Mortgage Fraud Alert – Builder Bailout Schemes
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As foreclosures are on the rise throughout the nation builder bailout schemes are being used by homebuilders and developers to try and offset losses and get around excessive debt and the possibility of bankruptcy. In distressed housing market builder bailout schemes are common. They typically consist of homebuilders offering incentives to buyers, which are not disclosed on the mortgage loan documents. Builder bailout schemes often occur when a developer or builder experiences difficulty selling their inventory and uses fraudulent means to get the job done. For example: A builder wishes to sell a home for $160,000. He inflates the value of the home to $200,000 and proceeds to find a buyer. The buyer goes to the bank and acquires a home loan for 80% of the $200,000, which is $160,000 believing that there is $40,000 in equity in the home. However, the lender is actually funding 100% of the home’s value. The builder acquires the $160,000 from the sale of the home, pays off his building costs, forgives the buyer’s $40,000 down payment, and keeps any profits. If the buyer falls on hard times and the home enters foreclosure, the lender has no equity in the home and must pay foreclosure expenses. Essentially, the bank is being tricked into financing the home 100 percent instead of the 80 percent. |
