I went to a continuing education class in South Carolina and the topic was Mortgage Fraud. Having taught mortgage fraud I thought that it was going to be pretty much the same old thing. Sure a lot of what they taught I already knew but I not only learned a few new things but it was also good to be reminded of a lot of things that you can forget about. I have talked to a lot of people that when they start explaining the transaction it is very evident that it is not legal. The sad part is that they are usually fairly new investors that are relying on an experienced investor or seller to handle all of the details and they assure the newbie that the transaction is “totally legal”. Here are some basics that you can keep in mind when making investments even if you are just starting out to avoid questionable people and transactions.
1: Avoid deals that sound “Too Good To Be True”. If a seller (especially another investor) promises to sell you a property, manage it for free, handle all of the financing details, get you cash at closing and send your check every month I would be careful. If real estate investing was easy everyone would be doing it. I’m not saying that all sellers that do this are fraudulent, but I am saying that you need to do your homework. When you get involved in a transaction be sure to do some due diligence on your own. Do this by asking several people that are unrelated to the transaction about not only the transaction but the people. Also don’t take the word of your seller as to how much you can rent a property for, or what it will appraise for.
2: Make sure that the entire transaction is on the closing statement or hud1. Remember if there is money going back to someone or credits given to someone and it is not on the hud1 then it is considered fraud to the lender. I have even seen some investors that want to list an assignment fee as a consulting fee or some other fee. Just call a duck a duck!
3: Know the people you are dealing with. Ask for references and also seek and get your own. Remember to always go with your gut feeling. This may sound funny but you can always trust a woman’s intuition. If you are a married man let your wife meet the people you are doing business with. If you’re not married find a woman that you know and let them meet the people you’re doing business with. If you’re a woman you have it made. I like to use the philosophy of Ronald Reagan “Trust but verify”.
4: Be Honest. Don’t let anyone talk you into submitting anything on an application that is not true. Intentionally submitting false information on a loan application is fraud and is a federal crime. Just because the loan was closed does not mean that you will never get caught. Lenders and mortgage insurance companies re-verify items on applications as a standard procedure for quality control. They will look for patterns and inconsistencies throughout the application. It’s not a matter of if but when you will get caught.
5: Always be fair and honest in all of your transactions. Remember to make every transaction win win for everyone. We subscribe to a philosophy of full disclosure in our office. When we assign a contract to a buyer we tell the buyer how much we are paying and how much we are making in the transaction. Buyers don’t mind you making money as long as the deal works for them. Always leave some profit on the table when wholesaling a property. I hope these things have helped. If you suspect any transaction to be fraudulent you can contact the banking commission in your state or the FBI as they investigate mortgage fraud.