There are lies and there are damn lies. Lies like the little white ones borrowers sometimes utter to improve their incomes just enough to qualify, or perhaps qualify for a better rate. And there are the whoppers some agents tell to, well, fleece unsuspecting clients.
Take the case of a Hazleton, Pennsylvania, agent who was sentenced to more than four years in a federal prison earlier this month because he bilked homebuyers out of thousands through bogus property sales.
Ignacio Beato, 47, pleaded guilty in May to charges that from December 2013 through March 2015, he conspired to accept $751,000 from people who wanted to purchase homes. He told the unsuspecting borrowers he was authorized to sell vacant and foreclosed properties in Hazleton.
Beato and his co-conspirators signed fraudulent sales contracts with prospects from numerous states, some of whom were not aware of the fraud until they received eviction notices to vacate the houses they thought they had purchased on the up-and-up.
After he serves 51 months, the criminal agent must undergo a period of supervised release. He has already forfeited $35,000 that was seized from his bank accounts, and he must pay $65,000 more in restitution. $100,000 is a relatively low amount, but some buyers could not be found and others are seeking to recoup their loses in court.
Eight victims, mostly Spanish-speaking first-time buyers, are going against the disgraced agent. Their suit also targets the companies he worked for during his crime spree: Weichert Realtors-Trademark in Shavertown, Pennsylvania; Poggi Realtors in Forty Fort, Pennsylvania.; Home Services of America and Berkshire Hathaway Home Services, both of Minneapolis, and the Greater Hazleton Association of Realtors.
To be fair here, the vast majority of real estate agents would never involve themselves in such fraudulent shenanigans. Most are honest, hardworking souls who offer excellent service and advice.
But some either knowingly look the other way or perhaps encourage clients to tell a falsehood or two on their mortgage applications. Say, for example, that they earn “X” every year when they really only make “Y”. Or that they are gonna occupy the house when they really are not.
These are the little white lies people sometimes tell. No harm, no foul, they believe. If they actually make their payments regularly, nobody will ever be the wiser. If they are caught and their homes have gone up in value, well, the lender still makes out.
But if these borrowers fail along the way, their prevarications will probably become known. And with the number of loans lenders are being forced to re-purchase from investors because something in the loan file sent up a red flag, there’s a strong possibility their false statements will rise to the top as lenders start searching for culprits.
In case you never noticed, it is a federal crime to lie on a application for financing. Says so right their on the bottom of the first page. It’s not known how many people have been prosecuted for telling a white lie or two. It’s probably not many, if any at all. But there’s always the chance. The question is, do you want to take that chance?
Apparently, more people are willing to these days, either on their own or guided by an agent without scruples. According to the latest fraud report from CoreLogic, the overall fraud risk to lenders increased by almost 17 percent year-over year, and is now at its highest level since the analytics and data company created the index in 2010.
In historical terms, fraud is still relatively small, thanks to tighter underwriting standards since the mortgage meltdown. But although loan application volumes are now lower, the number of applications with some kind of fraud is higher than a year ago.
CoreLogic estimates than more than 13,000 applications had indications of fraud just in the second quarter alone. Overall, one out of every 122 loan applications raise a red flag, up from one in 143 a year ago.
Occupancy fraud is definitely on the upswing. That’s when the applicant tells the lender he intends to live in the property he’s buying when he’s really not. Usually, the lie is an attempt to gain a lower rate for owner-occupants than lenders charge investors. This type of fraud is up by 7 percent, according to CoreLogic.
Transaction fraud, which covers straw buyers and falsified down payments, is up almost 4 percent, and income fraud, a ruse used by buyers to purchase a more expensive house than they otherwise could, increased 3.5 percent.
According to Bridget Berg, CoreLogic senior director of fraud solutions strategy, there are two main drivers of why the fraud risk increased in the past year:
- A continued increase in purchase transactions. There’s just no need to lie when refinancing,
- More loans are coming to investors through wholesale channels. The loans these channels produce have historically shown higher levels of fraud.
The point is, if you know someone is fibbing on his or her mortgage application and allow it to happen, you are contributing to the fraud. And if you are not part of the solution, you are part of the problem.
Finally, let me tell you about another fraudulent scheme that made the rounds in Florida this year, and it hits close to home. In March, members of the Florida Realtors, the state Realtor association for the Sunshine State, received “Final Notice” bills from the “Florida Board of Realtors.”
Of course, the Florida Board of Realtors does not exist. But the invoice seemed real, and it came with this threat: “Failure to respond with your 2017 Agent Board Listing may lead to closure of board listing. Response required to be included in the Agency listing.”
No word on how many members paid dues to the wrong outfit. At last report, the authorities are investigating.
Lew Sichelman’s weekly column, “The Housing Scene,” is syndicated to newspapers throughout the country.