Did you lie on your loan application? The King Amendment to HR 200

06 Feb Did you lie on your loan application? The King Amendment to HR 200

Many mortgage loans were called “no-doc loans.” In the industry, they were often called “liar’s loans.” It’s one thing to have a loan based on a statement of income which is hard to document – maybe someone who runs a restaurant. Some people’s income vary from month to month and from year to year – like outside salesmen. It’s another for a someone to get a loan based on income which is well beyond what is actually earned.

How does this happen? Everyone who makes a mortgage loan completes a Uniform Residential Loan Application. One of the first things you enter is your monthly income. Sometimes, this number is something you actually filled in yourself. Sometimes, it is a number your mortgage broker fills in for you. Maybe you never noticed it when signing papers hurriedly at closing. It’s important. You need income to qualify for a loan. Good income. If the income figure is inflated, you might get a loan, but you might not be able to afford it. Big trouble.

Now, under the “King Amendment” to the mortgage modification bill in Congress, people who got their mortgage by “fraud” won’t be able to get mortgage modifications in Chapter 13. If you signed a loan application with incorrect income – too frequently the case – lenders may object to your loan modification in chapter 13. You’ll need good legal help for this one. Did you know about the false income entry? Did you intend to deceive? Did the lender really rely on the loan application? Could the lender have reasonably verified?

When the mortgage modification law passes, get help. Make sure your lawyer knows about the King Amendment and is prepared to deal with it if necessary.

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Jay S. Fleischman is a bankruptcy lawyer with offices in Los Angeles and New York. He can often be found on Google+ and Twitter, where he shares information about consumer protection issues and personal finance.
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