Question: A listing languishes on the market. The original list price is $400,000, but it is gradually reduced to $350,000. A buyer makes an offer for $400,000 with a $40,000 down payment. However, the offer has a condition based on the acceptance of an addendum that requires the seller to give the purchaser $40,000 in cash after closing. This little detail is "withheld" from the lender. Is this legitimate?

Answer: This offer may be real, but that doesn't make it legal. Any time someone Indicates he or she will withhold a detail about a transaction from the lender or underwriter, this should be a red flag that potential mortgage fraud may be occurring. In this case it appears that someone may try to hide the fact that the buyer doesn't really have the down payment for the loan. Some disreputable individuals may try to conceal this by using a secret addendum that is signed by the parties but never provided to the lender or underwriter.

With the recent changes in the market, a few crooks have been targeting sellers who may be desperate enough to "look the other way" in order to sell their homes. Anyone involved in this type of transaction, even those who may simply be "looking the other way" could face fines and possible jail time. Mortgage fraud is a crime.