I'm over in Nashville, Tennessee for a couple of days attending our yearly Tennessee Association of REALTORS Spring Conference.
Today I sat in on a talk by super savvy Colorado attorney/Realtor Oliver Franscona who talked about "Misrepresentation, Fraud, and Disclosure"
Oliver is co-author of a great book titled The Digital Paper Trail in Real Estate Transactions, a super book full of great advice and a CD with useful contract clauses and phrases to keep you out of trouble. I have a copy and recommend it highly.
Oliver talked for a couple of hours about the differences between misrepresentation and outright fraud. Basically misrepresentation is just what it say, making a mistake and giving someone incorrect information that may or may not cause them financial harm. Fraud is knowing something is wrong or incorrect and saying or doing it anyway.
He recommended that you advise your buyers always to get:
- An appraisal, even if they're paying cash
- A home inspection
- Title insurance
Also you need to know your state's legally required disclosure requirments for homes where a crime has occured, drugs may have been manufactured, and other stigmas that may attach to the property.
Regarding physical condition of the property; if you know any material defects you should disclose them, i.e., results of previous home inspections, "repaired" property conditions, and other defects you know about that may not be readily apparent to the eye.
Make sure your sellers complete their own property disclosure forms; don't fill them in for them.
Be the source for the source of information, not the source of that information.
Oliver's four rules to avoid loan fraud.
- The Real Entire Deal
- That Is In The Contract
- That Goes To The Lender
- That Is On The HUD1
Ask lenders to put it in writing if they ask you to do anthing that seems amiss to you. If they refuse to put any instructions to you in writing that's a good sign they may be setting you up for problems down the road.
If you suspect someone may be trying to get you do something that doesn't pass your smell test you're probably right. Either don't do it or run it by someone with more experience that you trust and respect.
It's a jungle out there; be careful.