Mortgage Fraud? (loan, property tax, recourse, approved)

[palmcoasting]

I ask this of the mortgage pros...
I have a customer who is in the foreclosure process that was approached by someone who said they would like to "buy the house". What they have asked the customer to do is sign over the deed, into a trust, then to assign the trust to the 'buyer' which is really a corporation, who will then negotiate a short sale with the bank.
Two contracts were presented...one for the full cost of the loans plus any fees and past dues on the loan and property taxes. Then a 2nd contract for a much lower price. (I'm assuming the second one is to present to the bank). The idea is that the 'buyer' would flip the house once a short sale is approved.
Is that not fraud? Is it not fraud to have two different contracts, one that is shown and one that is not? And isn't it fraudulent to deed the property over without telling the bank holding the mortgage?
Or is this a legit legal thing that investors are now doing?

[renriq02]

depends on the state.

this is also called 'option to buy'.

Most often the bank knows about it, and they work with the bank directly

Originally Posted by palmcoasting

I ask this of the mortgage pros...
I have a customer who is in the foreclosure process that was approached by someone who said they would like to "buy the house". What they have asked the customer to do is sign over the deed, into a trust, then to assign the trust to the 'buyer' which is really a corporation, who will then negotiate a short sale with the bank.
Two contracts were presented...one for the full cost of the loans plus any fees and past dues on the loan and property taxes. Then a 2nd contract for a much lower price. (I'm assuming the second one is to present to the bank). The idea is that the 'buyer' would flip the house once a short sale is approved.
Is that not fraud? Is it not fraud to have two different contracts, one that is shown and one that is not? And isn't it fraudulent to deed the property over without telling the bank holding the mortgage?
Or is this a legit legal thing that investors are now doing?

[Sgoldie]

I don't like the sound of this. This isn't an option to buy.

You and/or your customer need to talk this over with an attorney asap. Keep any paperwork these people give without signing it and if you do find it's illegal (which it sounds like to me) make sure you turn them in to the authorities.

[pghquest]

Originally Posted by palmcoasting

I ask this of the mortgage pros...
I have a customer who is in the foreclosure process that was approached by someone who said they would like to "buy the house". What they have asked the customer to do is sign over the deed, into a trust, then to assign the trust to the 'buyer' which is really a corporation, who will then negotiate a short sale with the bank.
Two contracts were presented...one for the full cost of the loans plus any fees and past dues on the loan and property taxes. Then a 2nd contract for a much lower price. (I'm assuming the second one is to present to the bank). The idea is that the 'buyer' would flip the house once a short sale is approved.
Is that not fraud? Is it not fraud to have two different contracts, one that is shown and one that is not? And isn't it fraudulent to deed the property over without telling the bank holding the mortgage?
Or is this a legit legal thing that investors are now doing?

I've done similar actions for for other reasons.

Under your scenario, when the customer signs over the deed into the trust, it is very likely to trigger a due on sale clause for the mortgage, meaning that the bank would come after your customer for the mortgage. Even if the bank does not get notified of the transfer of the deed into the trust, advise your customer to not do this.

Reason: When your customer signs over the deed, to the trust, they are fine, but the minute they sign over the trust to the "investor", your customer loses all control over the property. While this might be what your customer wants, this does not release the customer from the mortgage obligation. What if the "investor" is not able to negoatiate a short sale? What if they "investor" just rents out the house for as long as they can, and never pays one mortgage payment? Your customers credit is ruined. Even worse, what if the "investor" goes and strips the plumbing, removes all of the doors, windows, cabinets, etc and then lets the bank repo the property? Your customer is on the hook for the mortgage and its your customers credit that would be ruined, without any possible recourse to the "investor" (remember, your customer willfully transferred the title)

Do not sign over the deed to a property ever, without a release from the bank relinquishing you from the liability.

The reason they want to put it in a trust agreement, is so that the "investor" can avoid any liability if they can not negotiate a deal, or if they do something worse. This also would open your customer up to tax liabilities on the transfer of the property from the customer, to the trust, and then again when the trust changes trustees (your customer to the "investor"). Since the property would be in a trustee's hand, your customer would be on the hook for tax liabilities if the "investor" does not pay the transfer taxes, and this tax liability becomes lienable on your customers credit report.

Lets make this even worse... what if that "investor" flips the house, by simply doing a rent to own to some other tenant, and they keep the current mortgage in place, and they do not negotiate a short sale? The trustee can get money down from a tenant, sign the trust over to some tenant, who then may, or may not pay the mortgage (remember, its still in your customers name), and the "investor" runs with the deposit.. Your customer could be on the hook for the term of the mortgage, and not have possession of the property, and very little recourse.

[Sgoldie]

I agree, once the trust signs the property over to this corporation they own the house and can sell it. I'm not sure your present owners would have any recourse to even get the money promised in either of the offers to go towards the mortgage at that point. Your sellers would be on the hook and not own the house anymore. It would be asking the corporation to pay for the house after they already own it.

...[then to assign the trust to the buyer who is really a corporation, who will then (after ownership has already been signed over to them) negotiate a short sale]...

It sounds as if the two contracts were put in there to confuse things. However, that also sounds illegit. A very quick way to tell about these things is to insist that every bit of paperwork including all agreements be run past an attorney before agreeing to them.

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I thought about it some more and the senario could go like this - Owner/occupants put the deed in trust, trust is signed over to corporation, bank doesn't know because title is recorded in trust name, corporation now owns the home and sells it by way of transferring trust to new buyer in a quick flip, corporation has paid nothing for the home and walks with pure profit, this is all done before foreclosure takes place, person who bought the home from corporation is thrown out by bank who has a lien on the home or has to buy it again from the bank this time, owner/occupant's credit is still ruined and they may be an accessory to defraud the bank.

[palmcoasting]

I thought about it some more and the senario could go like this - Owner/occupants put the deed in trust, trust is signed over to corporation, bank doesn't know because title is recorded in trust name, corporation now owns the home and sells it by way of transferring trust to new buyer in a quick flip, corporation has paid nothing for the home and walks with pure profit, this is all done before foreclosure takes place, person who bought the home from corporation is thrown out by bank who has a lien on the home or has to buy it again from the bank this time, owner/occupant's credit is still ruined and they may be an accessory to defraud the bank.

That is the exact senario. That is exactly what is going on. And I do believe you answered my question when you said this: they may be an accessory to defraud the bank. So, it is fraud. They are defrauding the bank. They are building a false senario for the bank in order to get the property at a lower price and taking advantage of people who are in a bad situation (regardless of how they got into that situation) and may not be knowledgable about how to work with the bank or of other alternatives. And I'm quite sure the original homeowner is not aware of the possible consequences because it's put to them as 'everything will be alright, you want out, I'll get you out, nothing is going to happen'.
So. We have two things happening, if I understand this correctly. Fraud against the bank and possible harm to the public. Do I have this right?

[pghquest]

Originally Posted by palmcoasting

That is the exact senario. That is exactly what is going on. And I do believe you answered my question when you said this: they may be an accessory to defraud the bank. So, it is fraud. They are defrauding the bank. They are building a false senario for the bank in order to get the property at a lower price and taking advantage of people who are in a bad situation (regardless of how they got into that situation) and may not be knowledgable about how to work with the bank or of other alternatives. And I'm quite sure the original homeowner is not aware of the possible consequences because it's put to them as 'everything will be alright, you want out, I'll get you out, nothing is going to happen'.
So. We have two things happening, if I understand this correctly. Fraud against the bank and possible harm to the public. Do I have this right?

I'm not so sure that its fraud against the bank, provided the bank and the "corporation" negotiates in good faith to get a short sale. It does however violate the mortgage agreement your customer made with the bank, and it does not relinquish your customer from any liabilities that the "corporation" might create. It also in no way shape or form gets your customer "out".. They are not out until the bank negotiates, and agrees to the short sale, and payment is made.

More then likely the "investor" will not make any payments to the bank, ruining your customers credit, using the non-payment as a negotiating tactic to pressure the bank into taking a smaller payment then they would take.

Out of all of this, how does your customer benefit? Maybe if the "investor" is telling the truth they will be out of a mortgage, and maybe with only a little bit of bruised credit, (i.e. not paying the mortgage for several months), but the worse case scenario offers very little beneift to your customer in the manner presented.

If you were to advise your customer, I would consider offering the "investor" a legal paper, giving them the authority to negotiate a short sale on tyour customers behalf, I would not advise that they turn over the deed to the property. Once they do, they lose any control over what the investor does after they take possession, and they are still on the hook for the mortgage.

Some people think that once a title is taken out of their name, that their obligation is over. Obviously thats not true, its the mortgage that needs removed. You never give up title without the liability being removed at the same time.

[renriq02]

It's not fraud when the owner signs his deed over to someone.
Quit Claim Deeds QCD are very common, and they may have an accelerated clause. The accelerated clause applies to the owner selling it...not the owner receiving it.

If these ppl were unable to read or were of old age, then it maybe against the law. There are only about 13 states that have ban these practices.
You need to read what you sign. If you sign anyway, then there's no recourse if your state doesnt hold these laws.

Recommending a person to an attorney is the best advice.

[pghquest]

Originally Posted by renriq02

It's not fraud when the owner signs his deed over to someone.
Quit Claim Deeds QCD are very common, and they may have an accelerated clause. The accelerated clause applies to the owner selling it...not the owner receiving it.

If these ppl were unable to read or were of old age, then it maybe against the law. There are only about 13 states that have ban these practices.
You need to read what you sign. If you sign anyway, then there's no recourse if your state doesnt hold these laws.

Recommending a person to an attorney is the best advice.

That is my understanding also. I have successfully used these trust agreements for myself, but I use them for very different reasons. I use them when a property I'm buying has building violations, outstanding fines and liabilities on them, but the homes are mortgage free. (I dont want to put work into a home thats then repo'd by a bank). This essentially keeps my name and credit free until I negotiate the debts and fines with the city. Here its a crime, punishable by jail to not pay these fines (I believe it is almost everywhere but I'm not sure), so by putting them under a trust agreement, my name stays out of the way until the debts are negotiated and paid.

I understand why some people would use them to buy property in the manner the OP stated, but the corporation shell is to protect the buyer in the event that the buyer can not negotiate a short sale with the bank, the seller has absolutely no security or recourse after signing over the deed and like you stated, calling a lawyer is advisable.

When a buyer wants to hide under trust agreements and corporations for a home, red flags should go up as to why the shell game is being played.

[Sgoldie]

I couldn't figure out why the corporation wanted to have the deed come to them by way of a trust instead of the normal way and the only thing I could think of was that it makes for a quick sale from them to someone else without triggering any notification to the bank (thus no demand for payment for the house, ie, the acceleration clause is never activated because there is no evidence of a sale as the trust still owns the house even to a subsequent buyer).

I'm much more suspicious than you are. I'm thinking that the corporation with deed in hand by way of transfer of the trust could reassign the trust (deed) to another entity or person for cash without fulfilling either one of the purchase offers since they already own it. The corporation could disolve itself after a quick sale and before or without dealing with the bank at all even with a purchase offer signed by them. The purchase offers merely being presented to make a possible scam look good.

It is already clear that the corporation/buyer is dishonest by proposing two purchase offers, one to be presented and another secret one. It's just a matter of how dishonest they are.

In any case, this is much too complicated to not have an attorney involved every step of the way who knows all the particulars of the deal being proposed including trust transfer and both purchase offers. If not the sellers who get an opinion you must have one that you work with, and please do let us know what they say about this.