# "Stated Income Loans" - legal to lie? **URL:** \ **Category:** In My Humble Opinion\ **Created:** [May 10, 2011, 5:33pm UTC](https://boards.straightdope.com/t/stated-income-loans-legal-to-lie/581414 "2011-05-10T17:33:08Z")\ **Posts on this page:** 5\ **Page:** 1
**Author:** ![robert\_columbia](https://avatars.discourse-cdn.com/v4/letter/r/e79b87/32.png) [@robert\_columbia](https://boards.straightdope.com/u/robert_columbia)\ **Post date:** [May 10, 2011, 5:33pm UTC](https://boards.straightdope.com/t/stated-income-loans-legal-to-lie/581414/1 "2011-05-10T17:33:08Z")
> **[Stated income loan](https://en.wikipedia.org/wiki/Stated_income_loan)** > > A stated income loan is a mortgage where the lender does not verify the borrower's income by looking at their pay stubs, W-2 (employee income) forms, income tax returns, or other records. Instead, borrowers are simply asked to state their income, and taken at their word. These loans are sometimes called liar loans or liar's loans. Stated income loans were originated by Ameriquest. > These loans are nominally intended for self-employed borrowers, or other borrowers who might have difficulty documen... A stated income loan, nicknamed a “liar loan”, basically, is a loan where the bank does not require evidence of your income, but simply asks you “What is your income?” and uses that. Is it, or was it ever, really and truly legal to lie? I’d guess that the banks could see that many people might be inclined to lie, so the elements of criminal fraud might not be present since the bank may take the form with the stated income and be like “Yeah, right, but we’ll process it anyway.” (not fraud since the “victim” didn’t believe the statement to begin with). If a person was/is caught lying on a stated income loan application, what happens? (in theory and in practice) If the person is making satisfactory progress paying off the loan, but is “found out” mid-stream, how much trouble are they in? If they default? If the’ve already paid the loan off when they are “found out”? ---
**Author:** ![Rhythmdvl](https://avatars.discourse-cdn.com/v4/letter/r/85f322/32.png) [@Rhythmdvl](https://boards.straightdope.com/u/Rhythmdvl)\ **Post date:** [May 10, 2011, 5:41pm UTC](https://boards.straightdope.com/t/stated-income-loans-legal-to-lie/581414/2 "2011-05-10T17:41:57Z")
I’m not sure I understand why it wouldn’t be fraud–there are plenty of contracts that rely on self-reported information for which one party doesn’t require proof. As for remedies, wouldn’t banks have an acceleration clause? Whether or not they exercised it would be a judgment call for the bank (if you’re making payments and your verified income seems to be enough to keep it that way, the bank can choose not to pursue for obvious reasons). If everything is settled (i.e., paid off) and the bank suffered no damages (or any late payments were covered by a fee), they could file suit but have nothing to claim. ---
**Author:** ![robert\_columbia](https://avatars.discourse-cdn.com/v4/letter/r/e79b87/32.png) [@robert\_columbia](https://boards.straightdope.com/u/robert_columbia)\ **Post date:** [May 10, 2011, 6:17pm UTC](https://boards.straightdope.com/t/stated-income-loans-legal-to-lie/581414/3 "2011-05-10T18:17:45Z")
> [@Rhythmdvl](#): > > If everything is settled (i.e., paid off) and the bank suffered no damages (or any late payments were covered by a fee), they could file suit but have nothing to claim. But could they sue and say that if you had been honest about your income, you would have been required to pay a higher interest rate? Would the court order you to pay retroactive interest after you’ve paid off the loan? ---
**Author:** ![Voyager](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/voyager/32/133_2.png) [@Voyager](https://boards.straightdope.com/u/Voyager)\ **Post date:** [May 10, 2011, 6:26pm UTC](https://boards.straightdope.com/t/stated-income-loans-legal-to-lie/581414/4 "2011-05-10T18:26:42Z")
> [@robert\_columbia](#): > > Is it, or was it ever, really and truly legal to lie? I’d guess that the banks could see that many people might be inclined to lie, so the elements of criminal fraud might not be present since the bank may take the form with the stated income and be like “Yeah, right, but we’ll process it anyway.” (not fraud since the “victim” didn’t believe the statement to begin with). It would be interesting to know what the contract says. IANAL, but it would seem that a person who had to sign something attesting to the truth of the income reported would be in worse shape than someone who didn’t. But I think of these as they were used in the late Bubble as Sgt. Schultz loans - where the bankers cover their eyes when they see these contracts and yell “I know nothing!” Does anyone know of a case where the signatory of one of these loans was sued or prosecuted for fraud? I’d think that a lot of the banks would not want their lending practices looked into, and thus would simply foreclose without further action. ---
**Author:** ![Kimmy\_Gibbler](https://avatars.discourse-cdn.com/v4/letter/k/bbe5ce/32.png) [@Kimmy\_Gibbler](https://boards.straightdope.com/u/Kimmy_Gibbler)\ **Post date:** [May 10, 2011, 6:40pm UTC](https://boards.straightdope.com/t/stated-income-loans-legal-to-lie/581414/5 "2011-05-10T18:40:37Z")
> [@robert\_columbia](#): > > [Stated income loan - Wikipedia](http://en.wikipedia.org/wiki/Stated_income_loan) > > A stated income loan, nicknamed a “liar loan”, basically, is a loan where the bank does not require evidence of your income, but simply asks you “What is your income?” and uses that. > > Is it, or was it ever, really and truly legal to lie? I’d guess that the banks could see that many people might be inclined to lie, so the elements of criminal fraud might not be present since the bank may take the form with the stated income and be like “Yeah, right, but we’ll process it anyway.” (not fraud since the “victim” didn’t believe the statement to begin with). > > If a person was/is caught lying on a stated income loan application, what happens? (in theory and in practice) If the person is making satisfactory progress paying off the loan, but is “found out” mid-stream, how much trouble are they in? If they default? If the’ve already paid the loan off when they are “found out”? You are correct that reasonable reliance _and_ actual reliance are two of the elements of fraud. Moreover, it is undoubtedly possible that an application process could be so transparently untethered from reality that no bank could reasonably be held to rely upon it. However, I don’t think that a loan officer asking an applicant how much he or she makes and not requiring a pay stub or tax return sinks to the level of shenanigans that the process is irredeemably untrustworthy. Deviating from best practices is not the same as suborning false information on loan applications. If, however, the loan did actually solicit untruthful information, perhaps by saying something like, “I can’t approve a loan with these numbers. Are you getting a raise soon, do you think? Put that down—and don’t worry, nobody ever checks,” then you might have a defense.