Arrests or Convictions

Just about every license application asks whether any of the principals have been arrested or has criminal convictions . Before I prepare an application for a mortgage broker or mortgage banker client, I ask whether there are any arrests or convictions that need to be disclosed. I also counsel them that if they unsure whether to disclose, then they should answer the question "yes."

Many times, the client will tell me that there are no arrests or convictions and I check the "no" box on the application. Then, the FBI and state criminal background search is done and shows an arrest. So, I get a phone call or letter from the Banking Department asking me about the discrepancy between the criminal background search and the response on the application. When I talk to the client about the criminal bckground search results, I learn that the arrest was 25 years ago and they thought it was too old to be disclosed or was dismissed or the records were closed 20 years ago.

Unless the question on the license application specifically states a time limit (i.e., were you arrested in the last 10 years), you must answer "yes" if you were arrested. It makes no difference to the Banking Department if the arrest was 25 or 30 years ago or whether the case was dismissed. When the criminal background check comes back with an arrest, you will need to write a letter of explanation and produce copies of court records.

The discrepancy between the response on the license application and the results of the criminal background check raises questions in the mind of the reviewer at the Banking Department as to whether the applicant is run by honest people or whether someone who is managing the company will lie or cheat to borrowers. Every response in the application will now be scrutinized more closely with a bias against the applicant.

When in doubt about which response to make about arrests or convictions, check the "yes" box and explain the circumstances of the arrest or conviction. Unless it has to do with a matter involving honesty, theft, embezzlement, or fraud, the fact that a principal of the applicant company has been arrested or convicted (of maybe possession of drugs or driving while intoxicated) will not be a critical factor when the Banking Department makes its decision about the license application. If the conviction is for a crime that involves dishonesty, fraud, theft or embezzlement, it will be difficult to get that application approved. That person should not be a principal of the applicant.