It’s Easy to Accidentally Commit Mortgage Fraud

We’ve all read the headlines about real estate scams in the recent boom years resulting in many of the foreclosures in the marketplace today.

And, we’ve all heard about mortgage fraud.

The extent of the problem has become so vast that, according to Bloomberg News, the FBI has ordered many field offices to stop investigating other financial crimes so agents can spend their energies on the sub prime mortgage crisis.

The FBI considers 12 markets rife with fraud: Arizona, California, Florida, Georgia, Illinois, Indiana, Michigan, Minnesota, Nevada, New York, and Ohio.

We’ve all heard the big stories about this; how the woman who earned $24,000 got a stated income loan where she qualified for a house she could never afford. How buyers and appraisers artificially inflated prices to receive kickbacks at closing, then never made a payment…

But I have to say, sometimes even something that seems like an innocent and logical solution to a problem is considered mortgage fraud.

What do I mean?

Well, let’s say the buyer is purchasing a duplex for $100,000. She plans to put 10 percent, or $10,000 down, leaving her with a mortgage balance of $90,000. During the inspection, she discovers that one of the furnaces is on its last leg and imminently in need of replacement.

The seller doesn’t want to be bothered with replacing it, and offers to give the buyer $3000 at closing toward replacement costs.

Seems fair and reasonable, right?

Wrong. It’s mortgage fraud.

In the bank’s eyes, the buyer put up $10,000 for a down payment, and got $3000 of it back. As a result, she really only had $7000 in equity.

They gave her the loan with the understanding that she would have $10,000 of her own money at risk and may not have agreed to do the loan with any less.

How do you solve the problem? Well, she could badger the seller into putting in a furnace, the seller could have the money put in an escrow account at closing from which the heating contractor would be paid, or, he could simply reduce the price.

No money back at the table. Ever. No matter how innocuous the reason.