Loan Fraud - Posted by Andre_DC

Posted by JoeS on February 22, 2002 at 07:29:14:

While I am NOT an attorney, I can see that anytime you tell a lender, or sign paperwork stating one thing and quickly do another, it is loan fraud. However, if your intent was to move into the property and then due to a change in your circumstances, you were unable to, and HAD to sell the house, then it would be hard to prove fraud. It is hard to disprove intent. I am not happy that a mtg. broker suggested this to you, we have enough problems in this business without some dope telling you to do the deal that way. I am NOT saying it is ok to do it, just stating to you a real-world scenario. If you have some negative feelings about it, then don’t do it that way. There are a number of good investor programs out there for people with excellent credit, many with 5% down. Ask your broker, or find another broker.

Loan Fraud - Posted by Andre_DC

Posted by Andre_DC on February 21, 2002 at 21:21:40:


I am trying to acquire properties and resell them on land contracts in order to create monthly cash flow.

Naturally, I?d like to acquire these properties with as little money down as possible. Therefore, I talked to a local mortgage broker today to discuss my options. The mortgage broker asked me if I already own any properties whatsoever. I said no, I neither own investment properties nor do I own a property as my own residence (instead, I am renting an apartment).

The mortgage broker then told me that I could apply for a 100% LTV owner-occupied property loan to acquire my first investment property. I told him that I didn?t plan on moving into the property but rather wanted to resell it on a land contract. He said that I wouldn?t have to move into the property and occupy it in order to apply for the 100% LTV OO loan.

I was surprised to hear that and, honestly, I am still a little skeptical about that. I told him that, in order to get the 100% LTV OO loan, the words ?owner occupied? seem to indicate to me that I would, indeed, need to move into the property and occupy it. The mortgage broker replied that this is not true in my situation because I am a renter and not an owner of any properties.

So here are my questions:

  1. Wouldn?t that be loan fraud? Or am I getting paranoid about this?

2 Assuming this is legal though, can I do this for an unlimited number of times? (After all, the incoming payments from the properties would overcompensate my outgoing payments on the loans).

Thanks for your advice,

Ed Garcia - Posted by Neb

Posted by Neb on February 24, 2002 at 22:22:57:

Ed Garcia - What are your thoughts on this matter??

Re: Loan Fraud - Posted by Frank Chin

Posted by Frank Chin on February 23, 2002 at 07:09:20:

Hi Andre_DC:

What you described is not uncommon.

When I started REI, there were no 3% down loans. So either 10% with PMI OO basis, or 30% NOO at one to two points extra PLUS half a percent more. Even with the extra points and higher rates, the banks are not even anxious to do the NOO loans.

So all the mortgage brokers say “get an OO loan”.

I bought a rehab to flip, and the exit stategy was to hold for rental. Bought it for 80K, and sold it for 127.5K, and the mortgage company gave my buyer a loan for 90% LTV, or over 115K.

Well, the buyer claims he lost his job one week before closing, and I had to get my own mortgage to close.

I was working with the bank that my broker (Century 21) guy was working with. He knew eveyone at the bank, including the VP, loan processeor, and explained that my paperwork is going in. Now the same the bank had all the paperwork, i.e., the contract showing me as the (flipper) assignor on the contract, and knew I was the investor.

I was told to put in for a 90% OO loan. As I purchased it for 80K, that means they’re looking at 8K down, and a loan of 72K. I said “wait, I’m not going to live there.”

The Century 21 guy said “they alreay know that.” I said, since they’re giving the buyer a 115K loan already based on the appraisal, why don’t they give me a 72K NOO loan based on the 130K appraisal (MUCH more than 30% down), I’ll pay the extra points, PLUS the one half percent more.

The Century 21 guy said “let me talk to them”.

He got back to me and said “they don’t want the extra point, and they don’t want the higher rate, they want to do it on an OO bases, because since now you’re the buyer, your contract is 80K, not 127K like the other. If you’re not comfortable, just move there!”

Talked to my wife about moving there. That means her one hour 15 minute commute is going to be two hours, she said “NO WAY”.

So I went ahead with the OO loan. I was told “if your squeamish about it, wait a year, and put it in as a NOO loan”. Well, seven years later, when interest rates fell from 13%, to 7%, it was refied to a NOO loan.

Times are a little different now. Its a lot easier to get NOO loans. But around here, they still make a face when an NOO loan is mentioned, “oh you want one of THOSE”.

Frank Chin

Loan Fraud/Lying - Posted by jim

Posted by jim on February 22, 2002 at 21:28:38:

Yes, this is creative real estate and creative financing, but not creative lying. I do not know whether this is illegal, but then again most attorneys and judges might not know either. Slick Willie did not know the definition of “is”; I believe this falls under the same catagory.

In 1987, I purchased a house for rental. I said on the mortgage application that I was going to live there as I was told to by my mortgage broker. After settlement, I made mortgage payments religiously. Shortly thereafter, there was a mixup on mortgage payments and escrow, so the bank contacted me. They were surprised to find that I was not living there. (I would not let my cat live in that neighborhood.) The next day, the vice-president of the bank (a small local bank with four offices) contacted me and demanded the loan due and payable in full immediately because I did not reside in the property as the loan called for. I told him the truth (for once), that is, when I settled on the property it was uninhabitable and needed work. The banker shot back, “did you attempt to sue the builder (rehabber)?” I said “did you read the contract of sale; it says ‘as is’?!!” I said that I could not do the work because of lack of time and knowledge so I got a carpenter to live there and work on it. He mumbled and grumbled something and that was the last I heard from him.

Things have changed a lot since 1987. When I applied for that loan I was self-employed. I had no W-2’s or 1099’s, no savings, investment accounts or life insurance, no IRA, 401k, or pension plan whatsoever. I did have a house of my own, which I had been paying on for seven years. They asked for my tax returns. I stalled and stalled and gave them nothing. They approved the loan. Times like those are no more, killed by the great savings and loan crisis of the late 80’s. Whether a bank would react the same way today is hard to say; it is a chance I would not want to take. After all, they ask you this question because the risk is higher for investment property; that is why the interest rates are slightly higher. In my opinion, each bank would react differently and the important event that determines their reaction is what side of the bed the banker woke up on.

Re: Loan Fraud - Posted by Alan

Posted by Alan on February 22, 2002 at 11:56:09:

I have done this.

It is perfectly legal, as long as when you sign the papers you INTEND to move in. You may need to clean the place up a bit so you can move in for that. You can still keep your apartment, several people have two residences. But then Hey! somebody just offered you money for it, so sell it to them. Move out.

If an appraiser is gong to come over - have a matress on the floor, clothes in the closet, food in the cupboards, a broken TV in the living room…

After all it is creative financing, right?

You could get a loan with out intending to move in, but the interest rates will be higher. So your cash flow less. It is all about terms. Get the lowest interest rate, lowest monthly payment possible.

Good luck