Legal Question in Real Estate Law in California

That is a pretty clear cut case of loan fraud by the agent. Unfortunately, that fraud is probably not attributable to the lender. In fact the lender may try to hang that fraud on you, since the agent did it on your behalf with your knowledge, to trick the bank into lending to you. If the agent has sufficient assets, you may be able to force a settlement in which he or she bails you out, but unless the lender independently did something wrong, you are going to have a tough time stopping the foreclosure.

Accepting a "window dressing" loan from the agent was a fraud on the lender unless you disclosed the associated debt (to repay the agent) in your loan application or otherwise -- and you probably didn't, because that would have tipped off the lender that you didn't qualify.

Adding loan-application fraud on top of a foreclosure gives the lender ammunition to seek to recover any deficiency in the proceeds of foreclosure from the participants in the fraud via a separate lawsuit to which the anti-deficiency statutes may not be a complete defense.

In my opinion, the use of borrowed funds to dress up your balance sheet will be a negative, not a positive, factor in stopping a foreclosure.

Mr. Whipple and Mr. McCormick are right. I wouldn't mention the loan fraud committed by your agent. If you didn't qualify for the loan, you should not have entered into the transaction in the first place.