03/10/09: Admit The Mistake Before Its Too Late
By Benny L. Kass
Q: I bought a house in January 2006 for $215,000. Just the other day, as I was going over some papers in order to prepare my tax return, I noticed that my salary was shown around $3,900. Back then, I made nowhere near $3900. I was probably making around $2000 a month. Since I bought the house, I went through all of my savings, borrowed money from some people, and got into credit card debt. Now that I think about it, maybe I should not have been approved. However, because of the falsified salary, I got the loan. Do you think that this was just a simple mistake on the bank's side or the mortgage broker overstated my salary just to get an extra business. I feel like I got the mortgage under false pretenses. Is there anything I can do about this?
A: The reason for the error is irrelevant today. You should immediately disclose the problem to your lender.;
When you went to settlement, you were provided a number of papers, including a financial statement which listed your assets, income and expenses. You should have read that document; carefully before you signed it. If you look at the bottom of that form, it states:
I/We fully understand that it is a Federal crime punishable by fine or imprisonment, or both, to knowingly make any false statements concerning any of the above facts as applicable under the provisions of Title 18, United States Code, Section 1001, et seq.
The operable word is “knowingly”. If the government decided to pursue you, it would have the; burden to prove that you knew what you were signing. And generally, this burden would be met merely by demonstrating that this is your signature on the document and that you were mentally competent at the time of settlement.
I doubt that anyone will pursue you criminally; our government has more important things to do nowadays. But to protect yourself, you should immediately disclose the error to your current lender.
I cannot tell you why your salary was inflated. It could have been a simple mistake on the part of the bank. But it could also have been done purposely by your loan officer who was making commissions for every loan; he or she produced.
There is a mortgage crisis in this country, which was caused by many people and organizations. While we cannot point the finger of blame exclusively on loan officers, it has become quite clear that one of the causes was the inflated numbers fabricated by those who were anxious to make and close a mortgage deal.
Did you keep the documents that you initially submitted to your loan officer? If so, I would review them to determine what information you provided about your salary. When you made application for that loan, your loan officer also asked your then employer for verification of your employment and salary. If possible, go back to that employer and try to get a copy of what information was sent to the lender. And if you do not have a copy of the tax return that you originally provided to the lender, request a copy from the IRS by filing out form 4506. Presumably, your tax return was accurate as to your salary.
While taking these precautionary steps; will not excuse you from the false statements on the application, it may assist in shifting the error to that loan officer.
You should also consider talking to an attorney, to get specific advise on how to handle this matter.
There is an important lesson that everyone must learn. Do not sign any legal documents unless you have read them carefully and understand what you are signing. If you have questions at settlement, do not hesitate to ask the title attorney or settlement officer for explanations. You are paying for their services, and they have the duty to make sure that you are fully informed.
Errors can happen. Your name may be misspelled; the property address (or legal description) may be inaccurate. It is easy to correct before those documents are recorded or sent back to the lender. It can be difficult – if not impossible – to make the corrections at a later date.
At settlement, you will be asked to review and sign the loan application, which spells out your financial situation. Make sure; it is accurate. Understating; your income – which technically is a false statement – may be acceptable. Many consumers just want to provide sufficient income to enable them to qualify for a loan, without disclosing everything. So long as you can qualify, you have not hurt – nor defrauded – anyone. However, overstating your income or understating your expenses is a crime.