real estate fraud :: SoundBiteBlog.com

“Do you think its okay to help a client who wants to buy a new home now, so she can then let her current home be foreclosed on?”

This question was posed to me 2 weeks ago in a meeting at my office. The Loan Officer asking the question has been originating loans for many years. She’s a wonderful person, but suffering from a lack of business just like many other Loan Officers around the country. It was an unexpected meeting as we no longer work together. She just stopped in for a visit. We were catching up on each others lives, both professional and personal.

This was the first time I heard of a new form of Real Estate Fraud called “Buy and Bail”. The process goes like this. A homeowner, realizing that they have either no equity in their home, or worse yet, negative equity, attempts to buy a new home, with the intention of letting the old home go into foreclosure after the new transaction is complete. In order to pull this off, the homeowner often provides the lender with a Lease Agreement to artificially inflate their income so the homeowner can qualify for both mortgages at the same time.

After my initial “You’ve got to be kidding me” response, I asked some more questions, thinking maybe I had misunderstood the buyer’s intent. I hadn’t. This was a deliberate, planned attempt to get a new mortgage by misleading the new lender. The buyer had no intention of telling her new lender what she was planning.

This story is morally repugnant on so many levels, I don’t even know where to start. My first reaction was, “this client will have a difficult time finding real estate professionals willing to get involved”, then I found out the client already had a Real Estate Agent working for her, and the Agent was fully aware of what the client intended. The client also had engaged a willing Loan Officer to handle the new mortgage.

I told my friend simply, “If you have information about a transaction that you deliberately withhold from the lender, you are colluding in a deception”. I walked away, shaking my head, hoping she had heard me and would stay as far away from this transaction as she could.

A Wall Street Journal Article

Yesterday I was not surprised read an article in the WSJ, detailing an instance of this scam that is happening in California. The buyer not only thinks nothing is wrong with her plan, she has let herself be quoted in a major newspaper. Her Real Estate Agent’s quotes make it obvious the Agent sees nothing wrong with the plan either, calling it “a business decision”. I hate to state the obvious but “a business decision” to screw a lender, is not a good “business decision”. And any Agent who helps promote it puts themselves in legal harm’s way. The same goes for any Loan Officer who might get involved. And any appraiser (if they are privy to the plan). Not to mention the (probably ficticious) “renter” who signs the lease agreement.

Difficult economic situations, like we have in America today, are just that; difficult. It doesn’t give any of us the right to lie, cheat or steal to improve our own financial situation. Nobody forced this woman to buy a house in the first place. She bought a home, most likely, because she thought she would benefit financially. She made a decision, hoping to improve her personal situation. Now that she finds her decision has hurt her, she wants someone else to pay for a bad decision.

If you are a consumer, and have heard of this ploy as a possible way out of your negative equity, go talk to a lawyer as fast as you can. If you are a Loan Officer; run. And the same goes for any Real Estate Agent who might read this article. Contact your brokerage’s attorney before getting involved. This isn’t the newest opportunity in real estate, this is dangerous territory.

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A Sacramento Blog (read the comments on this one)

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Posted in Buyers, Foreclosure, Kitsap County Bites, Miscellaneous, Real Estate Bites | 6 Comments »

Tags: buy and bail, ethics, real estate fraud

It doesn’t happen often, but occasionally credit reports are missing some information. What about child support from before your current marriage? That doesn’t show up at all on a credit report. Should you tell the loan officer or just keep it to yourself. If it’s not on the report it doesn’t count, right?

Your loan and your credibility are at risk

You can go to jail if you deliberately withhold information from your mortgage application. It is called fraud and it’s not worth the risk. If you have ever wondered whether or not you must let a loan officer know about something that isn’t on you credit report, now you have the answer. Everything you know about your debts or obligations, regardless of if it may be on your credit report, must be disclosed to your lender. The lender is considering lending you thousands of dollars and has the legal right to full information. If that lender makes a decision to loan you money and finds out later that you withheld pertinent information, you could still go to prison.

Think of it this way. If a friend of yours asked you for a loan, but didn’t tell you something financially critical like they just totalled their car after a hard night of partying and need to get another one as soon as possible. And they didn’t tell you until after you gave them money. You’d be pretty ticked off, wouldn’t you? I would be. Without a car, your friend probably can’t get to work. And no work means no money. So of course you are going to wonder how they’ll pay you back.

A mortgage lender is in exactly the same position. They are making a decision based on a lie of omission.

Here’s the good news

Your loan officer can probably get your loan approved anyway. There are so many creative loan programs available these days, your debt ratio may not be as bad as you think, to a lender. If the lender agrees to make a loan after you have told everything there is to tell about your debts, you have nothing at all to worry about. The lender knows what he needs to know and fraud is no concern of yours.

So, if you have ever wondered about that hidden obligation or been tempted to keep it all to yourself, go with the honest solution and let the loan officer do his or her job. It works better for everybody involved. The honest solution allows you to stay out of jail and live in a nice house. The other decision? Well…..visitors are allowed!

Posted in Miscellaneous, Mortgage Bites | 6 Comments »

Tags: kitsap real estate blog, mortgage fraud, real estate fraud, seattle real estate blog, silverdale real estate blog

Purchasing a home should be one of life’s simplest and most rewarding experiences.  The process itself represents a right of passage into a world of responsibility tempered by the emotional and financial comfort of homeownership.  The place where you choose to live, after all, is much more than an investment.  Potential buyers, already pressured and rushed, can find themselves unprepared for the uncomfortable questions that often arise before closing.  Regular readers might remember a post that I contributed to this site two months ago.  I graphically recounted the personal behavior that led to my incarceration in a federal prison after many years of working in the title industry.  It’s my intention, through a series of posts, to share consumer-oriented advice that can’t be found elsewhere.  Feel free to contact me with questions via email at edr@rybconsulting.com  or to visit a title industry blog that I host.  Title-opoly deals honestly with a wide spectrum of real estate issues and many of it’s readers are consumers, government regulators, or professional educators.

You’ll find that most of my opinions are very conservative since they were shaped by unique experiences.  For example, most real estate pundits blame consumers for a startling increase in reported fraud statistics and subprime foreclosure rates.  I don’t, and point squarely at the real estate industry and more specifically at it’s self imposed and very complex culture.  Most people working in other careers simply lack the time and ability to learn enough about the system to mastermind a fraudulent deal. Real estate crime requires a great deal of planning and coordination among numerous insiders or others with knowledge and contacts; it takes a team. Consumers blindly following the recommendation of licensed professionals sometimes find their integrity or sensibilities compromised. 

Former Secretary of Housing and Urban Development, Mel Martinez, sought sweeping reform of real estate settlement practices after closing on a home in the D.C. area.  Secretary Martinez, a seasoned attorney and the nations’ top real estate regulator, found himself  both confused and concerned after spending an hour at a table with unrecognizable documents strewn in front of him.  I can’t keep that from happening to you, but I can arm you with an intimate understanding of the pitfalls of any housing transaction and their possible consequences.  I’ll describe the criteria that you need to consider when selecting a real estate agent, loan officer, or title/escrow agent.  You’ll learn enough about the proper progression of events from contract to closing to stop and ask poignant questions when something doesn’t seem right. And, if an unspeakable situation does present itself, you’ll know enough to recognize it as such and will have an exit strategy in place that protects your interests.  A community-based approach to fraud prevention presents opportunities for consumers to avoid exploitation, especially when it’s initiated by industry insiders.

An informed and concerned community of consumers is the fraudster’s worst enemy!

Posted in Guest Writers | 2 Comments »

Tags: bremerton real estate, poulsbo real estate, real estate fraud, silverdale real estate