Mortgage news that matters

First, let me say that Seller Paid Concessions are not the problem. They are a legal tool to help facilitate the financing of a home. However, if used improperly, you might be closer then you think...or want to believe.

The way that you structure Seller Paid Concessions might be considered an attempt to defraud the lender and artificially inflate the value of the property. I'm sure that most of you (us) have had the opportunity to seal the deal by getting a seller to agree to cover the allowable seller paid concessions in order to close on a home. This happens every day. It is legal, or it wouldn't be allowed. It is done by Realtors and Mortgage Brokers. It is in the guidelines of most lenders, including FannieMae and the FHA.

However, if you are increasing the sales price above what it has been listed for, you are treading on thin ice and had better be careful. Especially if it has been on the market for several months with price reductions and no offers. Here's why.

I attended a Fraud class last year as part of my continuing education in Oregon. The instructor was Richard Hagar, SRA. While he spoke on a lot during the 6 hour class, a HOT topic was the 3-6% seller paid concessions allowed by many lenders. 90% of the class was loan officers and it got ugly. Why? Because we were all guilty AND we had been led to believe that what we were doing was ok by our lenders. What he said upset most of us, and we doubted him, until the Asst. Attorney General for Oregon, Tim Spencer, got up and confirmed what he said.

Fraud can be defined in the Real Estate transaction as the "failure to disclose....anything" This goes for options, fees, rates, problems with the property... It revolves around the intent of the involved parties. It can be a State of Federal crime.

Here's where it gets ugly. If the money crosses a state line it becomes a Federal offense. This means if the lender is based in another state, if the underwriting is done in another state, if the funds come from another state... it has crossed state lines. My guess is that 90% of all transactions fall under the jurisdiction of the FBI, not just our State government.

The FBI is using the Rico Act, Title 18, US Code, Sections 1956 to enforce this. This is the statute that covers Laundering of monetary instruments. (i) to conceal or disguise the nature, the location, the source, the ownership, or the control of the proceeds. RICO was used by the Feds to bring down the mob in the 1930's and they are using it today to clean up the real estate industry.

An aspect of RICO deals with Layered Transactions. This is when layers are added on top of the list price to cover:
Down Payments
Loan Fees
Increased commissions for the agent
Cash to the buyer before and/or after closing

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Larry Morris is a loan Officer with Equipoint Financial Network in Newberg, Oregon. He specializes in relocations and Sherwood, Oregon neighborhoods and Yamhill COunty. He can be reached at larry.morris@equipoint.com . His website is www.PDX-Mortgage.com. This material is copy protected 2007 by Larry Morris, Mortgage News that Matters. All Rights Reserved His opinions do not necessarily represent the views of Equipoint Financial Network.

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