Real Estate Investing Ethics – When is Lying Just Being Creative?

Here’s the story. An investor- we’ll call him “Bill”- was preparing to close on an investment property. He received a copy of the final loan documents via fax, and took the opportunity to look them over so he would be prepared to sign them at closing the following day.

Bill was surprised to find that the loan application contained some glaring inaccuracies, including a gross overstatement of his income and a property usage declaration stating the property would be used as his second residence. In fact, Bill had clearly informed the mortgage broker he had no intention of ever living in the home.

Bill was in a bad position. He was committed to closing on the property the next day, or he faced over $100 per day in penalties. Yet he knew that signing the application with the false statements was an act of fraud. What to do? What would you do?

The answer to that question is at the heart of a growing split in the ranks of real estate investors, and I believe it reflects a similar split in our society as a whole.

Many would look at Bill’s situation and claim, ‘It’s not his fault- he didn’t tell the lie, the broker did! Look at what he stands to lose if he doesn’t close. Besides, he committed to close on that house- he can’t back out now. He should just go ahead and sign the documents. It will work out alright in the end, especially since he’s just going to flip or refinance the property within a year anyway.”

The other side of the argument states, “Signing those documents is clearly loan fraud, and quite simply lying on Bill’s part. Even though the original deceit wasn’t his, once he signs his name he knowingly becomes a party to it, and the loan would be funded under false pretenses. Even though it may cost him money, and possible the deal, Bill should refuse to sign and try to work it out some other way.”

There is no middle ground here, and if you plan to invest over the long term you WILL face some similar dilemma. The question is not IF but WHEN. Now, not when you are in the heat of the moment, is the right time to decide how you will respond.

Simply stated, what kind of person are you? The kind for whom ethics are relative to the situation you are in, and how much pressure you’re under? Or, are you a person who knows right from wrong and is prepared to do the right thing no matter the consequences?

The more of us who choose to be the second kind of person, who choose right every time, the better will be our industry and, by extension, our society and our world.

The answer to the question in the title? When is lying just being creative? Never. Lying is always just plain lying.

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Tom Dunn is a successful real estate investor and author of the popular DealFiles Real Estate Investor Stories free newsletter. You are welcome to share this report, unedited and in it’s entirety, with anyone you like. You may not remove this text.? 2007 by Tom Dunn. Website: e-mail:

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