I was just reading an article about how Mortgage Fraud is now a specific crime in Missouri, but couldn’t help but think to myself whether or not this law goes far enough. While I haven’t read the law itself, a $2,500 fine and/or jail is just not going to cut it. The loans must still be written off by the lenders, and of course, what happens is the banks eat up the cost, and the general public funds the bailout.

We’ve been bailing out banks due to the housing bubble for months now, and funding the crimes of those people who engaged in mortgage fraud and who in the end, couldn’t afford, or simply didn’t want to pay their mortgage anymore. I was thinking about all of this and came up with an innovative idea that would likely stop 90% of future mortgage fraud. Is it something that would ever go into law — not a chance — but if it did, it could change the fate of lenders and could prevent the average citizen from having to pay for the stupidity of others.

A Thought Experiment to Create a Law that Properly Punishes Mortgage Fraud

Those people who specifically committed this crime should NOT be let off the hook for the rest of us to pay. I believe that the law should mandate some kind of recourse beyond simply imposing a fine and/or jail. Frankly, I think the law is extremely weak. While it may have some teeth when dealing with real estate professionals who endorse such crimes, if the law looked deep enough, it would actually hold people responsible for their default.

Why not write a law that requires people who commit mortgage fraud and who default on their loan, to be responsible for a long-term payback of that loan?

If they couldn’t afford the loan in the first place, you’re asking how exactly they’d be expected to pay it back, right?

Why not add the ability for banks to garnish wages for people who commit mortgage fraud?

Actually, we can take it even further and also garnish the wages of those professionals who allowed or encouraged you to commit this fraud. Basically, you put the professionals on the line for the money in addition to the guy who directly engaged in the fraud . . . that would be a deterrent, wouldn’t it!

Landlords can go after renters who stop paying the rent and owe them money, with a garnishment. Why shouldn’t the banks or the federal government be able to go after the money that were screwed out of by the lying consumers/professionals?

While they may not be able to recover all of the money that was lost due to this mortgage fraud, at least they’d continue to bring in funds, ad-infinatum, from the guy who committed the crime and the “professional” who allowed it to happen.

Not only would this act as a deterrent from committing mortgage fraud, but it would also place a big red flag on someone’s credit saying that they are now paying off a loan that they lied to get. Essentially, the law could create a scarlet letter. Any future lender would then know to scrutinize your application EXTREMELY closely before giving you the benefit of a doubt and loaning you any money.

Wrap Up
Would such a law ever come to pass . . . I think it is extremely unlikely. But, if it were to, I believe we would see the virtual end of mortgage fraud as we currently know it!

Any thoughts on this little thought experiment about dealing with Mortgage Fraud?

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Tags: foreclosure, loan fraud, mortgage-fraud, real estate, Real Estate Fraud

Last week I wrote an article about “Lucky”, the wanna-be real estate tycoon (article). The article was meant to be a tongue-in-cheek story, yet many people took it seriously. The fictional character “Lucky” was a composite of many people that I have met over the years. He was portrayed as someone who wanted to get rich quick, yet was too lazy to work for it. He kept looking for short cuts and was certain that getting rich in real estate was easy if only he could get someone to reveal the secret formula.

There are many companies out there that prey on these people. They offer a free seminar that is nothing more than a sales pitch. They look to sell books, tapes, sales courses, boot camps and mentoring programs. They hold themselves out to be experts in the field of real estate investing. What they really are is experts in marketing. When someone buys a program the company is generally looking to upsell them, or get them to buy additional programs.

While there are a lot of trainers who have something valuable to offer, many of these “gurus” have little or no investment experience. The company may target those who are looking for easy money, but regular people get caught as well. People who are legitimately trying to learn something can easily get burned. My character, Lucky, was shown as someone who couldn’t make it as an investor yet claimed to be an expert who could teach others.

The Not So “Lucky” Ones

Like many works of fiction, the story of Lucky does have a factual basis. I know of a couple who got burned by a “Lucky” type guru. They were hard working people who wanted to invest for their future. They had done well on their own home and wanted to try their hand at investing in real estate. The market was flying but they didn’t know where to begin. They wound up going to a “free” seminar where they ended up enrolling in a boot camp program. While they did learn a lot, they were still uncertain. At the boot camp they were convinced to sign up for the mentoring program. It was a lot of money but they were assured that they could make it back on one deal.

This couple was looking to invest in the Las Vegas real estate market when it was very close to the peak. Their so-called mentor coached them through the purchase of a house at a price that wasn’t any better than what they could have done on their own. The idea was to use the property as a rental while they waited for the inevitable appreciation. The rent didn’t come close to paying the mortgage let alone the other costs involved. They were almost $500 in the red every month. They were told not to worry because they would make all of this back and more.

The Sad End

Unfortunately the ending to this story is all too common. The real estate market collapsed and the house dropped to a price that was significantly less than the mortgage balance. They couldn’t keep up with the payments and let the property go into foreclosure. They lost the almost $20,000 for the training and mentoring program as well as the down payment on the house and two years of negative cash flow. The total loss was almost $100,000. To make it worse, a lot of the money had come from a home equity loan on their personal residence.

It turned out that they had no legal recourse because there was no fraud involved. They just followed bad advice from someone that was supposed to be an expert. They were not looking to get rich quick, they just wanted a better life. They were well aware that they didn’t have the proper knowledge and tried to acquire it. Unfortunately they just trusted the wrong person.

Do Your Homework

Before engaging the services of a mentor or enrolling in some course or boot camp, do your homework. Has the person you are looking to learn from actually been a successful investor? Have you checked references before turning over your hard-earned cash? Ask the hard questions and verify the answers. Be careful because “Lucky” is out there.

Tags: gurus, Learn Real Estate, real estate, Real Estate Fraud, real estate guru, real estate investing, real-estate-scam, training