As discussed in part one of this topic, I have started to see disturbing new types of mortgage fraud. I spoke of fraud against borrowers by hiding refinance transactions as loan modifications in part one. Today I want to look at another alarming new fraud. Lenders are often perpetuating mortgage fraud against borrowers by hiding mortgage assumption transactions as loan modifications.
While this is less common than the mortgage fraud I talked about in Part I: The Hidden Refinance, the damages to a borrower are typically far higher.
In this type of mortgage fraud, a lender accepts a new co-borrower, most often the spouse, to an existing mortgage without proper disclosure of risks, annual percentage rates, and costs. The benefits to the lender are immense. The lender knows in advance that most loan modifications fail. By adding the spouse to the likely failed mortgage, the lender can then sue both spouses for a default judgment after the mortgage foreclosures. This prevents one spouse from hiding assets in the other’s name, and provides another party whose wages can be garnished in the default judgment.
Because the spouse is becoming a new borrower, the spouse is required to be provided with appropriate disclosures of risks and costs, and the transaction is regulated by both TILA and RESPA.
The lender is required to provide TILA and RESPA disclosures. In addition, if payments are not being reduced, it should provide a disclosure from the lender that it has special knowledge that this mortgage payment is not affordable to the household and will likely foreclose.
Instead of providing required disclosures, the lender provides the spouse with an inevitable foreclosure because no terms have changed. Adding insult to injury they also provide a summons to court when trying for a default judgment to garnish the spouse’s wages and attempt to seize the spouse’s assets it learned about in the ‘modification’ request.
Mortgage fraud by lenders in the execution of a mortgage loan modification is one of the things I look for in my mortgage forensic audits. I carefully read every document. Not everything is what it is labeled, and the purpose of mislabeling documents is often more complex than a simple mistake when the documents and situation is viewed as a whole.
When I find mortgage fraud by lenders, it provides lawyers I work with yet another tool to provide relief to a troubled home. If you are a lawyer in need of mortgage litigation support or mortgage forensic audits to help your clients, contact me here.