By Blackwell M. Brogden, Jr.
Deputy Legal Counsel
Most real estate brokers and salesmen, especially those who specialize
in the sale of residential property, will inevitably be confronted with a prospective
purchaser who, for one reason or another, does not quite qualify for the financing
necessary to purchase a home. The temptation at that point is to lapse into the so-called
"little white lie syndrome" by presenting to the lender incomplete or incorrect
information concerning the property or the terms of the sale. Or by suggesting "gift
letters" to convince the lender that the purchaser/ borrower has or will have
sufficient cash funds to close the transaction. Or perhaps suggesting to the purchasers
that they not disclose to the lender certain financial obligations which could adversely
affect their expense to income qualifying ratio.
Those agents who yield to this temptation are often otherwise self-respecting, law-abiding
citizens who do not equate their actions with violating the law and who attempt to
rationalize their actions in an effort to salve their guilty consciences. But the dividing
line separating the facts from the fantasies of loan fraud is crystal clear as indicated
by the following list:
1. FANTASY: What I'm doing isn't loan fraud.
FACT: Violation of federal laws governing lending practices requires only that you
knowingly make a false statement or a false report, or that you willfully overvalue any
land, property, or security for the purposes of obtaining credit from protected
institutions and authorities.
2. FANTASY: No one cares about it.
FACT: Federal auditors are required to report any evidence of fraudulent loan transactions
to the appropriate law enforcement authorities. Even if the loan has been paid back or the
transaction rescinded or discovered before credit was extended, the violation will still
be reported.
3. FANTASY: No one is hurt by loan fraud. It's just the bank's money.
FACT: Loans predicated upon inadequate security and/or uncreditworthy borrowers endanger
the financial soundness of the monetary and banking system. Many of the recent failures of
financial institutions in the United States can be attributed directly to fraudulent loan
transactions. Although these failures have usually resulted from a substantial pattern of
fraud, nevertheless the pattern has been composed of many individual transactions. In the
final analysis, the victims of the crime are the financial institutions' depositors and
the taxpayers.
4. FANTASY: Everyone does it, so it must be O.K.;
FACT: Violating United States Code provision, Title 18, Section 1014, is a criminal
offense punishable by two years' imprisonment or a $5,000 fine or both. Furthermore,
engaging in a fraudulent real estate transaction or criminal conviction for this type of
offense is grounds for the suspension or revocation of your real estate license