Friday, December 13, 2013

We stand our ground and we do business with lenders and real estate brokers who want quality of service.

Quality of service means that we all work together to maintain integrity of standards to protect consumers, the mortgage lender and the title insurance underwriter.

This sometimes does mean that we choose to not do business with providers who have a different idea.

About a month ago we received a title order from a mortgage broker that we thought had gone out of business.  It was a sub-prime shop known to bend rules.  I was leery but we agreed that they might have cleaned up their act and that we would watch the transaction closely so we processed the order.

Turns out the transaction is a FHA mortgage and the mortgage broker - with the help of an employee of the mortgage lender - were coaching the buyer on how to avoid the FHA prohibition against using funds to acquire a separate but adjoining property which is also a commercial property. They expected us to close a concurrent transaction for the adjoining property being sold to the buyer by the same seller for $1.

NOT GOING TO HAPPEN.  We explained the hows and whys of mortgage fraud to the consumer, real estate agent and mortgage broker. This transaction could only take place if the mortgage lender put in writing that they were aware of the concurrent transaction and approved of it.  The mortgage broker, of course, said the mortgage lender "didn't want to know" about the concurrent transaction so that would not happen.  I said that we would refuse to close and insure the deal.

Interestingly when the real estate agent and I discussed the details of the structuring of the transaction to this point, the real estate agent said she was conferring with her broker who told her to make certain that the mortgage lender was approving everything.  What they hadn't considered was a rogue employee. They thought they had lender approval for the concurrent transaction and were shocked when told the lender "didn't want to know" about it and thus would not actually approve the transaction as is was truly structured.

I am sorry to know that there are employees on the front lines of FHA lending operations who don't get the reality of compliance with the FHA guidelines.  It's not okay to "not know" about something that you clearly know about. It's not okay to direct people to handle things "off HUD" or in a separate transaction. It's not okay to hide material facts from your employer or the mortgage underwriter.  You put your whole organization and everyone's jobs at risk because the FHA can shut you down.

We won't be accepting any new title orders from that mortgage broker.  We only deal with honest companies, not fraudsters.

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