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Loan Fraud in A Real Estate Transaction

Ferguson Hayes Hawkins, PLLC Jan. 25, 2017

Loan fraud is an issue that should be very important to all parties in a real estate transaction. Whether you are the Buyer, Seller or even the Realtor, every party to a real estate transaction should resist the temptation to sell or buy a home where there is evidence of loan fraud. Loan fraud is a violation of federal and state law and agencies such as the FBI and the Real Estate Commission are placing particular emphasis on the investigation and prosecution of loan fraud. Here are some examples.

False Gift Letter. This is a letter used to trick the lender into thinking the borrower is using his own money as a down payment when, in fact, the money is another loan.

False Down Payment. The contract shows a down payment directly to the seller when in fact there is no such payment.

Secret Second Mortgage. The buyer does not qualify for the full amount needed to purchase so the seller consents to a ‘secret second’ in which the seller or the agent makes a secured or unsecured loan to the buyer. If it is secured, a second mortgage is recorded after the closing.

Undisclosed Rebates. The buyer does not have enough money so the agent or seller gives money to the buyer and this is not disclosed to the lender or shown on the closing statement.

Not Owner Occupant. The buyer falsely reports to the lender that he will be the owner occupant in order to secure the loan when in fact the house is being purchase for rental or investment purposes.

False Loan Information. False statements in the loan application or otherwise intentionally misleading the lender also amounts to loan fraud. False information does not have to originate with the borrower. The seller, builder, or agent can be guilty of aiding and abetting loan fraud if they supply the information or participate in the transaction knowing that false information has been given to a lender.

If you have concerns regarding the possibility of loan fraud in your real estate transaction, you should immediately contact a real estate attorney. The real estate attorneys at Ferguson, Scabrough, Hayes, Hawkins & DeMay, PLLC are experienced in dealing with loan fraud matters and are willing to answer all of your questions.

Ryan C. Hawkins is a partner at Ferguson,  Hayes, Hawkins & DeMay, PLLC and a member of the Real Property Section of the North Carolina Bar Association.