1) If the bank doesn't present an ALA (Arms Length Affidavit) at closing, are the parties liable for any

    kind of federal mortgage fraud prosecution if buyer is a distant relative ?

2) Is there a ques. on the Equator appl. as to the relationship between the buyer and seller ? If so

   and it is not answered or answered incorrectly, can that be considered mortgage fraud whether or

   not a ALA is requested at closing?

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If the bank doesn't present an arms length transaction form, then I would imagine you are ok if there is a relative trying to buy a property, but USUALLY this form is filled out WAY before closing and not AT closing. By the way, not every lender has one or cares about arms length relationships.

As to question #2 if the question in equator is asked an you answer incorrectly or don't answer and KNOW that there is a relationship between the buyer and seller, then YES I would consider that fraud.

Now, if you were smart, you would PROVIDE documentation to the lender about the relationship between the buyer and seller and DISCLOSE DISCLOSE, because it's not worth going to jail for if they ever find out. You never know. They may still approve it.
If I were you, I would disclose. The lender may not even care about the relationship, especially if it's a distant relative.
I always have my clients sing ALA even if the lender does not require it.

Also remember if a past client gets caught, even if you didn't know, guess what? you did the negotiations. A homeowner won't think twice in saying it was all you.

Cover your self. When lenders, attorneys & homeowners start looking for the next wave of lawsuits, you don't want to be stuck in the middle of it.

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