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Mortgage fraud?

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t74

Member
What is the name of your state? OK

We loaned (unsecured by property but with a promissory note) a significant amount to a family member due upon the sale of her old residence or a specific date (which happened to be after the closing on the old house). She has purchased a new house. The amount of the loan is about 10% of the price of the new house.

The price of the new house is about the appreciated value plus presumed equity of the old property (could have been owned free and clear) however the mortgage filed shows the new house to be financed by a 100% VA loan. Thus, she should have had cash on hand many times the amount due us to pay off the loan upon closing of the old house even with paying all expenses. The issue is not having the cash to repay the loan.

She refuses to repay the loan. I have been unsuccessful in finding an attorney to sue for payment for this over $35K due. I suspect she did not list it as a liability on her mortgage application. Even if she did list it, I would expect that the loan repayment requirement should have been fulfilled prior to closing on the new house.

The FBI information indicates that this is mortgage fraud. Should I contact the lender and supply a copy of the promissory note? Since she has a business which has had government contracts in the past and may pursue them in the future, should I report this to the FBI? Do you have other suggestions on what we might do to obtain repayment? Are we out of luck?

(Note to self! No matter the sob story, never lend to family members!)
 


LdiJ

Senior Member
What is the name of your state? OK

We loaned (unsecured by property but with a promissory note) a significant amount to a family member due upon the sale of her old residence or a specific date (which happened to be after the closing on the old house). She has purchased a new house. The amount of the loan is about 10% of the price of the new house.

The price of the new house is about the appreciated value plus presumed equity of the old property (could have been owned free and clear) however the mortgage filed shows the new house to be financed by a 100% VA loan. Thus, she should have had cash on hand many times the amount due us to pay off the loan upon closing of the old house even with paying all expenses. The issue is not having the cash to repay the loan.

She refuses to repay the loan. I have been unsuccessful in finding an attorney to sue for payment for this over $35K due. I suspect she did not list it as a liability on her mortgage application. Even if she did list it, I would expect that the loan repayment requirement should have been fulfilled prior to closing on the new house.

The FBI information indicates that this is mortgage fraud. Should I contact the lender and supply a copy of the promissory note? Since she has a business which has had government contracts in the past and may pursue them in the future, should I report this to the FBI? Do you have other suggestions on what we might do to obtain repayment? Are we out of luck?

(Note to self! No matter the sob story, never lend to family members!)
Why have you been unsuccessful in finding an attorney to sue her? Are you trying to find one who will take it on contingency? If so, that might be why you cannot find one. If you are paying your attorney up front then you should be able to find one.
 

t74

Member
Why have you been unsuccessful in finding an attorney to sue her? Are you trying to find one who will take it on contingency? If so, that might be why you cannot find one. If you are paying your attorney up front then you should be able to find one.
Intend to pay and request attorney's and other fees in the judgment.

I have been looking at debt collection specialists and posted to the local bar association attorney search. Everyone seems interested in bankruptcies and protection from garnishments.

It seems like a simple contract suit except for the documents that need to be subpoenaed.
 

Taxing Matters

Overtaxed Member
The FBI information indicates that this is mortgage fraud.
It is only mortgage fraud if the homeowner knowingly lied to the lender about a material fact, material being someone that would have impacted the decision to loan the money. Your loan was unsecured and thus would not attach to the property that is being purchased and did not attach the property being sold, either. It was an obligation of the borrower, certainly, but depending on the total financial picture of the borrower may or may not have made any impact on the decision to lend. Moreover, of course, you don't know that the borrower didn't disclose the loan.

Should I contact the lender and supply a copy of the promissory note?
You could do that, but I don't see that as likely helping you to collect the debt.

Since she has a business which has had government contracts in the past and may pursue them in the future, should I report this to the FBI?
No federal crime has been committed against you and you don't know that any federal offense was committed against anyone else, so there is nothing to report to the FBI.

Do you have other suggestions on what we might do to obtain repayment? Are we out of luck?
You seem to already know the answer to your question: sue the borrower. You should be able to find a civil litigation attorney to handle that for you but perhaps not on a contingent fee. You may need to pay the lawyer by the hour for it, or if the case is simple enough perhaps the lawyer would agree to a flat fee arrangement. Either way you'll likely have to come up with some money up front for it.

(Note to self! No matter the sob story, never lend to family members!)
Never lend to family members or friends unless (1) you handle it like a real lender would, getting security for the loan, ensuring ability to pay, etc or (2) you are willing to consider the loan a gift if the family member or friend turns to be a deadbeat. The first is hard to do correctly for person not in the lending business because you don't have the ability to absorb a certain percentage of loans that go bad as a professional lender does since you don't make multiple loans and (2) requires that losing the money won't put you into a financial bind.
 

LdiJ

Senior Member
Intend to pay and request attorney's and other fees in the judgment.

I have been looking at debt collection specialists and posted to the local bar association attorney search. Everyone seems interested in bankruptcies and protection from garnishments.

It seems like a simple contract suit except for the documents that need to be subpoenaed.
Then stop looking at debt collection specialists. You want to sue and get a judgment against her. Look for someone who is willing to take on a breach of contract suit. Its ok to use the bar association search but call and talk to attorneys and explain what you need.
 

adjusterjack

Senior Member
Intend to pay and request attorney's and other fees in the judgment.
Unlikely that you would be awarded attorney fees unless there was an attorney fee provision in your promissory note.

It seems like a simple contract suit except for the documents that need to be subpoenaed.
You have your promissory note with conditions under which payment was to be made. Payment wasn't made. What documents do you think need to be subpoenaed?
 

t74

Member
Unlikely that you would be awarded attorney fees unless there was an attorney fee provision in your promissory note.



You have your promissory note with conditions under which payment was to be made. Payment wasn't made. What documents do you think need to be subpoenaed?
Unfortunately, attorney's fees aren't mentioned in the note.

She claims not to be able to afford to repay us. I would need to have a copy of her closing financials to prove otherwise. (she purchased a house 500 sq ft larger than her old one with an indoor swimming pool.)

I would expect to need a copy of her mortgage application to see if the loan is mentioned.

Wouldn't I need a copy of her bank statement to prove she actually received thge original funds in addition to mine showing they were sent?
 

t74

Member
Then stop looking at debt collection specialists. You want to sue and get a judgment against her. Look for someone who is willing to take on a breach of contract suit. Its ok to use the bar association search but call and talk to attorneys and explain what you need.
I get overwhelmed looking at the number of attorney's in my city. We have a law school here and a lot of people who go in the evenings so they are less likely to move. I am getting frustrated because most have an online contact form yet do not even respond to say they are not interested in the case.
 

t74

Member
It is only mortgage fraud if the homeowner knowingly lied to the lender about a material fact, material being someone that would have impacted the decision to loan the money. Your loan was unsecured and thus would not attach to the property that is being purchased and did not attach the property being sold, either. It was an obligation of the borrower, certainly, but depending on the total financial picture of the borrower may or may not have made any impact on the decision to lend. Moreover, of course, you don't know that the borrower didn't disclose the loan.

...

Never lend to family members or friends unless (1) you handle it like a real lender would, getting security for the loan, ensuring ability to pay, etc or (2) you are willing to consider the loan a gift if the family member or friend turns to be a deadbeat. The first is hard to do correctly for person not in the lending business because you don't have the ability to absorb a certain percentage of loans that go bad as a professional lender does since you don't make multiple loans and (2) requires that losing the money won't put you into a financial bind.
The note should have had an impact in the loan evaluation since:

She filed bankruptcy (after the note but it was not included in the bankruptcy. At the time she told me she intended to repay the debt (I know, no value in court))

Had a previously foreclosure (about $170K) on a vacation home

Bankruptcy listed at least 3 accounts at the current mortgage holder in the bankruptcy filing in addition to credit cards and others (this may have included the foreclosure)

Loan was needed for payment on a IRS tax lien (also included in the bankruptcy so it is unclear whether she actually made the payment for which the loan was made)

New loan closed 7 years and 10 days after the bankruptcy settlement.

Subsequent to that time we paid much smaller bills on her behalf (including legal fees related to her IRS lien) without demanding a note (I know these are considered gifts). The increased value on her house due to its location would be more than adequate to repay the loan. The loan is about 10% of that increase which should be reflected in the settlement statement.

At the time we were not trying to support not only ourselves (spouse was still working but became disabled about 2 years later so he retired earlier than planned) but also an adult child with cancer on SS and IRAs. We did not want her to lose her home and business (with the federal government) due to tax problems.

I am now in a wheelchair and need the money to make our house more accessible and hire help around the house. We manage the necessities, but this is a luxury that I cannot justify otherwise. She is aware of the situation and happy living high on our hog.

We each have an entitled younger sister; one is a thief and the other a deadbeat.
 

t74

Member
Then stop looking at debt collection specialists. You want to sue and get a judgment against her. Look for someone who is willing to take on a breach of contract suit. Its ok to use the bar association search but call and talk to attorneys and explain what you need.
I thought debt collection specialists would have a greater chance of locating bank accounts. I know of 3 institutions and two more likely but there are probably several more.
 

Taxing Matters

Overtaxed Member
The note should have had an impact in the loan evaluation since:

She filed bankruptcy (after the note but it was not included in the bankruptcy. At the time she told me she intended to repay the debt (I know, no value in court))
Yikes. What chapter of bankruptcy did she file and did she get a discharge? Depending on the details of the bankruptcy your note may indeed have been discharged even though she didn't list the note in her debts. No creditor should ever buy the line from a debtor that they will be able to collect after bankruptcy because the debtor is not listing the debt in the bankruptcy schedules. Had she really intended to pay she could have included the debt in her bankruptcy schedules and then reaffirmed the debt in the bankruptcy. If the debt was discharged then obviously the information about your note wouldn't matter to the new lender.
 

t74

Member
Yikes. What chapter of bankruptcy did she file and did she get a discharge? Depending on the details of the bankruptcy your note may indeed have been discharged even though she didn't list the note in her debts. No creditor should ever buy the line from a debtor that they will be able to collect after bankruptcy because the debtor is not listing the debt in the bankruptcy schedules. Had she really intended to pay she could have included the debt in her bankruptcy schedules and then reaffirmed the debt in the bankruptcy. If the debt was discharged then obviously the information about your note wouldn't matter to the new lender.
Bankruptcy is not a topic I am familiar with at all. I would not expect a debt not listed to be forgiven. It is quite possible that if she knew this, she could have omitted it so we would not receive notification of her filing since we would have cut her off at that time. Are all creditors fully aware of the overall debts involved or only those due them individually?

Chapter 7; case closed; debts discharged without payment nearly $650K per Pacer; our loan is NOT included in the list; I am stunned at the amount of the debt

There are several banks/credit unions, several credit cards, IRS and state tax collector, and the exterminator listed; exterminator is the only services type of entry.

We were unaware of the bankruptcy until 5 years later. Obviously, we were unaware of her financial situation or we would not have loaned her the money. We certainly would not have paid the bills we did for her post bankruptcy.

I know that some income is exempt from garnishment. Can LTC insurance payments for services be garnished? Looking at the entire case file confirmed several suspected credit union account locations.

What happens when protected income is commingled with unprotected income? Based on her prior spending, she may truly have not funds which means she would likely have understated her debts when applying for a new loan.

Because of some recent conversations I believe she is still competent to care for herself physically but is in the early stages of dementia due to her inability to recall past events and her illogical and irresponsible decisions. She is verbally abusive towards me as well. She has discovered that bankruptcy forgives irresponsible spending; I predict another one in the future. I am afraid she will be living on the streets at this rate (but we still need and want to be repaid!).



I
 

t74

Member
Attorney's fees can be assessed in family law cases without prior notice in original filings. Why do different rules apply for indebtedness?
 

Taxing Matters

Overtaxed Member
Attorney's fees can be assessed in family law cases without prior notice in original filings. Why do different rules apply for indebtedness?
Because they are different kinds cases. Divorce and support cases involve different policy concerns than an ordinary debt. Among other things, the ordinary debt is the result of a contract between the parties — they agreed to the terms in advance — and they have the option to include in their agreement a provision regarding things like attorney's fees and collection costs if they want. If they don't choose to do that, then in most states (including OK) the default rule is that each party bears his/her own costs of the action.

Chapter 7; case closed; debts discharged without payment nearly $650K per Pacer; our loan is NOT included in the list; I am stunned at the amount of the debt
The key to the bankruptcy issue is whether the Chapter 7 case was a no asset case. No asset in the language of bankruptcy means that there are no non exempt assets that can be liquidated to satisfy the claims of creditors. If the trustee report in the Chapter 7 case indicated that there were no non exempt assets — nothing for the trustee to take to satisfy creditors — then it was a no asset case. In that circumstance the debtor may be able to amend her schedules for the bankruptcy to get your debt included in the discharge. It's not automatic and the debtor has to show several things to succeed, including that the debtor simply forgot to list it (rather than intentionally left it off) and it would not prejudice you to have the debt included. The theory here is that if there were no assets to distribute to creditors then you'd have gotten nothing in the bankruptcy and your debt would not have impacted the bankruptcy at all. In that case there is generally no harm in including your forgotten debt in the discharge because had the debt been listed back when the bankruptcy was filed you'd have gotten nothing and the debt would be discharged. In other words, it'd simply put you in the same position as if she had done everything right.
 

t74

Member
She admitted to me verbally that she deliberately excluded our debt from the filing. Had it been included, we would not paid other of her bills which occurred after the discharge of her filing because we would have been taken advantage of already. The original cash was from liquidating IRAs that we had held for over 25 years; the original interest rate was what we had been earning on our share account (3.5%) so it was very reasonable.

How would one prove: " it would not prejudice you to have the debt included"? I do not understand what this means. I can show that several years after the closure of the bankruptcy and before we were aware of it that we loaned her other money (without a formal note). I know that this is gone.

In your opinion, is it worth pursuing especially since she appears to have benefited greatly from the bankruptcy; her old house was not included. It was purchased for $221K, sold for $545K and her new house is $394K financed at 100% which is more than double what ours is worth. None of her regular income can be garnished, but she must have some cash in accounts that could be. It would be really hard to go through the cash she received from the sale in 4 months. I cannot imagine her getting a mortgage with large outstanding credit card bills.

The only thing keeping me from looking at a pro se filing is the form for a subpoena in the local court. The OSCN system makes it easy to find petitions in the correct category and the cover sheets are readily available from the clerk's website. Please suggest how/where to find the form/format for subpoenas.
 

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