Mortgage Fraud

Loan Fraud and False Statements

Mortgage Fraud is a complicated topic.  It can take many forms and can pop up in almost every step of a real estate transaction.  In this article, we'll cover three most common issues and common practices that lead to many of the bad loans that are out there today. 

Mortgage fraud is an extremely risky business. Because it involves both real estate and criminal law, when mortgage fraud occurs, it can result in criminal or civil consequences. Some of the penalties are as severe as five years in prison and serious fines. If you believe mortgage fraud has occurred in your case, because the consequences are so serious, you need to contact an attorney immediately.Mortgage fraud is a complicated issue because it can take many forms:

Contract Kiting

In simple terms, contract kiting occurs when two or more contracts for sale are used on the same transaction.  One contract represents the true agreement of the parties.  Another contract is then drafted which is given to the lender.  The second contract is used to obtain a different (and often larger) loan than the property or the borrower is entitled to receive.  Often times kiting occurs when using real estate addendums.  These addendums and other side agreements are to get a deal to close.  Sometimes it is an agreement to get cash back, other times it is an agreement to replace a furnace or perform a repair.  Any contract or agreement not 100% disclosed to the lender is considered Contract Kiting and it is Fraud.

Seller Carry-Backs

There is nothing per-se wrong with purchasing a property from a Seller who will carry the financing for you.  You may be familiar with the terms land contract or land installment sale.  Almost every state has a statute dealing with these types of transactions.  Many individuals and real estate professionals also come across transactions where the owner wants to sell, and offers to finance a percentage of the deal to “get out from under” the property.  Sometimes these financing arrangements result in something called a “silent second.”  What happens is that the buyer of the property borrows the down payment monies from the seller in the form of a second mortgage.  The lenders believe that the Buyer actually invested their own monies into the property as a down payment.  However, the Seller does not receive the down payment.  The second mortgage in turn, is not recorded.  The second mortgage is forgiven after closing without a payment made.

Loan Fraud Using False Statements

When it comes to loan fraud, there are more ways to get yourself in trouble than there are to stay clean.  Sometimes the loan officer or originator filled out documents for you and you merely signed them, but any false statement on your application documents create this problem. To follow are a few common traps which did occur regularly in the lending industry:

Misrepresenting a down payment – silent second

Overstating your income

Borrowing money to increase your bank account to qualify for a loan

Misrepresenting your liabilities or overstating the value of assets

Using a false gift letter to show down payment

Falsely stating that a property will be owner occupied

Inflating the price on the contract to get a loan

Contact a Mortgage Fraud Attorney

If you are searching for a lawyer who understands the severity of mortgage fraud, Contact Dever Legal Services by calling 877-464-LAWS/877-464-5297


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