Mortgage Fraud: Contractor Misstatements

David Soble • October 6, 2019

This question comes from Veronica of Commerce who writes:

“We took a construction loan out to purchase a lot and build a 2500 sq. ft. home. The process has not been easy. However, now the builder is coming to us and asking us for an additional $80,000 on the project. That is over and above the amount we agreed to in our agreement and price.It also exceeds what our bank approved us for. He gave us a list of items that total the $80,000 and wants our lender to make a disbursement. We disagree with the amount and the quality of the work. We feel he is lying to us and on the affidavits to the bank. Isn’t this mortgage fraud. What can we do?"

First, there is not a week that goes by that I don’t get a call regarding a matter concerning real estate fraud. Real estate fraud affects all areas of real estate. There is mortgage fraud, deed fraud, realtor fraud, seller fraud and yes builder fraud. etc. Fraud is the intentional misrepresentation or concealment of important facts that cause another person to rely on to their detriment.

Here’s the thing. I don’t believe from your fact narrative at this time that you've been defrauded however, the affidavits themselves are troubling. What I do believe however is that you should be very upset with the surprise $80,000 bump into the construction cost of your home.There's something seriously wrong with the provisions in your Builders agreement and the first question I would want to know is what are the terms in the agreement that relate to change orders. What are the Provisions in the agreement that relate to budgetary items. How did your lender approve your mortgage loan. Where does the appraised value of the home at time of completion. . How was the loan underwriten.

You state that did get a construction loan so there should be lender supervision of this loan between the lending institution the title company and then the Builder. Good lenders keep builders on tight leashes when it comes to approving a project and allowing the dispersement of the proceeds from a construction loan to further the completion of a building project. These numbers are usually known up front - there is not supposed to be a lot of leeway or gap in your construction numbers. Somewhere there is a gap in the communication between the lender and the Builder, and any gap or problem should be addressed by the terms of your contract. It may not be fraud but it could be attributed to poor project management. My suggestion is to send in your contract and lending documents for further review.

It is not my intent to discount your concerns however, and I would wait to pass any judgment until I carefully reviewed your mortgage and builder agreement.

Builder and construction agreements concern large amounts of money and so they should be drafted or reviewed by qualified attorneys to protect against any major problems in the future. If you need any further information please feel free to contact me David Soble at proven resource. Com.

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