Thursday, July 17, 2008

We have a consumer in process who is applying for a mortgage.....

.....for an investment property. It has come to our attention that he intends to demolish the structure. He lives next door and really just wants the land to expand his yard.

This is a classic case of mortgage fraud though I'm not certain that the consumer fully appreciates that that is what he is doing.

The issue arose when we attempted to get results of a mandatory municipal sewage test. The letter from the municipality said that they were waiving the test and capping the sewer access because the building is to be demolished. HUH?

We contacted the lender and asked if it was a loan for vacant ground. No. It's for investment property. We talk with the consumer who says he intends to demolish the building after he pays off the mortgage. Hmmmm.....

Our job as title agents is to make certain that these two parties both have full knowledge of intentions and have agreed to proceed with the transaction. We have pointed out to the borrower that the mortgage documents includes an agreement to preserve and maintain the collateral. That means that he cannot demolish the building while he has the mortgage in place. It also means that he must preserve and maintain the building. He says he agrees and understands, however, he doesn't want to have the sewer system tested. He wants it capped.

We are asking the lender underwriter to specifically address this issue and advise whether or not we may proceed without the sewer testing.

This is not a title insurance issue but it falls under our fiduciary duties. Title insurers are the eyes and ears of the mortgage lender in a closing. We must protect their interest and if we suspect fraud, we have a duty to speak up.

1 comment:

Diane Cipa said...

As a follow-up, lender says sewage must be tested and system cannot be capped.

Borrower says okay, will do.

See how easy it is to prevent what might have ended up as mortgage fraud?