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Mortgage Fraud, Material Facts and More from this Year's CE

June 9th, 2009 Listed Under: Everything Else

Charlotte NC

Real Estate Brokers Educated, Consumers Protected, Through Continuing Realtor Education

ReD QuestionWhat would you say if you went to see a new home, you liked the home, and the sales agent said that they would refund $50,000 two weeks after the sale of the house- a rebate for buying, what a great deal, they would even write it down and put it in a separate contract, would you take it?  Or suppose you were selling your home, and you weren’t asked so you didn’t mention you’d had an addition put on without a permit, what’s the harm in that, no one asked you, right?

In the first case, that’s called mortgage fraud, and in the 2nd, it is a willful concealment of a material fact, you (the Seller)  just left your self wide open to a law suit, and the Listing Agent, who could have and should have asked, is probably liable as well, and may be disciplined by the Commission.

Each year, we real estate agents have to take a 4 hour mandatory continuing education class and a 4 hour elective, this year I took on a full day with Sandy Williams of the JY Monk Real Estate schools and it was a treat … Sandy wound us through an intricate trail that included a new look at Material Facts- what are they, and how to recognize them, and on to a course in predatory lending and mortgage fraud moved forward by her thought provoking stories and discussion format.

So What is a Material Fact?

The big facts are easy…the proposed highway, Wal-mart going up across the street… but the definition is broad, it is “Anything that could affect the value of a property or its marketability“– so that would include a short sale or foreclosure status, but also un-permitted additions, streets maintained by the HOA and not the city, trash pickup and more.

What’s more, material facts have to be shared with all parties, not just the principals, and they have to be shared even if you believe that a reasonable person  should know it- it is not enough to say, “Well any person (idiot, Agent, Buyer etc) would know that.”

Why are Material Facts important for Agents to know?  Simple, settled real estate law states, “no matter who the Agent represents material facts must be disclosed to all parties”… and “a real estate agent who intentionally or unintentionally gives a purchaser incorrect or incomplete information may be held liable for such statements even though the source of the incorrect information was the Seller or another Broker, and even though the purchaser could have verified the information himself.  Further, a Seller and his Agent have an affirmative duty to disclose any latent defects about which they are aware, or should be aware.

That is quite a broad outline of responsibility, and you can see the toughness of the Agency law. It certainly removes most Agent defenses, it removes all of the “I didn’t ask, they didn’t tell ” excuse and sets a high barrier to the “I didn’t know” defense.  Agents beware,  when in doubt, investigate, ask questions and disclose. Check for the handful of exceptions with the commission, or your handbooks, but if it might scare a Buyer off, it is probably a material fact! Buyer Agents, we have an even higher responsibility to our clients.

For Consumers, full disclosure is a real benefit, and one way the industry has cleaned itself up   over the last 30 years.

The increasing movement to full disclosure, and holding Agents/Brokers and Sellers accountable when they don’t, has shined a bright light on the industry, and made it a safer place for consumers, and a better place to work.

Disclosure, and the advent of Buyer Agency, which demands full representation and fiduciary responsibilities to the Buyer, are quite possibly the two most important changes to the way real estate has been historically done in the US… changes for the better.

Mortgage Fraud

Mortgage fraud went up 1,014% from 1996,  to 2006 according to HUD… and the course broke these cases down into 2 categories, those that were helping buyers get into a house, and those designed to defraud the banks for profit.  Both were fueled by greed, and consumers and banks were left totally un-protected by government officials…  the barn doors were left swung wide open by  the Fed’s and local authorities.

Some examples of mortgage fraud  include:

Not disclosing other owned property

Stating the intent to live in a property as owner occupied when actually intending to rent it out

Cash is paid to the Seller, or Buyer, outside of the escrow arrangement, and Not recorded on the HUD-1.

A difference exists between the price paid on the contract, and the price on the HUD-1.

The Buyer is required to use a specific lender

The sale is subject to the Seller acquiring title

Mortgage fraud comes in many forms, and today there are multiple parties investigating around the country, the FBI, HUD and some state agencies. If someone says, “We wouldn’t want the Lender to know about this…” That’s fraud! My simple advice? “Don’t do it.”  Jail is not good. The only upside of this down market is that without the flush of business, fraud will go down dramatically, and many of the worst elements will return to selling home improvements on credit to poor people or credit cards to teenagers.

Next up, Putting Character Into the Transaction, the Agent’s role.  A good title Sandy shared… thanks for the good day Sandy!


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Skilled Buyer Agents and Smart Buyers Make Great Deals Happen! We are skilled!  First time home Buyers? Yes, we help first home buyers with a special offer… and we also help buyers secure million dollar foreclosures as well! Call Terry at  The McDonald Team, 704-351-1519.  See more information and search for homes in SouthparkMatthewsFort Mill,  or Sun City Carolina Lakes.

Terry McDonald
I'm the owner/team leader of The McDonald Group at Wilkinson and Associates ERA Powered real estate brokers here in Charlotte NC. A transplanted Washinghtonian, my family and I came from the NYC area in 1993.
Terry McDonald
Terry McDonald

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Wilkinson and Associates ERA Powered
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Terry McDonald [email protected]   704-351-1519

Bobby McDonald [email protected] 704-351-1519