Fraud: Last but not least…
Aside from income, employment and asset verification fraud we have outlined in the first 3 parts, the other areas of fraud usually occur in real estate purchase transactions. The most obvious are:
Two different settlement or closing statements: One or more of the parties to the transaction (buyer, seller, title officer, lender or real estate agent) coordinate to have one statement ‘created’ showing the seller receiving all the funds in the sale of the home. Then there is a second settlement statement ‘created’ that is the actual agreement between the seller and buyer where the buyer receives cash after closing from the sale transaction (in other words from the seller) but that settlement statement the lender never sees. That is fraud.
Seller pays cash to the buyer after the close of escrow: Unlike the example above where there was a coordination between all the parties, there are transactions where the buyer and seller agree to have the seller pay the buyer some cash amount after the transaction closes and the title co, real estate agent or lender may or may not have known at all. This often occurs...
when a seller raises the price of their home in an amount the buyer needs to do repairs or remodeling and then simply gives the buyer the cash ‘outside of escrow’. Again… fraud.
There is an excessive commission paid on the transaction: This scenario is where there are larger transactions (say $1 million on up typically) where there is a commission of say $175,000. There is always a red-flag to a lender when they see huge commissions. Typically, there is a reduced percentage in the larger dollar amounts. When there is that much cash exchanged, the title company and lender will probably have the other parties sign disclaimer agreements and document the commission to be true. Maybe not fraud but something watched by all agencies.
The seller agrees to pay the buyer’s closing costs… but the sales price was raised to do it! It is perfectly legal for the seller to agree to pay some or all of the buyers closing costs (within the guidelines for that particular loan) but the problem is when the seller raises the price to accommodate that agreement. That is when it is considered fraud and a seller concession.
Where did the borrower’s funds to close come from? One of the key areas of verification we discussed earlier is the source of funds to close. There is often a gift of funds from a relative. The problem or fraud occurs when the gift funds come from someone other than a relative but then is given by that relative. It is seen where the seller gives the relative the funds, a friend or other party gives the relative the funds to gift to the buyer or even undisclosed debt is used but represented as a gift (especially when the debt is to be paid back as well and no one tells the lender).
Other areas of fraud would include:
• The appraiser is convinced, bribed, or coerced to come up to a given price.
• Claiming to buy a property as an ‘owner occupied’ when in fact it is going to be an investment rental property.
• Undisclosed personal debt or private debt.
• Non-U.S. citizen claiming to be a U.S. citizen.
• Time at current address or on current employment.
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