Ilderton

It is fraud as many have suggested here. The tough thing is the accountability. Who will prosecute and what are the consequences. That's the REAL question here. It's sad that this has happened to many sellers and their agents across America and from what I can tell, will continue until accountability gets noticed.

Mark Ilderton, Exit Real Estate Consultants, Lexington,SC

Jun 21, 2010 10:45 AM
#66
Jason M. Keith
Caliber Home Loans - Parker, CO
Equal Housing Lender

Please keep us posted on this one!

If the buyer knew the reason the first loan was declined and was working on getting that repaired, than turns around on a second lender and holds back that very information that caused a decline, than that buyer is walking a very fine line between lying and fraud.  Attorney would be my advice, ignorance does not mean innocence.

 

Good luck!

 

Opinions expressed here do not necessarily represent those of WR Starkey Mortgage.

Jun 21, 2010 10:47 AM
Mike Henderson
Your complete source for buying HUD homes - Littleton, CO
HUD Home Hub - 303-949-5848

Fraud or not fraud that is the question.  I don't think it's fraud, I'm positive it is very slimy.  A few points I want to make.  If there was fraud I actually put it on the mortgage broker/banker not the borrower.  Then I see it's a prequal letter and not a preapproval letter.  On a preapproval if the mortgage broker did this it would be fraud on their part.

Now it seems to me that the buyer has some issues mentally?  Why the hell would they make a deposit waste peoples time when they can't get a loan.  You said you wanted to salvage the deal, it can't be done.  No money, no deal.  

I would aggressively go after the earnest money.  I'm not sure it's mortgage fraud, but it appears to be buyers fraud.  I'm trying to keep that money.  It would help your relationship with your seller by trying to protect their interests.  I really want you to in order trying to punish this crazy buyer behavior. 

Jun 21, 2010 12:07 PM
Terry Abbott
Star Real Estate South Orange County, CA - Irvine, CA

Didn't the second lender pull her credit?  They should know in a few days if the deal is doable.  The buyer here has some problems, should lose her deposit.

Jun 21, 2010 12:58 PM
Latara Clements
Florida Dream Real Estate - Debary, FL

It's amazing they don't believe the professionals, lie, and waste everyone's time.  Buyers think they are so much smarter than the agents.

Jun 21, 2010 01:26 PM
Mari Armstrong
DiSalle Real Estate Co. - Toledo, OH

I just commented to the staff at my office yesterday that I wish I had a dollar for every time I was lied to - I'd be rich!

It seems that honesty is a thing of the past. People don't seem to have a conscious any more and think nothing of lying. I find this so very sad. What does it say about us as a people and nation?

Jun 22, 2010 12:22 AM
Carol Neu
Evergreen Realty - Big Bear Lake, CA
SFR, RCS-D - Big Bear Foreclosures

This is not fraud, this is Real Estate Professionals not doing their jobs.  The days of stated income and fogging mirrors are over, and I get really annoyed if I'm  dealing with a Loan Officer who tells me a client is qualified without looking at ALL the documentation before telling me that.  There is no getting around the documentation, so don't tell me they qualify if you haven't seen everything that exists up to the day the client walks into your office.

Having started in the business as a Loan Officer for 5 years, I have pretty high standards, and I know what has to be done to qualify a buyer.  In the last year I've had Loan Officers tell me stuff like, "Well, they might not ask for the tax returns, we'll wait until they do" THEN WHAT!!!  So we're going to wait to see if we have a problem?  Well, the last time I work with that guy.  I had another LO call me to tell me he asked the client three times how much he made, and it just wasn't enough.  Since the client was a firefighter for 7 years and only had a car payment, I found it hard to believe, and asked the LO if he had seen W-2's, NOPE!  Unbelieveable!

The first week or two is the time where it will be easiest to get your buyer to perform their role with the most excitement and energy.  I do my best to prepare them for getting their loan.  It is so much easier for all of us if they get a specific list of documents they need to gather, walk into meet with a competent loan officer who looks at every document that will be needed to close the loan.  In a few hours we know right where we are, what  problems we face and whether we can over come them.  No wasted inspections, escrows, appraisals, just a deal or not.

Buyers and Sellers are not Real Estate Professionals, we are!  Buyers and Sellers are often eternal optomists, looking for any way to work reality in their favor.  Today reality is subject to a bigger microscope, and we are the ones getting paid to use it.  If one of our team members chooses not to use it up front, change team members.

Jun 22, 2010 04:23 AM
Deborah Grimaldi
Grimaldi Appraisal Services - Cranston, RI
(401) 837-9633

Greg I think this unfortunate situation does happen more than we know of. It is really too bad agents and buyers have to waste our time and give false hope to the seller.  You do try to believe people and what they say, however, the qualification process should take care of the other unknown problems, that is awful.

Jun 23, 2010 12:21 AM
Wayne B. Pruner
Oregon First - Tigard, OR
Tigard Oregon Homes for Sale, Realtor, GRI

Good post. I also think you have some very good comments.

Aug 19, 2010 04:41 PM