Do not make this common mistake…’exaggerating’ your financial condition on a bank loan application

Many do it on tax returns, many do it on applications for loans, we do it on our job applications, we do it where ever we believe it will give us an advantage, improve our chance for success in some way. I understand the desire, but I warn you this is bad business, very bad, and can be more costly than it is worth in the end.

There is a perception that a little fibbing is ok, a little exaggeration is acceptable. Its the white lie theory, an interesting oxymoron, as how can a lie ever be ‘white’ or somehow ok.

Let me state the obvious…a lie is a lie. It can never be white, it is never a good idea, and it is not acceptable, under any circumstance, let alone a federally regulated form, like a bank loan application.

Worse yet, if under worse case circumstances you are examined for some reason and the white lie is disclosed, it may become black, very black, very dangerous and very wrong. It may in fact cost you far more than it is worth. Yet it is so common, you must be vigilant in undoing your life time of bad practice and reject the idea that any lie is acceptable especially on financial forms. There is no acceptable ‘white lie”.

Recently I was presenting a workout proposal to the bank, arguing for approximately $500,000 of debt forgiveness, and the banker asked about a few assets previously listed on the borrowers application and now not present. There was silence, and I looked at my client wondering what the bank was talking about, and he blurted out that the assets were his fathers not his and he ‘probably should not have listed them as his assets.’  on the previous application.

This changed the entire tone  and direction of the discussion and had the bank warning us that this may be an act of bank fraud and would change the demeanor of the workout completely and in fact may result in federal bank fraud claims that could result in a criminal complaint. Now that changed the temperature in the room!

The point is the borrower had no intent of fraudulently misrepresent his financial position, he was just ‘puffing’, exaggerating a bit, they were his fathers assets so he felt attached to them and mistakenly listed them as his assets, they were potentially valuable and made him and his collateral position look better, so he listed them, never thinking it would ever become an issue.

Now that the loan is upside down and the payoff will be very short, the bank is and must look at the collateral for opportunities to liquidate same to reduce the indebtedness…and the assets were somehow not there.

Oops! ( the worst word in the dictionary)

Now instead of discussing the workout, we were trapped into discussing this misrepresentation which became the major issue.

Worse yet, the borrower had more than adequate assets, when applying for the loan, a high income and great credit. There was no reason to puff, he would have gotten the loan without the additional collateral. Now this ‘mistake’ was the major topic of discussion and possibly a huge issue.

Let me be very clear. Miss-stating your financial condition on a bank loan application is a a major problem and can result in a claim of bank fraud potentialy  resulting in a felony, a criminal complaint. It is a major offense with a punishment of 4-7 years. It is not something anyone ever wants to contend with, even if  it means not getting the loan.

You  must break this  habit of believing that a little bit of puffing is ok…It isn’t. Its wrong and eventually you may pay a very high price for this ‘mistake’.

Don’t do it.