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Article #141: Did Your Real Estate Agent and Mortgage Company Dupe You Into Committing Loan Fraud?

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Have you ever wondered if your agent and proceeds from the sale. So, they have
loan officer are doing something that you sign a side agreement. The seller
could get you into trouble? supposedly will give you a check after
You should! close for the furnace or have someone
Buying a house is a complicated process replace it after the close.
and many times your lack of insider This happens all the time. The agents
knowledge can get you in hot water. and loan officer involved in the
Shouldn't the agent and loan officer be transaction would sooner cut off their
putting your best interest first? right arm then lose a commission because
Of Course!.....but unfortunately, it does of a faulty furnace. Here is what could
not work out that way. The deal happen to you ,the buyer, when a side
transaction gets put first.....the part agreement goes wrong.
where the agent and loan officer both get 1. The seller never gives you any money
paid. Once the agent and loan officer for the furnace or they give you a check
have started working on a transaction, that bounces.
they don't want anything to get in the 2. The furnace is installed after the
way of the commission when it closes. It close by the seller's choice of
may be in your best interest to get out contractors. Of course they will want to
of the contract and not buy that home but get the cheapest contractor they can find
the agents and loan officers are lazy and because it isn't their house anymore.
don't want to do the right thing. They The furnace get installed incorrectly or
want to do the easy thing. In this case, during installation something else in
the easy thing is fraudulent and your new home gets destroyed and you have
unethical. to pay for that since it is your house
I know while you are out looking at now.
houses you have a million things to think 3. The lender finds out about the side
about. In my experience, the inspection agreement and now calls the note due and
is something that can really be confusing payable.
if you don't know how to handle it. More If running the risk of depending on the
importantly, you will be committing loan seller and the agents for money isn't bad
fraud without the proper counsel. enough, think of it from the lender's
Usually, after you write a contract on a side. They are the ones lending the
home and it has been accepted, you as the money for your new home. They have a
buyer have a home inspection done. The right to know that the collateral is not
inspection is different than the what is represented in the contract.
appraisal. The appraisal is done to Even though the inspection is not a part
establish the value of the home. of the mortgage process, the lender
Appraisers will inspect the home also. doesn't contract to lend on a house that
The appraiser will measure rooms to needs expensive repairs. Not only did
verify square footage and note the you overpay but the lender get cheated
condition of the home while they are in too...it is called loan fraud.
there. If they find any major problems Just because I mention the agents most of
that affect the soundness of the home, the time does not mean the loan officer
they will report that in the appraisal. is off the hook. They are supposed to
The appraisal is submitted with the other protect the lender from any fraud and in
loan documents to the lender. the case of side agreements. What they
Even though the inspection is not a are basically saying to the agents is, "I
requirement for the loan, every buyer don't want to know about what you are
should get an inspection. You as the doing just get it done so we all can get
buyer need to know if the property is in paid". The loan officers are just as
satisfactory condition and therefore guilty as the agents.
worth what you are going to pay for it. The Maine Creditor Update which is the
You also want to make sure the seller newsletter for the Office of Consumer
isn't hiding anything from you. Buying a Credit Regulation has an article in it
house and then having to spend hundreds from its September 2004 issue.
or thousands of dollars fixing things the It states, "Buyers and sellers of
seller didn't want you to know about is residential real estate will sometimes
not the dream of home ownership most agree to "side deals" in which money
people think of. changes hands to cover the cost of needed
So, if the inspection report is not a repairs or defects discovered on the
part of the loan process....how could you property. However, if these adjustments
commit loan fraud? are substantial enough to affect the
If there are problems identified from the value of the residences being used as
inspection the buyers can either decide security for loans to the buyers, and if
they do not want the property in that the side deals are not reflected in the
condition or request the sellers fix the HUD-1 closing statement, then all parties
problems before closing. The agents must to the transactions (including the
have the buyer and seller agree in settlement agents and the real estate
writing on any repairs inside the agents) should carefully review their
contract. Unfortunately, the agents like participation to determine whether legal
to have what is called "side agreements". or ethical principles are being violated.
A side agreement is an agreement that is In any FHA-insured loan, the buyer,
not part of the real estate contract. seller and settlement agent each sign
The contract should be agreed upon by all statements attesting to the accuracy of
parties and should have all information the figures being used. Knowledge of a
true and correct. With a side agreement, substantial side agreement not reflected
there is information that is withheld in the HUD-1 would almost certainly
from some of the people involved in the violate these representations. Maine law
transaction. The lender who is loaning does not contain specific provisions
you the money to buy the home and the prohibiting undocumented side agreements,
title company who is supposed to be the such as the one enacted in Alabama which
gatekeeper for all the documents to states that a real estate agent may lose
transfer title correctly are the one left his or her license for "misrepresenting
out. or failing to disclose...the true terms
Let's say there was a problem with the of a sale of real estate" (Ala. Code,
furnace on the home you were under sec. 34-27-36(a)(21). However, parties
contract to buy. You tell your agent you to Maine transactions should not assume
want the furnace to be replaced because that the absence of a state law here
the inspection report says it is unsafe. means that such deals are permitted on
Your agent already knows the seller does mortgages headed for the secondary
not have the money to fix the furnace market, especially when the loans will be
until after they get the proceeds from held or guaranteed by government or
selling the house. How does your agent quasi-government entities."
know that? Agents talk to each other all If you are going to agree to anything you
the time without you knowing it. Most always do it in writing in the contract.
agents technically work for the seller. That is what contract amendments are for.
That means they share information with Real estate is all about the contract.
the seller's agent all the time. They You can't un-ring a bell. Even though
work together to get the deal done and if the only thing the lender saw was the
it is not in your best interest, then so appraisal and it didn't uncover a faulty
be it. furnace, the problem is now out in the
The seller does not have the money to open and you have to deal with it. You
make the repairs before the close. The are ultimately going to pay for the home
agents will have the you and the seller and keeping a level head about right and
sign a side agreement stating either: wrong is important.
1. the seller will write you a check Do not let anyone talk you into signing a
after the close for the repairs or side agreement. You now know that it is
2. the seller will hire a contractor for not in your best interest and it is
the repairs after the close unethical and fraudulent.
The problem with these side agreements is Tips
they always favor the seller and more 1. Always get your inspection done early.
importantly, they are loan fraud. Make it one of the first things you do
For example, the inspection states the after your contract has been accepted.
furnace needs replacing. Your agent is The agents usually try to push this one
supposed to present the seller's agent until the end because they are already
with a contract amendment stating the afraid something will be wrong and they
seller will have a licensed contractor figure the farther you are down the road,
install a new furnace before closing. the more you will agree to things that
The seller will either agree to that and are not in your best interest. Get it
sign the contract amendment so it becomes done as fast as you can.
part of the contract or not agree to that 2. Don't use the agent's inspection
and you now have a decision to make. Do company or anyone they suggest. Find one
you want to buy a house that it supposed on your own. If you now know that agents
to be in good working order at that price will use side agreements not in your best
when you know now from the inspection it interest, then you also should know that
isn't? they will use inspection companies that
But like we discussed earlier, the agents won't deliver a true picture of the
both know the seller does not have the problems with the home just get the deal
money to pay for the furnace. The agents done.
are looking at losing their commissions Good Luck in your House Hunting!
and the seller is looking at losing the






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