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MORTGAGE FRAUD STORY - SHORT BUT INTERESTING

By Stella Barbour

Real Estate Broker/Owner with NoVa Brokers LLC 0225 094634 VA/ 643686 MD

April 24, 2008 08:43 AM

As some of you know, I work at a law office as a Paralegal/bankruptcy assistant and today was interesting. Potential client came in for a consultation. (By the way, my clients gave me permission to share this with everyone in this blog and encourage others not to be as naïve as they were).

Here is the scenario:

Clients Bought Single Family Home in late 2005 for $650,000.00.

Put 20% down = $130,000.00

Refinance in early 2006 (3 months later) for $680,000.00 to pay back the Realtor who gave them $130,000.00 cash to put in their account sixty days before buying the home (to use as a down payment) without disclosing this to anyone and especially not disclosing this on the HUD 1, not to mention her fee for doing that to qualify them to buy a home.

Apparently the Realtor ® who secretly loaned them the money told them that it was perfectly legal to do business this way and that everyone gets into homes this way.

They Lost home and considering bankruptcy 2008.

Realtor ® received her commission plus whatever else was available and still has her license and is selling homes today.

This is our third case in 2008 with similarities to the story.

http://www.stellabarbour.com/default.asp

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Tiffany Wilson

eReal Estate Corp - Redondo Beach, CA

SFR, First Time Home Buyers & Investors

Well folks - it's our job to continue doing our best job to provide ethical service for our clients to protect all involved. These stories are horrible, but all I can do is learn and protect my clients (and friends, family, etc.) from falling into this trap.

Thanks for sharing.

Apr 24, 2008 09:25 AM

Tina Merritt

Nest Realty - Blacksburg, VA

Virginia Real Estate

I really question how stupid a Realtor is who loans a client $130K hoping that they'll refi in a few months!

Tina in Virginia

Apr 24, 2008 09:32 AM

n d

Naoma Doriguzzi - Virginia Beach, VA

that is nothing but fraud and unethical. I wonder if the realtor is a member of NAR?? What would they think?

Apr 24, 2008 09:14 PM

Stella Barbour

NoVa Brokers LLC - Vienna, VA

Principal Broker, Serving Virginia and Maryland

Tony & Darcy - Thanks for your comment

Ron - My clients did not know. They were not from here. They would not thought anything of it.

Jonathan - These agents need to get their license revoked.

Tiffany - Same here. That is why I post things like this. Some of us don't have the access like I do to find out some of these things and I try to share it if my clients are ok with it. There is fraud all around us.

Tina - Let a Realtor put $130K in my account and see if she gets it back..

Naoma-The Realtor is a member of NAR. I am trying to get permission for my clients to turn over their files to FBI Fraud task force.

Apr 25, 2008 01:15 AM

Stella Barbour

NoVa Brokers LLC - Vienna, VA

Principal Broker, Serving Virginia and Maryland

Jason - I have heard this in some of our neighborhoods too. It is sad. We all suffer from it.

Apr 25, 2008 01:16 AM

Stella Barbour

NoVa Brokers LLC - Vienna, VA

Principal Broker, Serving Virginia and Maryland

Chuck - I know so many people that I have worked with that don't know how things work or have any idea of what to do to buy a house. I try to educate them so they can make a better decision even if the decision is not to buy. I sleep good at nigh.

Apr 25, 2008 01:20 AM

Anonymous

Stanley I. Foodman, CPA, CFE, Forensic Accountant

Nothing new. Your client was actually unqualified to receive the mortgage loan. The mortgage loan application was a fraud on the lender. Both your client and the realtor participated (not to mention a mortgage broker if any involved in the loan). The commission paid to the broker who made the undisclosed down payment loan to the your home buyer was the proceeds of a specified money laundering offense and your unfortunate client assisted with the laundering by paying the broker the hidden commission. I am unsure if 100% of the broker's disclosed commission in this case also qualifies as the proceeds of a specified money laundering offense. If the lender decides to file a complaint in this matter, the broker's would probably forfeit her commission and both the broker and your client might be criminally responsible for any deficiency the lender suffers as a result of the foreclosure and the loan application fraud. Is there any reason to believe that this is the tip of an iceberg revolving around this and other related brokers?

This is also an example of predatory lending at its worst. Your client was taken advantage of by the broker and possibly the lender who more than likely did incomplete due diligence prior to granting the mortgage loan. The result is financial ruin for your clients.

www.stanleyfoodman.com

Apr 25, 2008 09:39 AM

#14

Stella Barbour

NoVa Brokers LLC - Vienna, VA

Principal Broker, Serving Virginia and Maryland

Stanley - Thanks for commenting. Too much fraud was done in the last few years that don't have favorable results for the buyer today. I am seeing at least 2 a week these days.

Apr 25, 2008 01:53 PM

Lynn Garrison-Illescas

Top Performance Real Estate Consultants - Lecanto, FL

Lynn Garrison

I've had numerous sellers involved in fraud schemes and they have attempted to resolve their issues through a variety of governmental agencies without much success. Makes you wonder why we have all these bail out programs when methinks we could handle some of these cases in civil court. Of course the preponderence of my clients truly do not have the means by which to pursue such cases. Stella, I apologize if you've expounded on this in the past but based on your legal qualifications, do you have any knowledge of their possible recourses? I've sent folks to the State Attorney General's Office, Florida Real Estate Commission and even the FBI who all seemed to think they had a case for fraud but apparently couldn't or wouldn't pursue it on their behalf.

Apr 27, 2008 09:58 AM

Stella Barbour

NoVa Brokers LLC - Vienna, VA

Principal Broker, Serving Virginia and Maryland

Lynn - Thanks for commenting.

Apr 29, 2008 07:11 AM

Bill Schwent

Casa Tierra Realty - Santa Fe, NM

Santa Fe Broker

Stella,

As a minimum, you should report this real estate licensee to the state real estate board. This activity would surely result in the revocation of the broker's license. Since the broker is a Realtor, you can also fine an ethics complaint with the local Board or Association of Realtors. The same narrative that you just gave us could be the basis of your ethics complaint. (You do not have to be a Realtor to file an ethics complaint nor do you need to be a party to the transaction.) This person really needs to be called to task for this fraud in every way possible.

Naoma,

If one is a Realtor, one is a member of NAR. That's the only way you can be a Realtor!

May 02, 2008 09:56 AM

Lisa Lambert

The Law Offices of Elisabeth A. Lambert - Fresno, CA

Esq. 1031 Exchange Expert

What a mess! It's been happening all over California. I know the DRE is currently re-examining many of the loans that were issued from 2004 to present for fraud issues. Many loan officers are losing their jobs because they were involved in obtaining fraudulent loans for their clients. No jail yet, though. This isn't addressing the lenders who are operating under the Department of Corporations not the DRE.

May 04, 2008 10:41 AM

Jim Crawford

Long & Foster - Fredericksburg, VA

Jim Crawford Broker Associate Fredericksburg VA

Out and out loan fraud on both the purchaser's and their agents side. I hope they are all prosecuted.

May 04, 2008 10:44 AM

Stella Barbour

NoVa Brokers LLC - Vienna, VA

Principal Broker, Serving Virginia and Maryland

Bill - Already done. Thanks for your comment.

Lisa - I believe it is happening everywhere and a lot of people will be finding new professions. Thanks for commenting.

Jim - I hope they all get prosecuted too. Thanks for your comment.

May 06, 2008 01:21 PM

John Kim

Property Services & Short Sale TC - Irvine, CA

A lot of that happend and I've seen it as well from almost every side of the real estate transaction. Now we are all suffering from it but as everyone is thinking to go to arms against the evils of fraud that would only waste time and more money. In my opinion we just need to pick up and before it gets worse.

May 12, 2008 11:53 AM

Stella Barbour

NoVa Brokers LLC - Vienna, VA

Principal Broker, Serving Virginia and Maryland

John - I agree with you, we are all suffering. Thanks for commenting.

May 13, 2008 02:28 PM

Andrew Ritner

Ritner, Esq - Myrtle Beach, SC

Stella --

Did the 1003 (Loan Application) say anything about incoming funds or where the downpayment would be coming from?

Jul 04, 2008 11:41 PM

Chuck Christensen

Your Financial Coach - Bellingham, WA

Your right Andrew, that has to be disclosed to the lender in first and 2nd.

Jul 07, 2008 11:46 AM

Anonymous

Chuck, thanks.

The reason I ask about the 1003 is that most everyone has that in their hands at some point: Mortgage professional, Lender, borrower, closing agent (attorney). The attorney in me wants the lender to take lumps for glossing over the obvious. $130K is a lot of money to pony up, even if its coming out of stocks or sale escrow. Someone at the lender's office probably green-lighted a loan which these folks never would have qualified for. I see this all the time where Lender cries foul but the borrower should never have been in the loan in the first place.

The Realtor is obviously crooked, but enough folks here have already made that point.

When I first passed the bar I put in some time working for an excellent ethics attorney here in SC. She has a simple test for any kind of cute financing:

Ask "Who's hurt by us disclosing the arrangement?" or "Who would balk if we did something this way?" If the answer is ever The Lender, then hold on tight to your license. Words to live by.

I haven't had any problems yet (knocking on wood).

Jul 08, 2008 01:48 AM

#26

Stella Barbour

NoVa Brokers LLC - Vienna, VA

Principal Broker, Serving Virginia and Maryland

Andrew and Chuck: The loan application was never in the borrower's package. I also requested it from the title company and never received a copy of it. Let a Realtor put $130K in my account and see what happens. This agent took a big risk, not only in getting caught, but a chance of losing that money. These people would have never qualified for the loan in the world today. There is an active investigation on this case.

Jul 10, 2008 12:31 AM