By Benny L. Kass
Saturday, July 5, 2008

Q: I bought a condominium in January 2006 for $215,000. Just the other day, I was going over some papers, including my mortgage application, and noticed that my salary was shown as about $3,900 a month.

At the time, I made nowhere near that -- I was probably making about $2,000 as a waitress. Since I bought the apartment, I have exhausted all my savings, borrowed money from friends and gotten into credit card debt. Now that I think about it, maybe I should not have been approved considering what I was making. However, because of the falsified salary, I was approved.

Do you think that this was just a simple mistake on the bank's part or that the mortgage broker overstated my salary just to get extra business? I feel as if I got the mortgage under false pretenses and now I have to struggle. Is there anything I can do about this?

A: There is a lesson in your situation: Read all the mortgage documents before you sign anything. All too often, when you go to settlement, you are given a large number of documents and just told, "Sign here, sign here."

There are several explanations for why your income could have been stated incorrectly.

First, you could have been the culprit. It's possible that you wanted to buy that condominium and knew that you would not qualify based on your salary. So you could have arranged with your boss to provide false information to the lender, showing that your salary was higher than it really was.

While this probably was not the case in your situation, too many borrowers have defrauded their lender this way.

At the bottom of all settlement statements -- the form called a HUD-1 -- you will find this language: "WARNING: It is a crime to knowingly make false statements to the United States on this or any similar form. Penalties upon conviction can include a fine and imprisonment. For details see: Title 18 U.S. Code Section 1001 and Section 1010."

Section 1001 of that federal law makes it a crime to make "any materially false, fictitious or fraudulent statement or representation," and the penalty can be a fine and imprisonment for not more than five years. Section 1010 deals with making false statements to induce the Department of Housing and Urban Development (including the Federal Housing Administration) to issue mortgage insurance or mortgage loans. The penalty can be a fine and imprisonment for not more than two years.

A second source of this incorrect information could be your lender. It has become quite clear in recent months that one of the causes for the mortgage meltdown was that some lenders falsified their borrowers' financial information to make the loans and collect the commissions. The Department of Justice and state attorneys general are investigating these fraud cases, and they have filed charges against some of these lenders.

A third source of your problem could have been a mistake. In 2006, when real estate was hot, lenders were extremely busy and typographical errors were common. However, that does not absolve you from fault because you signed the papers with the erroneous information.

I suggest that you contact your lender and advise it of the mistake. It is better to admit the problem before it is discovered. Otherwise, you will be on the defensive. When you tell your lender of the problem, it will investigate; perhaps the loan officer who worked with you is the villain.

Section 1001 makes it a crime to "knowingly and willfully" make false statements for the purpose of obtaining a mortgage loan. If you voluntarily admit to the mistake, I doubt that you will have any criminal problems because it will be difficult to prove that you meet the "knowing and willful" test.

You admit that you are in financial trouble. That's another reason why you should immediately discuss your situation with the lender. The lender may agree to work with you and offer you some options.

· The lender may give you time to sell your condominium and temporarily freeze your mortgage payments. If you are able to sell -- and if there is sufficient equity in your unit -- the missed payments will be added to the mortgage payoff at closing.

· The lender may agree to a short sale, whereby the lender will accept a payment that is less than you owe, which could assist you in selling your unit. You should consult a real estate broker who is knowledgeable about short sales and has sold property in your area.

· The lender may allow you to give back the unit via a "deed in lieu of foreclosure." This means that you will sign a deed, giving the unit to the lender. This way, the lender will avoid the costs involved in foreclosing. You should inquire about how such a procedure will affect your credit rating.

· The lender may be able to provide alternative financing that will allow you to make smaller monthly payments. In today's economy, the last thing any lender wants is to have yet another foreclosure on its books.

You must act quickly. You have a problem and cannot bury your head in the sand, hoping no one will discover the false information. Disclosure will go a long way toward resolving your problems and relieving your stress.

Benny L. Kass is a Washington lawyer. For a free copy of the booklet "A Guide to Settlement on Your New Home," send a self-addressed stamped envelope to Benny L. Kass, 1050 17th St. NW, Suite 1100, Washington, D.C. 20036. Readers may also send questions to him at that address or contact him through his Web site, http://www.kmklawyers.com.