helping some friends, slightly sketchy mortgage
September 6, 2014 6:18 AM Subscribe
Our friends want help to get a better mortgage rate, how risky for us?
This is in southern California, USA. We have some friends that own (are paying a mortgage on) and currently reside in a unit of a triplex. They rent out the other two units of the triplex.
The friends want to purchase a single-family home to rent out; this home is too small for them to actually live in. They want to claim residency for the single-family home to get a better rate for that mortgage. To help prove residency for the single-family home they need to show that they've rented all units of the triplex. They want to give us one month's rent on their triplex unit, then have us write them a check for a month's rent as "proof" that it's rented. Then they can claim that they will reside in the new single-family home, which they will then rent out. They will continue to reside in their triplex unit.
We know that they assume tons of liability for the single-family mortgage. But are we on the hook for the fake rent, if it all goes bad?
tl;dr
If we help some friends on their loan application by paying fake rent, could we be in trouble if they get caught?
This is in southern California, USA. We have some friends that own (are paying a mortgage on) and currently reside in a unit of a triplex. They rent out the other two units of the triplex.
The friends want to purchase a single-family home to rent out; this home is too small for them to actually live in. They want to claim residency for the single-family home to get a better rate for that mortgage. To help prove residency for the single-family home they need to show that they've rented all units of the triplex. They want to give us one month's rent on their triplex unit, then have us write them a check for a month's rent as "proof" that it's rented. Then they can claim that they will reside in the new single-family home, which they will then rent out. They will continue to reside in their triplex unit.
We know that they assume tons of liability for the single-family mortgage. But are we on the hook for the fake rent, if it all goes bad?
tl;dr
If we help some friends on their loan application by paying fake rent, could we be in trouble if they get caught?
I'm pretty sure you know this is a really dumb thing to do and you need confirmation.
It is really dumb.
posted by Aranquis at 6:40 AM on September 6, 2014 [4 favorites]
It is really dumb.
posted by Aranquis at 6:40 AM on September 6, 2014 [4 favorites]
Tell them, "I wish we could help, but it just isn't possible."
This is a terrible idea. There must be an issue with credit and cash flow if they can't refinance, why throw your lot in with theirs?
If this is a deal-breaker for your friendship, you now know exactly what it was worth to them.
posted by Ruthless Bunny at 6:44 AM on September 6, 2014 [1 favorite]
This is a terrible idea. There must be an issue with credit and cash flow if they can't refinance, why throw your lot in with theirs?
If this is a deal-breaker for your friendship, you now know exactly what it was worth to them.
posted by Ruthless Bunny at 6:44 AM on September 6, 2014 [1 favorite]
No.
No no no no no no no.
If they cannot afford the mortgage without having the unit rented, how will they afford it when one of the units is between tenants, or needs extensive repairs (appliances, plumbing, whatever)?
posted by belladonna at 6:45 AM on September 6, 2014 [1 favorite]
No no no no no no no.
If they cannot afford the mortgage without having the unit rented, how will they afford it when one of the units is between tenants, or needs extensive repairs (appliances, plumbing, whatever)?
posted by belladonna at 6:45 AM on September 6, 2014 [1 favorite]
Everyone has at least one sketchy friend who will do morally problematic things for beer money. They should talk to that friend, not you. Tell them sorry but no thanks and good luck, this is a situation to stay out of entirely.
posted by Dip Flash at 6:47 AM on September 6, 2014 [1 favorite]
posted by Dip Flash at 6:47 AM on September 6, 2014 [1 favorite]
Somewhere along the line, they'll be filing taxes that state which place is their legal residence.... i.e., somewhere along the line they will be caught; they'll probably end up with at minimum a higher mortgage rate, if not fines or even a court case charging them with the fraud.
Your own quandary appears to be mostly moral, other than that month's rent (plus security deposit, I assume): do you want to aid & abet their pre-planning a fraud? Hopefully none of this would include you signing any sort of lease, because that would leave you on the hook for at least a year's rent, even if your friends 'promised' to tear it up after they use it to show to the mortgage company --- frankly, I wouldn't trust anybody who plans to defraud a mortgage company of not also being willing to rip me off too.
And to be honest, if they can't get a legitimate mortgage on the house then that means the mortgage company doesn't believe they can afford to pay on that mortgage, so even if this doesn't bite you in the ass legally I deeply doubt you'd ever see that 'rent' money again.
Run. Run far away, and don't have anything to do with this plan.
posted by easily confused at 6:52 AM on September 6, 2014
Your own quandary appears to be mostly moral, other than that month's rent (plus security deposit, I assume): do you want to aid & abet their pre-planning a fraud? Hopefully none of this would include you signing any sort of lease, because that would leave you on the hook for at least a year's rent, even if your friends 'promised' to tear it up after they use it to show to the mortgage company --- frankly, I wouldn't trust anybody who plans to defraud a mortgage company of not also being willing to rip me off too.
And to be honest, if they can't get a legitimate mortgage on the house then that means the mortgage company doesn't believe they can afford to pay on that mortgage, so even if this doesn't bite you in the ass legally I deeply doubt you'd ever see that 'rent' money again.
Run. Run far away, and don't have anything to do with this plan.
posted by easily confused at 6:52 AM on September 6, 2014
IAAL (finally); IANYL: but you could be on the hook for conspiracy to commit some sort of fraud. You may be on the hook simply for accepting the money, whether or not you sign anything.
See generally the IRS.
posted by Schielisque at 7:14 AM on September 6, 2014 [1 favorite]
See generally the IRS.
posted by Schielisque at 7:14 AM on September 6, 2014 [1 favorite]
Not only does this involve probable violation of state laws, it is highly likely that there will be some Federal money involved and that this planned deceit would also violate Federal laws. And I see at least two different lies being planned here. Listen to the wise comments made above.
posted by yclipse at 7:21 AM on September 6, 2014 [1 favorite]
posted by yclipse at 7:21 AM on September 6, 2014 [1 favorite]
I would not only avoid participating in this plan, I'd avoid the people who asked me to do it.
posted by jon1270 at 7:26 AM on September 6, 2014 [1 favorite]
posted by jon1270 at 7:26 AM on September 6, 2014 [1 favorite]
You shouldn't be concerned about having to pay the "fake rent." You should be concerned about going to jail for conspiring to commit mortgage fraud.
posted by ewiar at 7:52 AM on September 6, 2014 [7 favorites]
posted by ewiar at 7:52 AM on September 6, 2014 [7 favorites]
This is such a bad idea, and I hope the overwhelming voice of the hive telling you not to do it is the reassurance you need.
posted by Sweetie Darling at 8:07 AM on September 6, 2014
posted by Sweetie Darling at 8:07 AM on September 6, 2014
How do you think this wouldn't (very quickly) be found out and "go bad"? Don't do it.
posted by catatethebird at 9:01 AM on September 6, 2014 [1 favorite]
posted by catatethebird at 9:01 AM on September 6, 2014 [1 favorite]
Oh, god, yes, what they are proposing could result in criminal charges or a lawsuit for conspiracy to commit fraud. Even if the police didn't feel it was worth pursuing on a criminal level, banks have stables of lawyers to go after people who commit fraud against them.
posted by drlith at 9:05 AM on September 6, 2014
posted by drlith at 9:05 AM on September 6, 2014
The precise question is: "Should I conspire to engage in mortgage fraud?"
posted by jpe at 10:41 AM on September 6, 2014
posted by jpe at 10:41 AM on September 6, 2014
Never get entangled in anyone else's financial shenanigans. Especially not friends...unless you are ok with maybe not being friends anymore, should poo hit the fan.
posted by Thorzdad at 12:43 PM on September 6, 2014
posted by Thorzdad at 12:43 PM on September 6, 2014
You knew this was shady enough to ask this anonymously and in situations like these that is really all you need to know.
posted by poffin boffin at 1:00 PM on September 6, 2014
posted by poffin boffin at 1:00 PM on September 6, 2014
From the landlord end of things, the reason this is sketchy as hell is that it means that the numbers don't work. If they could make the single-family investment work with rental property mortgage rates, it would be a good investment. Since they can't ... either it won't pay for itself, or they want to take too much cash flow out of the property for personal expenses, other debts, college, cars, trips to Vegas, or whatever. That means it won't be there to keep up the property, or to deal with disasters like house-trashing tenants, or whatever. So it's a bad investment. And bad investments? They will eventually lose it, more likely than not.
Frankly, it's likely they have a hare-brained scheme in mind that this will actually solve another shortfall in their overall financial plan. This exposes the fact that they're sinking and probably not smart business sense people to begin with.
Bottom line? Not only is this potentially a really bad idea for you, it's also not helping them.
posted by dhartung at 3:35 PM on September 7, 2014 [1 favorite]
Frankly, it's likely they have a hare-brained scheme in mind that this will actually solve another shortfall in their overall financial plan. This exposes the fact that they're sinking and probably not smart business sense people to begin with.
Bottom line? Not only is this potentially a really bad idea for you, it's also not helping them.
posted by dhartung at 3:35 PM on September 7, 2014 [1 favorite]
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