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By PETER
ROSENTHAL, President
V.I.P. Trust Deed Company |
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LOAN APPLICATIONS –
BEWARE
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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.
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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, tax professional
or attorney.
Some of you reading this may think I’m goody two-shoes
or perhaps -- naïve. I grew up in New York City and don’t
think I am very naïve. I do try to keep our industry clean
where ever possible and, for years, have cooperated with the
District Attorney, the F.B.I., Department of Treasury and
various local law enforcement agencies in virtually all
aspects of real estate fraud.
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. A few
bad appraisers in our industry will inflate values for a
fee. 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, attorneys and real estate appraisers who
provide an “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 |
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