In Ohio, as in many other states, mortgage fraud schemes are prevalent, especially in today’s world of distant lending and mortgage brokering practices.

Q:       What is mortgage fraud?

A:        Mortgage fraud can include many different schemes such as falsifying loan applications, using straw buyers (having an individual complete a transaction for someone who may not qualify for a loan or is barred from entering into the loan), making false or inflated appraisals, accepting kickbacks and using fictitious identities.

            One type of mortgage fraud is called “fraud for housing, or “fraud for property,” and is typically committed by borrowers. In this type of fraud scheme, a borrower may provide false information about employment, income or assets in order to qualify for a loan. For example, a borrower may fabricate income or falsify assets in mortgage application documents in order to qualify for a larger loan than he or she can afford.

            The second area of mortgage fraud is called “fraud for profit.” Sometimes known as industry insider fraud, this is the most common type of mortgage fraud. These schemes are often more intricate and involve a group of people, each of whom plays a different role. 

Q:       Who is typically involved in mortgage fraud schemes?

A:        According to fbi.gov, industry insiders are estimated to be involved in 80 percent of all reported mortgage fraud cases. Most “fraud for profit” is initiated by a seller, lender, real estate broker or closing agent (or all of them acting together). For example, mortgage brokers may partner with a loan processer or collude with an appraiser to inflate a property’s value. Appraisers may also play a part in fraud for profit, either by being gullible or bribable. Appraisers may expect to receive a kickback or even simply a steady stream of business. 

            Typically borrowers are unaware of “for profit” schemes, although they can be involved.  For example, a borrower may “flip” or help “flop” a piece of real estate or launder money. As long as the borrower is walking away with some sort of profit fraudulently obtained, the borrower may potentially be prosecuted for aiding and abetting a fraud.

Q:       How do incidents of mortgage fraud typically get investigated?

A:        Mortgage fraud investigations are generally conducted after government investigators become aware of mortgage fraud after analyzing Suspicious Activity Reports (SARs). SARs are filed by federally insured financial institutions, many of which are uncovered and reported during foreclosure proceedings.  Most mortgage fraud investigations (once triggered by the filed SARs) are investigated by both state and federal authorities who use shared efforts such as multi-jurisdictional task forces.

Q:       What happens if someone is convicted of mortgage fraud?

A:        Federally and in Ohio, mortgage fraud crimes are prosecuted under a variety of statutes (there is no specific mortgage fraud criminal statute per se). Federal prosecutors may look to bank fraud, money laundering, wire fraud or falsification statutes, while state prosecutors may look to various theft offenses.  The economic loss or damage is determined through the culmination of the loan transaction and can quickly climb into the millions of dollars. Determining sentencing for someone associated with mortgage fraud takes into account monetary loss as well as the wrongdoer’s criminal history.

            Fraud for housing is rarely prosecuted. Instead, a borrower who used fraudulent methods to obtain a loan is penalized by losing the home and becoming a subprime borrower for the next four to seven years.

Q:       If I believe I may have information regarding a mortgage fraud scheme, or have questions about a certain transaction, what should I do?

A:        Speak with an attorney who practices in this area. An attorney will likely investigate to learn the details of the transaction and determine the best way for you to proceed. If your participation was not intentional, your attorney will assist you in separating yourself and your actions from those responsible for the scheme. If you are a professional (for example, a real estate agent), then your lawyer may engage an expert to show that you acted within your profession’s standards.

This “Law You Can Use” consumer information column was provided by the Ohio State Bar Association. It was prepared by Columbus attorney Karl H. Schneider, a partner of Maguire & Schneider, LLP. Articles appearing in this column are intended to provide broad, general information about the law. Before applying this information to a specific legal problem, readers are urged to seek advice from an attorney.

Q:       What are liens and encumbrances? Are they different?

A:        An encumbrance is a claim, liability, or other right that is attached to real property and may lessen its value. A lien is simply a type of encumbrance that can be satisfied with the payment of money. 

A good example of a lien is a mortgage lien. As long as you have a mortgage, the mortgage lender has a lien against your property. If you don’t pay your mortgage on time, the lender can foreclose on your property. However, once you pay your lender all the money you owe under the mortgage, the mortgage is satisfied and no longer affects title to your real property. Another type of lien that may affect your property is a mechanic’s lien. If, for example, you own a home and hired a contractor to do work, but failed to pay for it, the contractor may put a mechanic’s lien on your property which, for practical purposes, will force you to pay for the work before you can sell or refinance your home.  

There are other types of encumbrances that are not liens because they cannot be satisfied by paying money and generally stick with the property for a number of years, or even perpetually. The most common example of such an encumbrance is an easement. Utility companies generally will have perpetual easements along the front, side, or rear of your real property so they can install and maintain various utilities to service the neighborhood. Also, if you have leased your property, the lease constitutes an encumbrance that will last for the number of years stated in the lease.
 

Q:       What are the most common types of liens and encumbrances affecting residential real estate?

A:        All residential real estate is subject to a real estate tax, the most common type of lien. A mortgage is also a very common lien, since most homeowners buy their homes through mortgage financing. Utility easements are very common encumbrances. Finally, homes located within a planned development are usually subject to another common encumbrance, which is a declaration or other document that includes the restrictions, rules and regulations governing the use of the real estate.

Q:       What should I know about liens and encumbrances before signing on the dotted line?

A:         You should review and understand the specific liens and encumbrances which will affect title to your real property. This is especially true if your property is subject to a declaration or other rules and regulations of a homeowners’ association. You need to know, for example, if there are restrictions on how many pets you can have and how big the pets can be, or if you are allowed to put in a fence and what type of fence it can be, and whether or not you can paint your house a certain color or put a shed in the backyard. All of these matters are usually addressed in the declaration and affect the way you can use your home. It’s best to know what the issues are before buying a home. 

Q:       When I buy a home, how can I protect myself against liens and encumbrances that may my hurt my home’s value?  

A:         You should obtain title insurance. In Ohio, the seller usually pays for this. The title insurance commitment shows you what liens and encumbrances will affect title to the real property after closing, and lets you know if, for example, the property is subject to a mechanic’s lien that the seller should pay before closing. 

Q:       I recently put a chain link fence around my property, and my homeowners’ association said that this type of fence is not allowed and must be taken down. The declaration does say that I cannot install a chain link fence, but do I have to abide by this rule, and is there any way to change it?  

A:        Unless the rule is arbitrary, discriminatory or against public policy, you must abide by all of the declaration’s rules and regulations. If the rules do not specifically address declaration amendments, it may be possible to change the terms of a declaration, but only if a large percentage (at least 75 percent) of homeowners in the development approve the change. Because it is usually very difficult to get such approval, it is especially important for you to review the governing declarations before you buy the home.

This “Law You Can Use” consumer legal information column was provided by the Ohio State Bar Association. It was prepared by Columbus attorney Ryan P. Aiello of Dinsmore & Shohl LLP. Articles appearing in this column are intended to provide broad, general information about the law. Before applying this information to a specific legal problem, readers are urged to seek advice from an attorney.

Generally, you can finance a home through a conventional mortgage, a government-guaranteed mortgage, or through seller financing.  This article focuses on residential financing through the use of conventional mortgages and government-guaranteed mortgages.

Q:       What is a conventional mortgage, and how can I get one to finance my home?

A:        A conventional mortgage is a loan that a lender (such as a bank or a mortgage company) makes to a buyer. A conventional mortgage generally follows guidelines set by Fannie Mae or Freddie Mac, two mortgage associations that the U.S. government originally created to raise home ownership levels. Although created by the government, Fannie Mae and Freddie Mac do not guarantee home loans (unlike VA and FHA loans, which the government guarantees). When shopping for a conventional mortgage, you will compare interest rates and terms. Most conventional mortgages have fixed or adjustable interest rates. Typical fixed-rate loans have a term of 15 or 30 years. A shorter-term loan generally carries a lower interest rate. Adjustable-rate mortgages (ARMs) fluctuate, so your monthly payments can go up or down according to the rate of a standard financial index. Before agreeing to give you a conventional mortgage, the lender will review your financial history, income and credit score. Generally, you will need an excellent credit score to qualify for a conventional mortgage with a good interest rate. The standard down payment for a conventional loan is currently 20 percent of the purchase price.

Q:       What are the benefits of getting a conventional mortgage?

A:        Typically, conventional mortgage loans are less expensive over the life of the loan than government-guaranteed loans. 

Q:       What are the drawbacks of a conventional mortgage?

A:        Some borrowers have difficulty qualifying for a conventional mortgage because they cannot meet credit score or other documentation requirements.

  

Q:       What is a government-guaranteed loan, and might I qualify for one?

A:        Government mortgages are guaranteed either by the Federal Housing Administration (FHA) or the U.S. Department of Veterans Affairs (VA). This means that the government guarantees that the value of the home will be high enough to repay the lender in the event of foreclosure.  To qualify for a government loan, you must meet the requirements of the loan program you choose.  VA loans are for military veterans.  FHA loans are typically for first- time home buyers and have income limitations.

Q:       What are the benefits of getting a government-guaranteed loan?

A:        There are two primary benefits. Initially, and for many new home buyers, the most important benefit is that the lender will loan you a much higher percentage of the purchase price. FHA and VA loans typically cover nearly 100 percent of the loan as compared to the home’s value, while a standard mortgage covers no more than 80 percent of this “loan-to-value” ratio. Secondly, a government program generally doesn’t require as high a credit score as conventional financing does.

Q:       Are there any drawbacks to financing my home through government -guaranteed loans?

A:        Yes. The government insurance component is not free. As a borrower, you would pay an insurance premium to the government that can be as much as three percent of the loan amount, depending on the loan-to-value ratio. Also, not everyone qualifies for government-guaranteed loans. A VA loan is intended for veterans and FHA loans are restricted to those who qualify according to income and other criteria. Additionally, government-guaranteed loans require inspections by certified inspectors and will require certain repairs to be made. Many sellers do not like working with buyers who use government-guaranteed loans because of these requirements and because some fees traditionally paid by buyers are required to be paid for by the seller.

Q:       What if I don’t qualify for a government-guaranteed loan and don’t have 20 percent down payment money for a conventional mortgage?

A:        You can also consider getting private mortgage insurance so that you can borrow more than 80 percent of the value of the home you want to buy.  Private mortgage insurance increases the overall cost of the loan, and this cost is built into your payments or financed through a higher interest rate.

Q:       How do I find out which loan is right for me?

A:        Any reputable, full-service mortgage lender will offer both standard financing and government- guaranteed financing, and will be able to explain the product options to you.

            The Department of Housing and Urban Development (HUD) provides information about mortgage loan shopping and the home buying experience. HUD’s mortgage borrower’s information booklet is available at:  www.hud.gov/buying/booklet.pdf.

This “Law You Can Use” column was provided by the Ohio State Bar Association. It was prepared by Dublin attorney William C. Heer III, vice president and counsel for First American Title Insurance Company. Articles appearing in this column are intended to provide broad, general information about the law. Before applying this information to a specific legal problem, readers are urged to seek advice from an attorney.

Most people have emotional ties to their homes because of family memories created there, but the responsibilities that come with home mortgages can become financially burdensome to seniors. There are many factors you should consider when thinking about applying for a mortgage to buy, refinance or make improvements to your home.

Q:       What should I keep in mind when considering a mortgage loan?

A:        If you already own a home, consider whether it makes sense to stay in your current home or to downsize. As children move out, a large home may no longer be practical. Downsizing can both cash out equity from a larger home and reduce monthly expenses by replacing a larger mortgage payment on a larger home with a smaller mortgage payment on a smaller home. Moving to an apartment or condominium without a yard or where much of the maintenance is handled by a homeowner’s association is also an option.

            If your home is already the right size and you can afford to stay, you may want to consider refinancing your existing mortgage loan. With proper financial planning, younger seniors can plan to repay their mortgages before they retire. However, many seniors are not able to retire without mortgage debt, and refinancing allows you to lower the interest rate or reset the term of your existing mortgage. By resetting the mortgage term, the outstanding balance of your existing loan will be spread out over a longer period of time. Extending the term may increase the overall interest charges you will pay, but it also will lower your monthly payments and free up money for other monthly expenses. If you are on a fixed income, consider refinancing from an unpredictable adjustable rate mortgage to a stable fixed rate mortgage.

 

Q:       Will I qualify for a mortgage loan?

A:        Your eligibility for a mortgage loan generally will depend on your income, your assets (checking, savings, stocks, bonds, IRAs, etc.), your credit score and the value of the property that will be securing the mortgage loan.

            Not everyone who applies for a loan will be approved or will get the same loan terms, but lenders must consider reliable income from part-time employment, Social Security, pensions and annuities when making mortgage loan decisions. They must also consider reliable public assistance income in the same way that they consider other income. The Equal Credit Opportunity Act (ECOA) prohibits lenders from credit discrimination on the basis of a number of factors, including your age and whether you get public assistance. A lender may ask you for most of this information in certain situations, but may not use it as the basis of a decision to reject your mortgage application or to set your loan terms. If your mortgage application is denied, the lender must give you specific reasons for the denial.

Q:       Even if I qualify, how will I know if a mortgage loan is right for me?

A:        There are many types of mortgage loans, including conventional home loans, FHA insured loans, VA guaranteed loans for veterans, Rural Housing Service (RHS) guaranteed loans, home equity lines of credit and reverse mortgages. Some loans have strict qualification requirements while others are designed for lower income homebuyers.

            Obtaining a mortgage loan carries costs that can vary with the type of loan you choose. Usually there will be lender fees, an appraisal fee, title insurance costs and other closing expenses related to the mortgage loan. You must also factor real estate taxes and homeowners insurance into your budget. Usually you will be required to make a down payment of between 3.5 percent and 20 percent, depending on the type of loan and the bank’s requirements. While lower down payments can be appealing in the short term, they come with higher monthly payments due to higher interest rates. Smaller down payments also may require additional mortgage insurance, increasing your total costs over the long term. However, making a higher down payment can deplete your savings and investments. It is critical to consult a trusted financial advisor and get independent financial advice before deciding which mortgage product may make sense for you, and what terms best suit your financial situation.

This “Law You Can Use” legal information column was provided by the Ohio State Bar Association. It was prepared by Adam Saurwein, an attorney in the Cleveland office of the firm of Benesch Friedlander Coplan & Aronoff. Articles appearing in this column are intended to provide broad, general information about the law. Before applying this information to a specific legal problem, readers are urged to seek the advice of a licensed attorney.

Q:       I’m getting ready to file a Chapter 7 bankruptcy. Can I keep any of my property after bankruptcy?

A:    Yes. “Exempt property” refers to property the debtor in bankruptcy can keep. For example, you can keep cash of up to $450 (the “cash-on-hand exemption”) and household goods worth up to a total of $12,250  (the “household goods exemption”), as long as no one particular item is worth more than $575. The theory behind these exemptions is that, as a debtor filing bankruptcy, you need to keep some property to emerge from bankruptcy with your financial fresh start. Even though bankruptcy is federal law, these two exemptions are set forth in Ohio’s state statutes.

Q:       Do I get to keep my home after bankruptcy?

A:        If your mortgage is current and the house worth less than what you owe the mortgage lender, you can usually keep your home. Even if there is no mortgage, you may be able to keep your home if it is worth less than the amount of Ohio’s homestead exemption. This exemption is now $132,000, assuming your house is held in only one name. If your house is held jointly by you and a spouse, the exemption is $264,000. If your house is worth more than what you owe the lender, you may be able to keep your home so long as the equity does not exceed the applicable homestead exemption. The homestead exemption only applies if you or a dependent of yours is living in the home. This means that you can’t apply the homestead exemption to a property that you own, but rent out to others.

Q:       Are there any catches?

A:        Yes. The law was changed on March 27, 2013. Before then, the exemption was much lower – only $21,265 for a house held in one name. The new law says the higher exemption of $132,000 applies only to claims arising after March 27, 2013. It is unclear exactly what this means. Let’s say, for example, that one of your creditors has a judgment lien on your house that was filed before March 27, 2013. That creditor may claim that the old law (with its homestead exemption of $21,265) applies or that no homestead exemption applies. The trustee appointed in your bankruptcy case also may argue this, which likely will mean that the court must decide which law applies in your case. This is why it is very important for you to consult with a bankruptcy attorney to see how the new law will apply to your situation.

Q:       Do the changes to the Ohio exemption law affect any other property?

A:        Yes. Another change to the law makes it clearer that you can keep an IRA account when you file a bankruptcy. Some brokerage firms offering IRAs require their customers to pledge their IRAs as collateral to secure any amounts the customers might owe to the firm, but Internal Revenue Service regulations do not allow this. Some bankruptcy trustees were taking the position that any pledge of the IRA for collateral negates its exempt status, which would allow the bankruptcy trustee to liquidate the IRA for the benefit of creditors. The change in Ohio law is intended to make it harder for the bankruptcy trustee to assert that an IRA can be liquidated in bankruptcy in order to satisfy creditors.

Q:       What else should I know about bankruptcy exemptions?

A:        One of the many issues that arise when applying bankruptcy exemptions involves insurance policies with cash surrender value. If you own a policy that insures your life and the beneficiary is your spouse or children, then the policy’s cash value is exempt. This means that you can keep the policy if you file a bankruptcy. However, if the policy beneficiary is someone else who is not your dependent, or if the policy is on the life of your child, then the policy is not exempt. This means that the trustee can cash the policy in for its cash surrender value and distribute the proceeds to your creditors. In a bankruptcy situation, many other issues involving exemptions arise. Your bankruptcy attorney should be able help you sort out these issues.

This “Law You Can Use” column was provided by the Ohio State Bar Association. It was prepared by attorney Julie E. Rabin, a principal in the Cleveland firm of Rabin and Rabin LPA. Articles appearing in this column are intended to provide broad general information about the law. Before applying this information to a specific legal problem, readers are urged to seek advice from an attorney.