There have been some excellent blogs written over the last week about fraud in the Real Estate Industry. Most of them have concentrated on how people in this industry have tried to “De-Fraud” the system. But as we well know, fraudulent activity is not limited to the people who work in the Real Estate Industry, fraud can also come from the clients we deal with. This week I had one of those experiences that I would like to share.
On Wednesday I talk to a borrower who wanted to be Pre-Qualified for a mortgage on a house that he had already found and wanted to purchase. He called me when I was in a meeting, so I returned his call at the first break in the meeting, and I set up a time to talk to him back that afternoon. When I called him back, I started my conversation with him as I always do with everyone I Pre-Qualify. I first try to fine out what they are trying to do. I then try to fine out a little bit about their situation, so that I can start to identify what direction we might be going in. For example are they a first time homebuyer or not? Why are they shopping for a house at this time? And other questions along this line. I then tell them that before we do anything else I need to look at their credit. Once I have the information that I need, I pull their credit, and go over everything on the credit report with them. If their credit is good, I go back to the application, and begin to find out about residency, employment, income, and money in the bank. I take a full application before I tell them whether or not they can qualify for the size loan that they want. I learned very early on in this business that if you don’t get all of the information, you are setting yourself up to be burnt.
Such would have been that case with this Borrower if I had not followed my usual procedure. One of the questions that I ask when pulling credit is if the Borrower is married or not. His response was that he was recently divorced. I pulled his credit and it looked good, I asked him if there were any debts that were not showing up on the credit report besides rent, he responded “No”. I then asked him about his income. He was a Police Officer, and he had a second job that he had for three years as a Dispatcher for the Fire Department. I plugged in the figure he gave me and the ratios looked good, both front and back, for the house he wanted to purchase. At this point I started to take the rest of the information that I needed to complete the application. One of the first things that is asked is do you have any depended children, his answered yes, he had a four year old child. This right away was a “red flag”. I asked him, you are divorced and have a four year old child, do you pay any alimony or child support. At this point he admitted to paying child support, $600+ per month that is directly taken out of his paycheck. All of the sudden the ratios did not look so good, they were much higher than I can do a loan for, even in today’s world of Automated Underwriting Ratios, Ratios, Ratios............Where Art Thou Ratios!!!
At this point I told him that he would not be able to qualify for a loan on this house unless he had other income that I could use. He
proceeded to tell me that he already had a Pre-Qualification from his Credit Union (Police Credit Union), and the only reason why he was talking to me was to see if I could qualify him for a higher amount. I asked him, did he tell the Loan Officer at the Credit Union that he was paying more than $600 per month in child support, he said “No”. I asked him why not? He responded “don’t ask, don’t tell”. I told him, what do you mean “don’t ask, don’t tell”. There is no way he could qualify for this as a conventional loan with the added child support. He then tells me, that he has a Pre-Qualification Letter for the amount he needed to make an offer on this house, and he was going to use it. I told him use it if you want, but you will never get the loan. His response was why not, he wasn’t going to tell anyone else about the child support. I paused, because what I wanted to say was ARE YOU STUPID, but I didn’t. I calmly responded by just reminding him of a little thing he told me, the child support being directly taken out of his paycheck. Ok, so what. Hmmm so what is that as soon as an underwriter looks at the paycheck, you will have a big problem? You will have to explain that deduction. Not to mention that as soon as the Loan Officer at the Credit Union does what he should have done before giving him the Pre-Quall Letter, he will be asked that question. You see there are two places on the Loan Application that ask about “alimony and child support”. The first is on page 3, “Liabilities Section”, and page 4, the “Declaration Section”. It is “Fraud” if you do not answer them honestly. At this point the phone was silent for several seconds, and then he responded, I will cross that bridge when I get to it. I told him well if you want to lie, and waste your time that is your choice, but as for me this is were we say good bye, and I hung up the phone.
His “don’t ask, don’t tell” is going to cost a Realtor valuable time on a Buyer that can’t buy the house. All because this guy, a POLICE OFFICER is being out right dishonest, and because of a Pre-Qualification Letter from a LAZY Loan Officer that did not bother to take the time to ask some very basic questions and do a full 1003. I wanted to call the Realtor and warn her, but I would be divulging information that was given to me in confidence, and that is something I will not do. The truth will come out in the end, but unfortunately only after a good, well meaning Realtor has wasted valuable time that she could have spent on a legitimate Buyer.
The lesson that I learned was that no matter the person’s occupation, dishonest people can come from all walks of life. Always ask all the questions, and follow a proven procedure. Don’t be lazy, and above all be honest and don’t get caught up in the lies!!
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Info about the author:
George Souto is a Loan Officer who can assist you with all your FHA, CHFA, and Conventional mortgage needs in Connecticut. George resides in Middlesex County which includes Middletown, Middlefield, Durham, Cromwell, Portland, Higganum, Haddam, East Haddam, Chester, Deep River, and Essex. George can be contacted at (860) 573-1308 or gsouto@mccuemortgage.com
Somehow I think people don't equate lying with fraud. Sounds like your police office is another one of those people who think The Rules apply to eveyone else but themselves.
How did we get to this point?
George....this is so true. Just a word of advice.... and this is so standard in what I do when I qualify someone. When I am gathering the credit information....I ask 4 questions. Have you ever filed for bankruptcy, had a foreclosure, have alimony, or child support. I ask this everytime, before I even take the application. This has become a ritual for me.
Again.... it's not your fault, but asking this way to early saves some time...sometimes. Again...just like he told you, you didn't ask, I don't tell. Some people use this often. Something that I have realized a long time ago.
ANyhow....everyone has their own way of qualifying people. You need to do what works best for you. But like I said.... I have those 4 questions and 3 others in regards to income, before I even tell them what they can do or even before I take an application.
But a good post in regards to what can happen. And last,,,, I did a different blog.... just to break up these fraud blogs.... needed some new stuff.... lol Famous Quotes from famous people...... Besides...I use some of these in my business work habits.
Buyers forget that when they sign the 1003 (universal residentail loan application) they are affirming that all facts made on it are indeed factual and a resonable representation of their financial status.
The form 1003 clearly asks about alimony or child support.
Oh, by the way, if you refused to answer his questions when being interrogated, he'd charge you for "obstruction of justice" .
It is scary Kristal, especially when it is someone who is supposes to be enforcing the rules.
Bryant, I don't issue a Pre-Quall unless I have taken a full app., because of reasons such as this, how someone can issue one by just looking at credit is beyond me. I really feel for that Realtor who is going to be representing him, and just wasting her time.
People sometimes think they can get way with things, forgetting that some where in to processes the lie is going to be caught, epecially one as easy to catch as this one. Thank you as always for your input.
Jeff, your right by even asking some basic questions first, I might have saved myself the cost of a Credit Report.
By the way I read your blog, I love the quotes, good job.
Brain, even if some how he didn't think that he was attesting to tell the truth on the 1003, it would have been extremely clear once I had him sign the Borrowers Certificate stating that he had told the truth and giving us permission to verify it.
Good point also on your "obstruction of justice" comment.
George... Trust me....there are clients that think they can get away with it.... even if you ask them the question. Byt read them the riot act when doing the application. When they are signing it... say " and as you sign this, you are stating that everything that you have said is the truth ...to your knowledge." When doing an FHA loan, you can point out that there is a $10,000 penalty and imprisonment if there is fraud.... lol
But yes... I drill them a little more in the beginning. ANd yes, I have lost a few deals that way before. I had a woman tell me that I was asking too many more questions than the 3 previous lenders.... LOL Hence the reason why loans fall apart in the middle.
Tony your right. It is ashamed that there are still Loan Officers out there that don't take to time to ask the questions and do it right. The end result is a waste of a lot people’s time.
The Devil is in the details! Your post reminds me how much I appreciate the PROFESSIONAL loan officers I work with, that allow me to focus on my job and not worry about potential "surprises". Congrats on being a class act!
Corrina Westermann www.iknowhomes.com
Flippying Frenzy? Would you trust this source? Does Real Estate Fraud have any hope? you can see he has no morals or ethics in what he does.
By Tony Manolatos / The Detroit News
June 27, 2004
"The FBI and U.S. Attorney's Office used the information to build a nine-count indictment against Marlinga, Warren Realtor Ralph Roberts and state Sen. James Barcia, D-Bay City"
"Federal authorities said that at Roberts' request, Marlinga intervened in the appeal of a convicted rapist, Jeffrey Moldowan, whose sister worked for Roberts, in exchange for the campaign contributions. Roberts and his wife donated $4,000 to Marlinga's campaign."