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I have touched on this subject
before in a past column, however this subject is so
important that I am revisiting it. If you are or
will be a real estate buyer, real estate seller,
real estate broker, agent or appraiser, or if you
are a CPA or attorney assisting in real estate
matters, please take this warning seriously. I
don’t mean to make a Federal offense about this, but
unfortunately it is.
At least once a week I get a
notice or hear about various mortgage brokers or
loan officers that get charged with or convicted of
or plead guilty to “felonies” in Federal court.
Approximately two weeks ago I saw an internal
industry announcement about a Glendale mortgage
broker. On February 3rd I received an
announcement about “a Los Angeles loan officer and
mortgage broker who pleaded guilty to four felony
charges of defrauding the U.S. Department of Housing
and Urban Development (HUD).” I will quote further,
“he faces a maximum sentence of up to 20 years in a
Federal penitentiary and fines up to $1 million.”
Housing fraud has always been a problem, but there
never was enough money for aggressive criminal
investigations. That has now changed. Recently 41
people have been charged with criminal fraud by the
U.S. Attorney’s office in less than a two-month
period. In December, HUD announced the filing of
another 35 cases.
It is unfortunate that any
industry has its “corner cutters” and the real
estate industry has more than its share of
charlatans because of the large amounts of money
involved. If you are one of the FEW real estate
professionals who customarily assists clients in
doctoring up loan applications or help them submit
phony verification of employment or verification of
deposits, think for a moment about the possible
consequences. Losing one’s professional license is
nothing compared to the financial ruin involved with
hiring a criminal defense attorney. Criminal
defense attorneys are not cheap and the mere defense
can easily bankrupt you. Of course, one has to pay
for this expensive defense to avoid years in prison
and large fines. The normal result is loss of
license, one to five years in prison, large fines
AND the aforesaid expensive defense. Compare this
to the extra profits made by preparing phony loan
applications.
If you are a real estate buyer
applying for a loan, do not provide false
information on a loan application or provide false
supporting paperwork. For the last few years,
sophisticated lenders have ROUTINELY compared the
information on the application to information
received from the IRS. Yes, the IRS information is
received AFTER the loan is funded, however falsified
information usually results in the immediate
acceleration of your loan and a referral of the
information to the U.S. Attorney.
So far, I have warned buyers
and brokers. What does all this have to do with a
real estate seller? |
SELLERS BEWARE! A very good
friend of mine called the other day. She has a
potential sale on her rental house and wished to
know if it was okay to refund money to the buyer
after close of escrow. She was theoretically asking
about the mechanics of the transaction. The
unfortunate part of this is that she is VERY real
estate savvy and didn’t realize what I am about to
tell you.
It was immediately obvious to
me that the buyer had asked her to arrange a sale
price that was artificially high. In this case the
sale price was $40,000 higher than the “real” sale
price and then the extra money was to be refunded to
the buyer after close of escrow. My friend was
concerned about the mechanics and tax consequences.
She was embarrassed when she then realized that she
had been innocently asking me about “how to” commit
a serious FELONY. Obviously the buyer, with or
without help from a third party, wished to arrange
an inflated sale price so that the lender would lend
80%-90% of the “higher” price. When the seller then
refunded the overage amount, the buyer would
theoretically have little or no money down.
When I laughingly told her that
the real question was “how can I conspire with the
buyer to defraud a Federal lender?” she was shocked,
as she hadn’t even thought about the big picture,
merely the mechanics. How many times has a seller
been asked by a buyer or a “clever” real estate
agent to put money in escrow as part or all of the
buyer’s down payment and then carry back a Second
Trust Deed after the escrow closing? This again is
a conspiracy by the buyer, seller, and sometimes a
real estate agent.
Sometimes an accountant is
asked to provide inflated profit and loss statements
or bogus tax returns. It’s even more unfortunate
that some “professionals” considers this a customary
practice. I am always aghast that an accountant,
CPA and sometimes an attorney will cooperate with a
client in this conspiracy. Providing phony
documents or inflating income for real estate loans
is unfortunately an every day occurrence in some
real estate circles. The true professionals in the
industry are aware of this, but rarely “snitch” on
the crooks. “Why get involved?”
If you’re a broker/agent and
get caught, loosing your license will mean nothing
compared to civil and criminal penalties. If you’re
a buyer and get caught, you may lose the property by
foreclosure and get caught up in a criminal mess.
Though sellers sometimes cooperate in these schemes
be aware that this is, in fact, a serious criminal
offense.
This is not intended to be a
warning for the few accountants and attorneys who
provide this “extra” service. You already know the
consequences of what you are doing and the good guys
in the real estate industry applaud and cheer every
time one of you gets caught.
Peter Rosenthal
VIP Trust Deed Company |
