In the 2008 crash, many developers who had multi-million dollar projects, found themselves with homes no one wanted to buy. Some builders, hoped the market would turn around. They turned to creative schemes in order to get financing needed to hold onto properties. This gave rise to builder bailout fraud. This is a type of bank fraud because it involves making false statements, false claims, fraudulent promises in order to get funds from a lender. Fraud against financial institutions is a serious federal crime. If accused, you could decades of imprisonment when convicted.
At Raiser & Kenniff, PC, we understand the potential issues you face. Our NYC mortgage fraud lawyers have immense experience handling builder bailout fraud cases on residential, and commercial, properties. Builders who use bailout schemes typically disguise fraudulent homes as legitimate transactions. They do this in order to make it appear as if the new financing won’t be a credit risk for lenders. There are numerous approaches to this form of fraud.
Builders may offer generous buyer incentives in order to purchase a home without disclosing it to lenders. Builders may offer to pay closing costs, down payments, or may offer money to sell the home for no money down. These incentives are not revealed to the lender, and the sales presented as a legitimate sale.
Straw buyers/fraudulent purchases by corporations – is another example. Some builders form false corporations in order to purchase homes at above market prices. Often, 100% of the cost of the purchase is financed, and sometimes, the loans are even used as a cash-out refinance in order to provide the builder with other funds. It makes the builder look profitable, and shifts the responsibility of the repayment of the loan to a corporation which has no assets at all. Other builders, have in the past – sold properties to fake straw buyers.
The main purpose of a builder bailout is to make a builder look more profitable than it is – and to convince a lender of the builder’s ability to resell homes, and that he/she should be financed. Lenders extend additional financing to builders, due to this fraud. Many lenders provide larger lines of credit, due to the fraud perpetrated by builders.
There are many penalties for builder bailouts. Builders can be tried for bank fraud. The potential penalty, can be up to $1,00,000 and up to 30 years in prison. Bank fraud also involves wire, or postal mail, fraud as well – since paperwork is sent for fraudulent purposes. Each charge of mail and wire fraud charge carries a possible 30 year penalty, and $1,000,000 fraud – if it occurs against a financial institution.