The Importance of Validating the Seller’s Identity

Written By: Stacey Sprain

With the challenges in our industry today, it’s more important than ever to verify and validate data within each loan application file. Many investors are no longer even honoring limited documentation options offered with AUS approvals and instead are requiring minimum documentation standards for verifying and validating income and assets.

Another component of managing risk within your organization is identifying and validating all of the interested parties associated with each purchase transaction. You may know your borrower, but are you clear on who the seller is?

One of the first things you as a processor need to do on each purchase is thoroughly review the purchase agreement to identify the important transaction details and also to identify all parties involved with the deal. Some states have much more organized and well-communicated sections for printed or typed names of the realtors, sellers, attorney etc. If yours is a state like Wisconsin which usually does not print out each name so it can be read clearly, you need to make sure you know who the seller is. Sometimes that may mean making a phone call to the listing agent to identify that person or more importantly, that entity.

When you identify that the seller is a non-individual or that the seller is signing on behalf of a partnership, LLC, or trust, further details should be sought out to validate who that person really is, if indeed he or she really is an active owner of the business entity and if indeed he or she has the right to be signing on behalf of that business.

Property flipping has become a major problem in our industry and with the challenges of today’s market, you can bet people are more anxious than ever before to dump portfolios of properties that aren’t selling. It’s common for an LLC, partnership or trust to move properties back and forth between their members and various businesses simply to skim the profits from the sales and absorb the tax benefits. The major problems come in when the realtor and in some cases, the attorney or settlement agent are all involved in the business entity relations. Often they collaborate to inflate the true values of the properties which obviously increase the profit margins for the business entities.

When you identify that the seller is involved with an LLC, partnership or trust, be prepared to seek out additional information such as full disclosure of all members of the business and something in writing from the business allowing permission to the person signing on its behalf. In extreme cases, underwriters will use their discretion and might require additional documentation to validate the seller’s identity as it relates to the transaction.

And remember, by law any parties involved in a transaction that are related to each other either by blood or through business are obligated to disclosure their mutual relationship in writing. Be on the lookout for those types of disclosures within the purchase agreements as well.

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About The Author
Stacey Sprain
- As an NAMP® staff writer, Ms. Stacey Sprain is currently a NAMP® member in good standing, and is a NAMP® Certified Ambassador Loan Processor (NAMP®-CALP). With over 15+ years of mortgage banking experience, Stacey is also a Quality Control Manager for a major mortgage lending institution. If you would like to become a volunteer writer for us, please email us at: contact@mortgageprocessor.org.



Opinion-Editorial (Op-Ed) Disclaimer For NAMP® Library Articles: The views and opinions expressed in the NAMP® Library articles are those of the authors and do not necessarily reflect any official NAMP® policy or position. Examples of analysis performed within this article are only examples. They should not be utilized in real-world application as they are based only on very limited and dated open source information. Assumptions made within the analysis are not reflective of the position of NAMP®. Nothing contained in this article should be considered legal advice.