The Two-House Purchase Scam

 June 18, 2001, revised January 22, 2008

Closing on two houses on the same day in order to qualify for two mortgages is a a fraud, and there is a real possibility you will be found out. Even if you get away with it, if you ever find yourself unable to service both loans, you will be in deep trouble.

"I want to buy two houses but can only qualify for one. My mortgage broker said that if both loans closed on the same day, the debt from one would not be counted in the expense-to-income ratio of the other. That way, I would be able to finance both houses. The broker would arrange both loans. I don't feel comfortable with this process – would I be breaking the law? What are the chances I would be found out?"

The application for whichever loan closed second would contain false information because it would not reveal the loan that closed first. I’m not a lawyer, but that smacks of fraud.

The chances of being caught are pretty high. Usually, about every tenth loan goes through a post-closing audit. If either of your loans was selected, you would be found out.

You would also be caught if both loans ended up being serviced by the same entity. Since servicing is becoming increasingly concentrated in the hands of a few large players, the chances of that happening are not insignificant.

If you survive these hazards but later on have serious payment problems on one or both of the loans, they will find you out at that point. Don’t expect any sympathy – lenders don’t offer workout plans to borrowers who deceived them.

I find it incredible that a mortgage broker would propose this to you, since he would lose his license if it came out. The great majority of brokers are not that foolish.

That’s why most borrowers who want to pull this stunt engineer it themselves using two brokers, neither of whom is aware of the other. This increases the risk even more, since the two brokers might send the loans to the same lender. (Your broker would certainly send the loans to different lenders). I heard recently of a case in which this happened. Naturally, the lender rejected both loans.

The largest risk of all is that you will over-commit yourself and be unable to make the payments on one of the mortgages, which will cause the entire scheme to unravel. If you had the income to carry two mortgages, you would not have to perjure yourself to obtain two mortgages.

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