After searching for and finding the perfect home here in Cincinnati, you then began working with a mortgage lender in order to purchase it. When your lender told you that you had to put down anywhere from 20 to 30 percent of the purchase price, it probably shocked you.
You saved up some cash in anticipation of finding a house to buy, but nowhere near what the lender required you to put down. As you looked for alternatives, someone told you about taking out a second mortgage to cover the down payment.
That second mortgage could get you into legal trouble
More than likely, the lender on your first mortgage would not appreciate you taking out another loan in order to make your down payment. Do you have to tell your lender? Yes, most lenders want to know exactly where the money came from. If you fail to disclose the existence of the second mortgage, often called a "silent second mortgage," you could face legal ramifications for mortgage fraud.
For instance, if the first mortgage lender requires you to put down $50,000, but you only have $10,000, you may secure a second mortgage loan for $40,000. Now, you have the total amount requested by your lender, but you fail to tell the lender that $40,000 of it is a loan. When you purchase a home, it becomes the collateral for the loan. Your primary lender will probably want to know that it holds the only secured interest in the property.
One problem is that the second mortgage lender also receives a secured interest in the home. Moreover, you now have an added debt that the primary lender did not have the option of factoring into your loan terms. It would be a mistake to believe that the primary lender will not discover the second loan at some point. You may think that it's too late by then, but this action could constitute a breach of your contractual agreement.
What can you do if you didn't know?
More than likely, you were not aware that this strategy was illegal, and it may not have been if you had disclosed it to the primary lender prior to the closing of your purchase. While ignorance of the law is often not a defense, you may have legal options if you face mortgage fraud charges for taking out a silent second mortgage. It may be possible to avoid a criminal conviction on your record. The first step involves understanding your rights and learning what your defense options may include.