07/01/08: Fraud or Mistake?
By Benny L. Kass
Q: I bought a condominium in January, 2006 for $215,000. Just the other day, I was going over some papers, including my mortgage application, and noticed that my salary was shown around $3,900 a month. Back in January 2006, I made nowhere near that, and was probably making around $2000 as a waitress.Since I bought the apartment, I have exhausted all of my savings, borrowed money from friends, and got into credit card debt. Now that I think about it, maybe I should not have been approved considering what I was making. However, because of the falsified salary, I was approved. 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 and now I have to struggle. Is there anything I can do about this?
A: There is a moral to your situation: read all of the mortgage documents before you sign anything. All too often, when you go to settlement, you are given a large number of documents to sign, and just told "sign here, sign here".
There are several explanations as to why your salary was falsified.
First, you could have been the "culprit". You wanted to buy that condominium and knew that you would not qualify based on your salary. So you arranged with your boss to provide false information to the lender, showing that your salary was higher than it really was.
While this probably was not the case in your situation, unfortunately, there are too many borrowers who have engaged in defrauding their lender. At the bottom of all settlement statements (called a "HUD-1), you will find the following language:
WARNING: It is a crime to knowingly make false statements to the United States on this or any similar form. Penalties upon conviction can include a fine and imprisonment. For details see: Title 18 U.S. Code
Section 1001 and Section 1010.
Section 1001 of our Federal law makes it a crime to make "any materially false, fictitious or fraudulent statement or representation", and the penalty can be a fine and imprisonment for not more than 5 years. Section 1010 deals with making false statements to induce the Department of Housing (including the FHA) to issue mortgage insurance or mortgage loans. Here, the penalty can be a fine and imprisonment for not more than 2 years.
A second source of this false information could be your lender. It has become quite clear in recent months that one of the causes for the current "mortgage meltdown" has been lenders who falsified their borrower's financial information in order to make the loan - and get their commission. The Department of Justice and local State's attorneys general are investigating these fraud cases, and have actually filed charges against many such lenders.
A third source of your problem could just have been a mistake. In 2006, when real estate was hot, lenders were extremely busy and typographical errors were common. However, that does not absolve you from fault, since you signed the papers with the erroneous information.
I suggest that you should contact your lender and advise them of the mistake. It is better to admit the problem before it is discovered - since otherwise you will be on the defensive. When you tell your lender of the problem, they will investigate, and perhaps the loan officer that you initially worked with is the villain.
Section 1001 makes it a crime to "knowingly and willfully" make false statements for the purpose of obtaining a mortgage loan. If you voluntary admit to the mistake, I doubt that you will have any criminal problems, since it will be difficult to prove that you meet the "knowing and wilful" test.
You admit that you are in financial trouble. That's yet another reason why you should immediately discuss your situation with the lender. There are several options available to you.
- The lender may give you time in which to sell your condominium, and will temporarily freeze your mortgage payments. If you are able to sell - and if there is sufficient equity in your unit - the missed payments will be added to the mortgage payoff at closing.
- The lender may agree to a short sale, whereby the lender will accept a payment which is less than you currently owe, but this will assist you in selling your unit. You should consult a real estate broker who is knowledgeable about short sales and has sold property in your area.
- The lender may allow you to give back the unit by way of a "deed in lieu of foreclosure". This means that you will sign a deed, giving the unit to the lender. This way, the lender will avoid the costs involved in foreclosing. You should inquire whether such a procedure will impact your credit rating.
- finally, the lender may be able to provide alternative financing which will allow you to make smaller monthly payments. In today's economy, the last thing any mortgage lender wants to to have yet another foreclosure on its books.
You must act quickly. You have a problem and cannot bury your head in sand hoping no one will discover the false information. Disclosure will go a long way toward resolving your problems and relieving your stress.
- Boilerplate -