Mortgage Fraud—Important Reminders For Buyers, Sellers and Agents

Last summer while driving home from an appointment, I received a call on my cell from an agent who had just shown one of my listings. The listing was a little town home in the north metro of the Twin Cities. Since there were several other properties listed in the development, my seller had just reduced the price by nearly 10% to generate activity. This particular buyer’s agent was very excited. Her client loved the property and they were going to sit down that afternoon to write an offer. Before the did, the agent had a question: “Since buyer had some financing issues, could the seller do a contract for the down payment?”

My seller was not in a position to do that and I said so. She then asked if the property would appraise for $10,000 over the amount. If it could, then we could write the offer for $10,000 more than the asking price if the seller could agree to write up a contract for deed that would be immediately forgiven at the closing. As I maneuvered down the road to a stoplight, I paused a second. After taking a breath I asked the other agent, “Do you realize that what you just suggested is Fraud?!”

The buyer’s agent said that the loan officer had suggested this method and it was perfectly legal. The agent didn’t sound very experienced so I suggested that she check with her broker regarding the situation and call back. When the phone rang again, a few minutes later, there was a nervous, distraught agent on the other end of the line. She would not be writing an offer after all. She was distraught because she was a brand new agent and had just closed on a similar deal a month ago. She was at risk of losing her license.

This is not an isolated case. Mortgage fraud is not common but it is out there.

According to the FBI webpage on mortgage fraud, there are two specific types: Fraud for Property and Fraud for Profit

The scenario outlined above was Fraud for Property or Fraud for Housing. This is where a specific borrower misrepresents information on the loan application, appraisal, property or other document for the purchase of a specific property. Often buyer’s really want to be home owners but are not able to qualify through the correct channels. This type of fraud accounts for an estimated 20% of all mortgage fraud.

Fraud for Profit is more newsworthy. It is when industry professionals, real estate, title and mortgage agents, generate multiple loans for multiple properties. There are many different scenarios where unsuspecting individuals have signed documents and given social security numbers for a variety of reasons. Then realize months down the road that their information was used to fraudulently purchase properties.

To learn more about the different types of mortgage fraud schemes visit the FBI mortgage fraud webpage .

So how do you protect yourself?

Know your Realtor—Check out all credentials with local board of Realtors. Check with the state and local licensing board. Ask and check references.

Know your Loan Officer—Just as with your real estate agent. Check credentials, licensing and references. Deal directly with the loan officer and don’t arrange loans through third party services.
Don’t Sign ANY Blank Documents—Or any documents with omitted, incorrect or blank information Make certain you understand everything you sign. If you are unsure of any document, check with your attorney or legal representative before you put your name on the bottom of the page.

Do not agree to refund any money to the Buyer after closing—This is a common mistake. Often at the final walk through, a buyer will notice something they would like repaired, but the closing is in an hour. In order to facilitate the closing, the seller will agree to an amount to pay the buyer to have the repair made. If the mortgage company is not informed, it could be considered fraud. How should the situation be handled? The seller could agree to pay the service person directly. If a repair needs to be made, make it. If something needs replacing, replace it. If the funds can be escrowed for the repair, escrow the funds. All documents and agreements must be approved by the lender.

Get Copies of Everything you Sign—Protect yourself. Make certain when you leave the office you are given a complete set of documents including everything you have signed.

Copyright 2007—Teri Eckholm