SELLER BEWARE: MORTGAGE FRAUD

Found an interesting update from a local attorney, Ron Webster, regarding mortgage fraud. We, as Realtors, are keeping our eye’s open for suspicious contracts. However, the crooks continue to find other ways to accomplish their goals. Make sure your agent is aware.

October 23, 2006

Greetings! Picture yourself with your significant other in a candle lit restaurant. You can softly hear the ivory keys of the piano being gently played in the background. A glass of fine wine accompanies a delectable meal. At the conclusion of the evening you share your favorite desert, perhaps creme bulee' and everything is going picture perfect, that is until you go to pay your bill. Your credit card is rejected, but worse the authorities are called in. The credit card you thought you were using isn't really yours and before you are aware what is happening you are charged with fraud. Does this paint a picture you wish to be involved in?

Welcome to Mortgage Fraud! The consequences won't appear until after the dessert.

An increasing trend, growing at an alarming rate is mortgage fraud. In fact, the Tampa Tribune profiled this in their Sunday, October 22nd edition. Mortgage fraud can take on numerous forms, some more blatant than others. There are predators out there waiting to take advantage of anxious sellers. Do not let yourself get drawn into these deals no matter how enticing the deal sounds. Remember what your parent's taught you, if it sounds too good to be true....

Common forms of mortgage fraud agents are requested to participate in often include:

Artificially inflating the listing price or alternatively withdrawing the listing prior to the cotnract being executed. The change is a necessary step for the buyer to induce lenders to approve larger loan amounts.

Drafting contract assignments for higher prices on resale contracts. Who are we kidding? We are not in a rising market. Honest people will not pay an extra $250,000.00 for a piece of property. The inflated contract is the one given to the lender.

Crediting the buyer. Antennas should automatically go up. In the last closing tip I pointed out that industry guidelines limit buyer credits from the seller to 6% for loans of 80% loan to ratio value and 3% for loans greater than 80% loan to ratio value. Any credit above these amounts are outside H.U.D. guidelines.

Drafting addendums. If the credit cannot be stated under "other terms and conditions" within the body of the sales contract the deal most likely stinks. The typical addendum agents are asked to draft often references a remodelling credit, designer credit, or construction credit. Unfortunately, the lender or the appraiser will never see the addendum.

Creating fictious seller expenses. One of the hottest trends is to draft an addendum or have a seperate agreement to list artificial expenses on the closing statement as a seller expense. Typically, this will be accompanied by bogus invoices. The seller is assured that the expense will offset the inflated price in order that capital gain will only be computed on the net sales price. The buyer then manufactures invoices reflecting repairs to a company often owned by the buyer or someone associated with the buyer.

There are countless other variations of the above. Most agents don't realize what is transpiring and quite often, unwittingly, get themselves into situations they didn't initially foresee. Unfortunately, if we allow ourselves to be played, like fine ivory keys on the piano, we are all complicit in fraud. The seller, the realtor, the closing agent.

These perpetrators are also having another adverse impact on the market. Sales are artificially being reported higher than their actual price skewing legitimate seller's perceptions of true value. As a result, taxes within the development remain high, many listings remain overinflated, and subsequently potential buyers are scared away.

CLOSING TIP: Protect your seller, protect yourself. Don't allow yourself to be a pawn. No business is better than bad business.

Sincerely,

Ronald Webster
Law Offices of Ronald S. Webster
email: ronwebster@earthlink.net
phone: 239-394-8999