Question: can someone help me understand this? (income fraud)

[onwards]

The quick summary:

House worth $440K per county assessor.
Primary loan at $570K, permanent HAMP mod.
HELOC at $125K, USAA, have stopped paying over a year ago.

USAA insured the HELOC through United Guaranty. Of course, the default triggered the insurance clause, and UG got the loan from USAA with the attached claim.

We just spoke to UG, because we haven't heard anything. What they said is that the loan was returned to USAA after being flagged for potential "income fraud".

Can someone explain this please?

When I took out the loan - by refinancing the HELOC I originally got with the house - I stated (IIRC) $125K in income. Our 2007 return shows $143K AGI. How can this be fraudulent? because I reported less income than I had at the time? what am I not getting?

My income got decimated in 2008 when my consulting business evaporated during the meltdown. I rapidly went from making pretty good money to making none at all, eventually culminating in a Ch7 filing late 2009. Is this somehow tied to that?

Any insights would be appreciated.

[biotechsolution]

I don't think it matter much. You're not responsible for the house anymore since you filed. Since the HELOC is secured by the house it wasn't discharged anyway. So if you want to keep the house you'll eventually have to deal with them anyway. I think it mainly for USAA, they wanted it to be covered by the insurance and the insurance doesn't want to pay.

[justbroke]

I wouldn't worry about what UG, the insurance or guaranty company, said about the loan status. That is between them and USAA's claim on the mortgage insurance. You discharged the debt. If they were concerned about it, they would have filed an complaint (adversary proceeding (AP)), asking the court to deny dischargeability as to that debt. Since they didn't, and 11 USC 727 (e)(1) only gives them a year to bring forth a motion to revoke dischargeability for reasons of fraud... it's all smoke!!!

The debt is discharged. You are not liable for that debt. However, there may still be a security interest (lien) on your home. If you're trying to negotiate a settlement on the second, then you may need to go back to USAA with an offer. Personally, with the amount of negative equity you have ($125K on HELOC and at least $130K on the first mortgage), I might rethink the whole wanting to keep the property. Of course, it's a financial decision, but you should look at all the numbers. Even if you could settle the HELOC for $12.5K (10%) you'd still be $130K underwater. The time period to recover from that may be significant, but I will say that your modification has probably a.) reduced the interest rate, and b.) reduced some of the principal. If so, then it may be worth it in the long term, so long as the modification doesn't contain an adjustment clause which will change the rate after 5 years or so.

Again, a financial decision at this point.

[onwards]

I wouldn't worry about what UG, the insurance or guaranty company, said about the loan status. That is between them and USAA's claim on the mortgage insurance. You discharged the debt. If they were concerned about it, they would have filed an complaint (adversary proceeding (AP)), asking the court to deny dischargeability as to that debt. Since they didn't, and 11 USC 727 (e)(1) only gives them a year to bring forth a motion to revoke dischargeability for reasons of fraud... it's all smoke!!!

The debt is discharged. You are not liable for that debt. However, there may still be a security interest (lien) on your home. If you're trying to negotiate a settlement on the second, then you may need to go back to USAA with an offer. Personally, with the amount of negative equity you have ($125K on HELOC and at least $130K on the first mortgage), I might rethink the whole wanting to keep the property. Of course, it's a financial decision, but you should look at all the numbers. Even if you could settle the HELOC for $12.5K (10%) you'd still be $130K underwater. The time period to recover from that may be significant, but I will say that your modification has probably a.) reduced the interest rate, and b.) reduced some of the principal. If so, then it may be worth it in the long term, so long as the modification doesn't contain an adjustment clause which will change the rate after 5 years or so.

Again, a financial decision at this point.

Thank you for that analysis.

Yes, I wish to keep the home, if only because renting a comparable property would cost about the same (within $200/mo).

The whole income fraud thing really caught me by surprise, especially since I did not, in fact, commit such; rather, I UNDERstated my income when the loan was issued. But what you and poster above you say seems to makes sense - that UG don't want to pay, so they are forcing USAA to prove that they did their DD on the loan before giving it out.

I already offered USAA $10K to settle, never heard back from them, because obviously they would rather get the claim paid out by UG. I guess I'll have to wait until those two sort it out, then offer it again to whomever ends up holding the bag. Being very deeply underwater actually works in my favor here.

[Billssuck]

I had something similiar to this happen to me. My HELOC had default insurance and once I was behind about 6 months, I started getting calls from IMARC (an insurance fraud investigation service). I never spoke to them and I got paperwork in the mail that said that they paid off my HELOC with BOA effective the 11th of this month and they now have the 2nd lien on the house. I know that if by some chance a deal is made to make it financially attractive to stay in the house, I will not only have to work with BOA (who also holds the first) and with UG (the 2nd). As a side note, I didn't even know I had default insurance...interesting. However, I don't plan on staying in the house and I am just waiting on foreclosure to commence...waiting... and waiting!

[onwards]

I had something similiar to this happen to me. My HELOC had default insurance and once I was behind about 6 months, I started getting calls from IMARC (an insurance fraud investigation service). I never spoke to them and I got paperwork in the mail that said that they paid off my HELOC with BOA effective the 11th of this month and they now have the 2nd lien on the house. I know that if by some chance a deal is made to make it financially attractive to stay in the house, I will not only have to work with BOA (who also holds the first) and with UG (the 2nd). As a side note, I didn't even know I had default insurance...interesting. However, I don't plan on staying in the house and I am just waiting on foreclosure to commence...waiting... and waiting!

Good luck!

I actually really want to work with them - if they will talk to me. My goal is to settle so I can get the 2nd lien off. Right now it's between UG and USAA, AFAIK. But I am trying to find out if this somehow has something *I* need to worry about.

[HHM]

This is all behind the scenes, loan insurance, re-insurance, and guarantor stuff. Nothing you really need to worry about. All that is happening is UG is telling USAA to f' themselves and are not going to pay the claim. It is not unlike when you get in a car accident and its not your fault, the other drivers insurance company is going to dick you around. UG is trying to do the same thing with USAA.

[Charlie777]

I would definitely cooperate with USAA in fighting the fraud allegation. I agree with other posters, this si the insurer trying to wiggle out of their obligation to USAA. But you don't want your name anywhere near "fraud".

[onwards]

I would definitely cooperate with USAA in fighting the fraud allegation. I agree with other posters, this si the insurer trying to wiggle out of their obligation to USAA. But you don't want your name anywhere near "fraud".

Oh I absolutely cooperate with USAA... it's easy enough, all they need to do is pull my 2007 tax return to see I didn't lie. Heck, even in 2008 - with its brutal ending - my AGI came in at around what I stated back in 2007. 2009, of course, was a different story and led to a Ch7 filing, but that's not something I knew in 2007 *sigh*

[albacore44]

Well i'm still waiting. haven't paid my HSBC HELOC since April 2010. havent heard a peep in 3 months

[bobisthedog]

Onwards....any word on this in the last 3 weeks? I am in your exact situation, minus the BK and am just about to stop paying on a USAA second on my primary and one on my vacation rental....Both are 125K and underwater their entire value...

[onwards]

Onwards....any word on this in the last 3 weeks? I am in your exact situation, minus the BK and am just about to stop paying on a USAA second on my primary and one on my vacation rental....Both are 125K and underwater their entire value...

No, nothing, but at this point I expect it will be another 3-4 months before USAA and UG sort it out between themselves; I don't know whether USAA will ask me for the 2007 return or not, I think they have the ability to pull it or even possibly have it already.

The big wrinkle here is the BK. It makes it so USAA and UG are legally not allowed to contact me about this debt; they SHOULD be able to contact my ex-wife, but for some reason neither of them has recognized this fact even though I tried explaining it to them repeatedly.