Portland, OR · Member since 2017 · 13 posts · 0 votes
I have a question re: consequences for a property management company and parties involved in a fraudulent transaction. What potential penalties would exist for a licensed property manager / firm who engaged in the following?
Client comes and says "I have a property and I need a face value lease of $XXXX to qualify for another mortgage."
Property manager says, "Sure, I have a tenant (actually, employee) available who would take on that lease, but they can only afford $XXXX".
Property Manager, employee and client agree to draft up lease for face value at $XXXX, but agree to:
Verbally agree to pay 25% less than face value of lease
Verbally agree to charge client a lower management fee to make the 25% reduction more attractive
Keep the verbal agreement in place as long as its working for everyone
Property Manager comes back and says, to protect my employee (who knowingly and willingly engaged in the fraud in collusion with licensed property manager) we need an addendum to the lease reflecting the lower rent
Obviously, there are several potential legal and ethical violations with this proposed scenario.
Willing participation in what could be deemed mortgage fraud
Knowingly creating a false "shell" lease, where the provisions of the lease were never meant to be enforced as written, but to appear legally binding.
Attempting to aid an employee at the expense of the paying client (owner of the property)
Constructing a fraudulent contract
What are the potential consequences from the above scenario to the licensed property manager (and employee) with regard to real estate licensing? Would executing such a lease be deemed mortgage fraud? Would license be suspended? Revoked? Are there potential other consequences? Would lease be considered valid if all engaged knowingly, fraudulently and willingly?
Real Estate Broker · Chicago, IL · Member since 2015 · 1k+ posts · 2k+ votes
9y
@John Roberts I'm lost in the ambiguities - who are you exactly in all of this, and who are the other parties, including those who you believe have defrauded you? And at what point are you in the transaction? Too many "parties" "they" and "us" who are undefined.
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
9y
mortgage fraud on the part of the applicant for the new mortgage who is providing the lease.
PM could be sanction by department of real estate for bad behavior. probably a suspension at most and maybe just a don't do it again.. if its the one and only thing they did and especially if it never got to the bank .
the major liability here is the person using the phony lease to secure the financing.
Frankly investors do this all the time they dummy up leases for loans.. its far more common than you probably realize... and not an issue unless there is a default then its katy bar the door.
in todays lending environment the LAST thing you want to do is defraud a state or federally chartered institution..
Mortgage lenders form 10 or more years ago to dummied up loan apps are now just going to jail most getting 3 to 5 years.
Portland, OR · Member since 2017 · 13 posts · 0 votes
9y
Jay, I really appreciate the quick response. I figured applicant was at risk. What surprises me is that those who knowingly and willingly participated by creating fraudulent documents in support would not also be liable for intention to defraud and deliberately making false statements and attaching their signatures to them intentionally. Oregon statutes tend to convey that it is illegal to "knowingly" and "intentionally" engage in fraud, and especially by those that know the laws (and are bound to them) who could not claim ignorance. It sounded to me like all 3 would be not only at fault, but even the employee could be flagged for SAR and have difficulty getting a future mortgage, or worse. They intentionally drafted a 'shell' lease. Would this lease also stand up legally in court if challenged? Would a document drafted with intention for fraud also be a valid contract, if most of the stipulations in the contract were never meant to be enforced as written? Seems like there are multiple serious issues going on here legally, and with regard to contract law.
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
9y
I am not a criminal lawyer neither do I play one on TV..
but I have been around department of real estate investigations and such.. one incident like this does not make it go ballistic.. its wrong no doubt its every thing you said.
if there was a pattern and a big loss some where then yes
one time just got caught no one was harmed at least form this one event.. then I think reality is some reprimand and if they did it again then yes boom your hammered.
I have seen agents get away with much worse and not lose their licenses.
Portland, OR · Member since 2017 · 13 posts · 0 votes
9y
Jay, my interest in this has arisen as a party to purchasing the rental in question as a home I would like to reside in about a year from now. At first, I was willing to honor the lease presented with the face value by the seller of $XXXX. Then, came the news of an addendum (unknown to the seller) made between the fraudulent property manager and her employee to secure the verbal "in writing" without ever even sending him the addendum, and after backdating it before the purchase of the home even occurred or closed. At this point, I have already provided the original lease to my financing company, void of the hidden addendum. To go back now creates several liabilities, it seems, for all 3 of them. My wife and I really want the house, but I now would like to sit down and have a conversation and renegotiate the lease back to original terms, after we had already made a very generous cash offer to the tenant/employee to vacate early before this all came to light. With the new information that has now come to light (and I realize they were all just trying to help each other out), it seems this contract would be ruled null and void if not for the very reason that:
A. It was in support of known illegal action by all parties B. It was never intended to be enforced C. I'm not even certain the security deposit was paid, and several of the other provisions have never been enforced as written.
This things a mess, but we really like the house and have already sold our house when all of this came to light...so, as you can imagine, I'm a bit frustrated too. Should we sit down and have a very frank conversation with all involved parties? Any thoughts?
Portland, OR · Member since 2017 · 13 posts · 0 votes
9y
To me, one of the most damning evidences against the contract are that the employee and property management company drafted a 'false' addendum, backdated it, all without the seller's knowledge. Crazy thing is, the original lease is dated 11/14 with a move-in date of 12/1. Addendum is back dated 11/18 (four days later). They didn't even execute the addendum after the closing or move-in! The seller had zero idea it happened until they presented it yesterday at the 11th hour as we try to close in about a month, and all we had were the original lease terms (as did the seller). I don't think they've even thought about the implications legally. In addition, the "sham" lease, were it to go to court, the very first question I would expect the judge to ask is simply, "Why wouldn't you just have drafted the original lease for $1200, with the addendum only 4 days later and nearly two weeks before move-in?" Every aspect of this looks like an agreement in which the only intent was to deceive, never to be enforced. I'm not a lawyer either, but I have studied some contract law. This seems like an 'invalid' unenforceable lease, but I'm looking for as much advice as I can get before we proceed in any direction, including with going back to our own lender with the "news".
Real Estate Broker · Chicago, IL · Member since 2015 · 1k+ posts · 2k+ votes
9y
@John Roberts For future reference, a few things I always do. During the initial showing, I ask how much the tenant pays in rent and write it down. Compare to MLS and resolve any discrepancy. Then during inspection period I explain to tenants I need to know how much they are paying in rent and how much they left in deposit to compare to what the LL says. Again compare to MLS, rent roll as provided by LL, and statements before. If there is a discrepancy or doubt, I push for financials if the property is large enough to prove deposits to the bank account. That way its not just what the LL says at closing. Multiple times I've had sellers say at closing they didn't ask for a deposit or that the rent levels were much less than previously stated. That was either to inflate the value or reduce their prorations, both of which are unacceptable and avoidable by acquiring firm data prior to the last minute. It sucks when both parties are ready to walk at the closing table over a $50/mo difference.
As to who was wrong - anyone willingly participating in the farce was wrong. But consider your damages against what it'd cost you in legal fees. And if you can still back out, I'd do so. You wanted the house @ $x amount in rent, but it sounds like you now found out its really at $y (less than $x). Ditch it if that's the case, there are more deals out there that you don't need to deal with fraud unless you are getting a super super discount.
Or get in touch directly with the owner to see what's really going on. Sometimes these "property management" companies are just shell companies to cover for the owners who are essentially the same as the owners of the PM co.
Portland, OR · Member since 2017 · 13 posts · 0 votes
9y
@Matthew Olszak : Thanks for the reply. I have talked to the owner, extensively. What started out as just a "mutually beneficial" agreement has backfired on him. He's a nice guy, who got involved with shady people to try and make a deal work. That said, the home is great, and we would love to call it home (eventually). We do have the option to back out as our contract originally stipulated vacancy at move-in. So, we have that in our corner no matter what. Here's a few concerns:
1. I've put $3000 into engineering reports, inspections, and a few other items related to the sale...so, while I can walk away, it hurts a bit.
2. Both parties (seller and PM) created what I believe would not stand up in court as a legal lease given all the circumstances and evidence.
3. I feel entitled to reparations, and we have already sold our house to a very nice family, and I am hesitant to back out on them after they also paid for appraisal, inspections, etc.
It's amazing how these things always come back to hurt the innocent parties, huh? I would probably refund the buyers of our home for their expenses costing me at least another $1000 or so because I just can't see saying to them, "sorry, tough luck". It's their first home purchase to boot, and they have 4 kids and a new job waiting here in a very tight rental and housing market.
So, all that to say, I feel compelled to confront the situation and get the PM, employee/tenant and seller all in a room with me, leverage the situation, and put it on them to tell me how their going to "fix it". My suggestion to them will be:
1) Pay the full amount of lease, and now no damage done or liability. My wife and I will suffer through the inconvenience of renting a smaller home during the time we wait for the lease to expire if they really desire the convenience of staying in a home they can't afford.
2) Accept the generous "cash for keys" offer, which is wholly undeserved, and allow us to go ahead and take possession of the property with no further legal liabilities on them, their business, etc. Everyone learns a hard lesson.
3) Accept a reimbursement of $4000 to me from the group (I don't care who pays) so that I'm compensated for my $3000 invested in purchase plus the $1000 I'm going to be reimbursing my buyers for, and we'll walk away and they can maintain their fraudulent scheme.
4) Or??? (Let them imagine the possible other options or consequences)
Up until now, I think they feel they've had the "upper hand" in the situation, but I have to believe that self-preservation and the threat of legal consequence might be motivators enough for them to be reasonable. Worse, I know the property manager involved, and the tenant, we went to school together, ironically. To say I'm disappointed is an understatement.
Walking away is an option, but they've harmed a lot of people in this "innocent" transaction now, and I'm not about to present their "addendum" to my lender 34 days from close and try to explain it. No way. So, they're going to have to help me come up with a solution or face the consequences on some level, even if it's being confronted with the facts and having to account for it and decide if it's worth the risk to them to hold to their current position.
Any thoughts on possible approach that is assertive, but not volatile? I want them to be confronted, but also to rationalize the situation and consequence. Perhaps I could start the meeting off by asking to see proof that the other material provisions of the lease have all been met. I'm pretty sure no deposit was actually made, although the lease calls for it before move-in and it would be essential before I assume the lease, assuming they were digging in and willing to stay for the full $XXXX dollars per month, which is significantly higher than what they are paying and what they logged into the "surprise" backdated, and probably illegal addendum, based on the facts as I understand them.
Real Estate Broker · Chicago, IL · Member since 2015 · 1k+ posts · 2k+ votes
9y
@John Roberts I'm lost in the ambiguities - who are you exactly in all of this, and who are the other parties, including those who you believe have defrauded you? And at what point are you in the transaction? Too many "parties" "they" and "us" who are undefined.
Portland, OR · Member since 2017 · 13 posts · 0 votes
9y
@Matthew Olszak : I am the party who is attempting to buy the house, with intent to eventually occupy. It's a long story, but here is the situation:
1. We put an offer on the house (didn't know the seller). 2. Seller is trapped in a fraudulent lease with PM and her friend/employee who is now the tenant, for the mutually beneficial purposes of seller qualified for new mortgage out of town, employee/tenant got reduced rent, and PM received management fees (win, win, win at the time). All three entered the lease knowing it was for the purpose, technically, of mortgage fraud by stating the value of the lease at $XXXX per month with zero intention of paying that amount, but about 25% less. 3. In the process, we listed and sold our home to a nice family in order to purchase the home in question with fraudulent lease and tenant 4. Both sales are supposed to close on May 4. 5. We were provided a lease with face amount $XXXX by seller, which is really a shell lease and almost none of the provisions in it have been satisfied, and the most material of them all (monthly rental amount) was never intended to be, as seller and PM and tenant agreed on a "back door" verbal agreement, with which the PM and employee then later drew up a backdated addendum, unbeknownst to the seller, and are holding the house "ransom" so to speak, and then just provided him the new addendum yesterday, so he called me to explain the situation. 6. We've invested about $3K into the purchase, which we could walk away from, but it destroys the deal for us and the buyers of our home, all for a lease that isn't worth the paper it's written on in terms of 90% of the provisions, and I'm pretty sure it's not even legal in a court of law being it was drafted, essentially, for an illegal purpose, and knowingly done so by all parties because it was "mutually beneficial" for seller, PM and their employee/tenant. Almost none of the lease provisions were ever intended to be honored, but, of course they do now want the reduced rent and term of lease to remain :)
Portland, OR · Member since 2017 · 13 posts · 0 votes
9y
@Account Closed : I know they're in the wrong. No doubt about it. I want to know what can be done about it, if anything. And, I want to know if a lease entered into for the purposes of fraud would be a lease that would stand up in court if challenged? I want as much leverage as possible before I confront the situation directly and ask them to "fix it" and/or make reparations. Especially since we (as 3rd party buyers) are not party to their previous dealings, and all we want to do at this point is to complete the purchase of the seller's home with or without the tenants. But, we also want a legitimate lease to be provided, and not to lose the $3K or so we've invested up until this point to sell our home and buy this one with the tenants and fraudulent lease.
Investor · Cleveland, OH · Member since 2015 · 6k+ posts · 2k+ votes
9y
@John Roberts, if in fact the market doesn't support that rental price per month, that could also mean that the home is not worth as much as the Seller sold it to you for. Also, I'm not convinced that all this happened "unbeknownst to the seller"! (ie. How could they NOT already know that they're NOT getting the full lease amount less normal property management fees?)
Does the fact that the rent is only 75% what you were led to believe affect YOUR decision-making going forward (seeing as you want it as your primary shortly thereafter)?
ie. Did you Offer as much as you did BECAUSE you thought it rented at $x per month?
You've probably got lots of legal recourse, but, don't lose sight of your GOAL! My 2c...
Portland, OR · Member since 2017 · 13 posts · 0 votes
9y
@Brent Coombs : The market here currently supports significantly more than the face value of the lease, ironically, and vacancy is near 0% due to supply and fast-growing (but temporary) construction jobs. Market rent for the house right now would be about $600 - $700 dollars more than the current lease and about $300 more than the face value. Seller got into a bad spot because he was moving, had a sale fall through, and was needing to close on a new house in another town (job transfer), and so he engaged with the property management company. Because he could afford the payments on the mortgage, he simply told them he needed "$XXXX" to qualify technically for the loan, and wanted them to fill it immediately (within 2-3 days). Property management company employee had just lost her rental, and happened to need a place to go. It was a "back-scratch" deal at the time that enabled them both to get something they "needed" before the holidays and under the pressure of the closing date for him. Needing to move quickly got the seller into trouble.
Fast forward, and what may be clouding this is, technically, this isn't a property we want for investment this time around. It's a home we saw, decided we wanted to buy, and were willing to put up with having renters for $XXXX. So, we sold our home, and are 34 days to close only to find out now that they don't want to pay (can't afford to pay?) even the face value of the lease which is still well below market rent by about $300-400 per month for this beautiful property. So, as you can imagine, they're getting a SCREAMING deal, nearly 35% off current market. I actually just saw a comparable (not as nice) rent for close to double what they're paying (not kidding). On top of that, the produced a phony addendum signed between the PM and her employee/friend/tenant at the 11th hour (backdated of course) to match the verbal back-scratch agreement that they drafted. Seller knows it's fake because he didn't agree to it, and there are things in it that came up weeks/months later that were then back-written into it also...which is just bizarre. It's a strange document, to say the least. But, none of them are innocent in this, and so I'm wondering what leverage I have to get them all in a room and say "fix it". Seller understands he made a huge mistake trying to force something to happen so he could complete his other purchase, and got mixed up with shady folks who are now holding his property hostage like squatters, in addition to colluding with him in what is actually mortgage fraud. We could walk away, sure, but I think there's a chance self-preservation may be enough motivation/leverage to save this deal or make reparations to us and to the family who has now also invested now in buying our home.
1. Property manager doesn't face an issue of potential investigation as a licensed agent for knowingly aiding in mortgage fraud in collusion with seller and her employee/friend/tenant. 2. Employee moves, begrudgingly, but with a generous 5 month rent buyout or stays in the face-value lease for 12 months and we'll take possession at end of lease. 3. Seller sells his home, minus the buyout 4. We move into the house we wanted and have dropped $3K into buying already 5. The young family buying our house moves into our place.
Lesson learned for sure, by us, either way. If this were just an investment, we would have already walked away and cut losses. It's also not really the type of house you buy to invest in, more the type you buy to live in. More at stake this time around, and more people now affected by it at this point also. And, if there was another comparable house we were interested in to move into now just 34 days out from closing, I would also consider that. But, market's tight, and at this point, there's just nothing in the immediate area we're interested in, and with our house in contract, it puts us in a weird position at this point too. I'm not happy about the circumstances, that's for sure.
Investor · Cleveland, OH · Member since 2015 · 6k+ posts · 2k+ votes
9y
@John Roberts, it looks like you can just ENFORCE the Lease given to the Seller (from the date you close on it), and it would be up to the SELLER whether they wanted that back-dated as well. Their Addendum shouldn't hold up legally anyway, if they try to stay there at 75% of the lease amount AFTER you own it. If the Lease had been bona fide, would you would just let it expire before wanting to move in yourself? Or did you want them to break it early anyway?
(If the latter, then THEY have some push-back, cost-to-you argument).
But because you want it as your primary, I don't REALLY see much concern. What am I missing?
Portland, OR · Member since 2017 · 13 posts · 0 votes
9y
@Brent Coombs : We were hoping they would break it early, of course. We were willing to wait (at the face-value) presented to us originally, but that was certainly not the ideal choice. I would not be wiling to wait at the rate outlined in the phony addendum, no. But, the side effect of this also is that while I'm upset, I also don't want to see this exposure harm any of the parties if I enforce the lease, despite the fraud they've technically committed. At this point, I just want them to have integrity and do what is right. Hopefully, that means accept the buyout and move on, but at the very least, to honor the face value of the lease presented to us and with their signatures on it if they REALLY want to stay after all this (at what is still below market rent) for the remainder of the lease term. I know their original intent was not mortgage fraud, even thought that is what has occurred, but each one was getting some kind of benefit that enticed them into the situation. Now that real people, however, have bought and sold homes and arranged financing based on terms, at the very least I want reparations made. Ideally, I want to confront the issue head on (lay it all out on the table) and ask them to now tell me what the solution is going to be. I don't think any of them want to be implicated or exposed. Reason should win out, even if appeal to morality does not.
I am with Brent on this one, seems to be a non issue for a purchase of a personal home. Move forward with the purchase with vacant occupancy and either move in or find a new tenant with your new lease. I do not understand how the past actions of owner, tenant and PM effect your pans to purchase a personal home or a investment property if the present owner terminates the existing lease.
You have not made it clear in your post where the problem exists for you as a home buyer or a investor.
Portland, OR · Member since 2017 · 13 posts · 0 votes
9y
@Thomas S.: That's part of the problem, there is no provision in the seller's lease for termination on the sale of the property. I'd love to move into it vacant, but technically, tenants have a right to stay. In my mind, they really only have that right if they pay the face value of the lease, which we were presented with by the seller, until it expires. I'd prefer, at this point, if they just take the cash offer and vacate. I don't want unethical people living in my purchased home who obviously can't be trusted. In addition, they're trying to use the manufactured and false addendum to stay in it at an even cheaper price.
Investor · Scottsdale, AZ · Member since 2016 · 1k+ posts · 885 votes
9y
A good letter from an attorney to enforce your rights will go a long way. It puts them on notice that the "gig is up" they face possible lawsuits and that since a lawyer is involved you will have records for any court appearances.
I have sent letters "very carefully worded" letters, that explain that I have detected inconsistencies in the agreement that I am about to engage a lawyer to investigate and generally that solves the problem. Send it certified, to each party, and tape a copy to the door.
f course, I like my "bad tenants" shaken, not stirred.
I understand wanting the money but there is no point in mixing ethics in business. Money is all that matters and it is best to leave personal feelings at home. IF a lawyers letter does not resolve the matter you live with the situation till the lease expires then do not renew or..... begin the eviction process as soon as they do not pay the full rent noted in the lease. Those are your two options and have nothing to do with your actual purchase of the property. Forget all the behind the scenes dealing that you are not party to, it has nothing to do with here and now. You are complicating a simple situation.
You may win your eviction, you may not, but the simple argument will rely on the legality of the addendum. You argue the rent reduction was outside the lease, between unknown parties but that as a new owner you intend to inforce the lease.
Investor · Cleveland, OH · Member since 2015 · 6k+ posts · 2k+ votes
9y
Lesson to be learned for all who read this thread: If you want vacant possession once you close - make SURE it's written that way in your Offer to Purchase, and all subsequent Contracts! Cheers...
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
9y
I am not really following this.
let me see if I get it.
you are buying a home with a tenant in it. you knew that.
they provide a lease to you.. .. But then the seller needs a new lease to justify a new home purchase but that does not make sense since the seller is cashing out now.
so is it the fact that the real rent is lower than you were told .. ?
you description is quite hard to follow here.
and being a primary residence I think your way over thinking this unless your paying too much for the home or something and you want out.
if you just want your pound of flesh from PM who you think is a crook this is simple go to the Oregon department of real estate website and file a complaint .. if they think there is an issue they will follow up.. probably will.
but that's totally separate issue that's a license issue you have a home you want to own you have one you have sold.. and since you already knew it came with a tenant whats the beef.. I don't get it. and how would you have even known about any of this so called mortgage fraud who would have told you all these details that only the seller would know.
if you like the house close if it cost a few grand more so what... crap happens.. also just for those who are not in Oregon if you signed a RMLS purchase contract you have already agreed to mediation followed by arbitration.. you can try the lawyer route but a waste of money on something like this.
filing a complaint at the RE department is free.
mediation will cost you 2 to 3k up front and you don't get those fee's back if you win.. this keeps folks from like this tying up the courts over very small dollars. @Brent Coombs Brent I with you I find this story very hard to follow and boils down to not a whole heck of a lot.. if it was an income property that's one thing a primary resi in our SUPER heated market.. this guy is probably lucky he did not have to over bid 10 to 30k just to get the house.
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
9y
@Brent Coombs yup I think this Is a case of someone who thinks someone did something wrong and leaps to putting them in jail.. :) when in fact given our market here right now .. just getting a home without having to bid for it is a win.. all this other stuff is really not that important to a owner occ. my dads attorney who I grew up with in my real estate career from literally 9 years old till he passed about 8 years ago.. had a statue on his desk " SUE THE BASTARDS" some folks just default to that .. in the reality of our business you have to do some pretty bad stuff to get in real trouble. number one for PM s is commingly trust account .. that you cannot do and will lose your license for poste haste..
