Mortgage loan fraud is a serious crime that can result in severe penalties This type of fraud typically involves an intentional misrepresentation or omission of information on a mortgage loan application in order to obtain favorable loan terms While accidental mistakes do not constitute fraud, intentionally falsifying information is against the law. Let’s take a closer look at what exactly mortgage loan fraud is, what penalties may apply, and how to avoid becoming a victim.
What is Mortgage Loan Fraud?
Mortgage loan fraud occurs when a borrower deliberately misrepresents or omits material facts on a loan application to secure a mortgage loan. Some examples include:
- Providing false information about income, assets, employment, or credit history
- Failing to disclose existing debts or mortgages
- Using someone else’s identity and credit information without authorization
- Misrepresenting the intended use of the property (primary residence vs investment property)
Both individuals seeking housing loans and industry professionals like lenders, brokers, appraisers, and attorneys can commit mortgage fraud. However, cases more commonly involve industry insiders seeking illicit profits
Federal Laws Related to Mortgage Fraud
The primary federal law covering mortgage fraud is the 2009 Fraud Enforcement and Recovery Act (FERA). Under FERA, mortgage fraud is prosecuted as wire or mail fraud. The elements for a conviction generally include:
- The perpetrator knowingly participated in a scheme to defraud using false representations
- The perpetrator had intent to defraud
- The scheme involved interstate wire or mail communications
FERA increased potential penalties for mortgage crimes to up to 30 years in prison and a $1 million fine. State laws also prohibit mortgage fraud through statutes on fraud, larceny, and forgery.
Common Penalties for Mortgage Fraud
Mortgage fraud is typically a felony offense with harsh punishments:
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Prison time – Up to 30 years under federal law or around 5 years under state laws. Misdemeanors may warrant up to 1 year in jail.
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Fines – Up to $1 million for federal charges or between $10,000 to $100,000 for state charges. Fines increase with the severity and monetary scope of the crime.
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Restitution – Payments to injured parties like the lender for their losses.
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Probation – Usually 1 year post-incarceration involving supervision, drug testing, and restricting additional crimes.
Judges determine sentences based on factors like the scope, victims, and intent behind the fraud. Multiple charges often apply for related tax, bankruptcy, and racketeering crimes.
How to Avoid Mortgage Loan Fraud Charges
The best way to avoid mortgage fraud allegations is to provide complete and accurate information on all loan applications. Never falsify any details about income, debts, employment, assets, or credit. Thoroughly review all paperwork to ensure it is correct. Seek assistance from attorneys or housing counselors if unsure about how to fill out applications properly.
If charged with mortgage fraud, retain legal defense counsel immediately. An attorney may be able to get charges reduced or dropped through negotiations if you have limited involvement or no criminal history. Honest mistakes can sometimes be rectified before leading to criminal prosecution. However, intentional and large-scale fraud is taken very seriously.
Long-Term Consequences of a Conviction
Beyond prison, fines, and seized assets, a mortgage fraud conviction has lasting effects:
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Felony record – Impacts future employment, housing, rights, and public assistance eligibility.
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Credit damage – Foreclosures, loan defaults, and court judgments hurt credit standing for years. May be difficult to obtain financing.
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Reputational harm – Professional and personal reputation will suffer. Future business prospects dwindle.
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Civil lawsuits – Lenders, buyers, and insurers may file civil suits to recoup additional losses.
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Loss of licenses – Industry professionals will lose licenses and work opportunities.
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Deportation – Possible for non-citizen residents convicted of an “aggravated felony.”
How to Report Suspected Mortgage Fraud
If you suspect mortgage fraud in your own transaction or by professionals, report it immediately to authorities:
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Contact the lender’s fraud hotline or ethics complaint department.
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File a complaint with regulators like a state attorney general’s office or the Consumer Financial Protection Bureau.
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Notify local law enforcement or contact the FBI.
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Consult with a real estate attorney about fraud reporting requirements in your state along with pursuing civil suits. Lenders are obligated to thoroughly investigate fraud claims.
Mortgage fraud harms lenders, borrowers, communities, and the overall housing market. Taking a stand against this unethical and illegal activity is important to stop ongoing schemes and prevent future cases from destroying more lives. With proper reporting, authorities can build stronger cases against perpetrators. If you believe you have information related to mortgage fraud, do your part to get it into the right hands. The consequences for fraudsters must be severe enough to deter this conduct. However, prevention is the best solution through education, vigilance, and ensuring applications are filled out honestly.
What Constitutes a Federal MortgageFraud Violation?
Any material misrepresentation when seeking a mortgage is a violation of Federal Mortgage Fraud and most state mortgage fraud laws. However, intent is the key.
The mortgage fraud laws were not created to punish mistakes, only intentional efforts to defraud via the housing market.
Thus, the simple mistake on a mortgage application will not likely land someone in hot water with law enforcement.
Rather, investigators seek patterns of conduct which indicate intentional efforts to increase the return on investment (ROI) by illegal means.
There are 15 known mortgage fraud schemes and elements of schemes which are commonly used. These are…
- Appraisal fraud – occurs when the appraisal is either inflated or understated for any reason.
- Cash-back schemes – involves overinflating the selling price of a property for the purpose of providing the buyer with “cash back” and the seller with the same. Thus, the lender loans more than they would otherwise. Generally, such schemes involve an appraiser who likewise alters the appropriate appraisal documents in favor of the scheme.
- Employment fraud – occurs when someone states on a loan application a non-existent job or one which is not actually held for the purpose of getting a loan or getting better interest rates.
- Equity Skimming – In this scheme, a straw buyer is used to make the initial purchase, but after closing signs over all rights to the property to an investor. The investor in turn never makes a mortgage payment but rents the property until foreclosure, pocketing the gain.
- Failure to disclose liabilities – failing to disclose liabilities, such as a new credit card not yet showing on the credit report or a liability not reported. Doing so skews the underwriting process and changes the loan parameters in favor of the buyer.
- Fraud for profit – Fraud for profit involves multiple parties and carefully-crafted schemes for the purpose of obtaining a mortgage which will go into default by plan. Usually, there is a straw buyer, though not always.
- Fraudulent Supporting Loan Documentation – When a party to a mortgage loan submits falsified documents such as altered or forged paycheck stubs, it is mortgage fraud.
- Identity theft – seeking a mortgage loan using the identity of another person.
- Income fraud – is the overstatement or inflating of income in order to qualify for a loan or better interest rates.
- Occupancy fraud – Occurs when someonemakes a purchase of a home for investment purposes but misrepresents. By claiming that the property will be used as a home rather than an investment, the interest rates will be lower. This results in savings, but at a loss to the credit agency.
- Property Flipping–This is a scheme involving appraisal fraud. The property is purchased for a low price then quickly reappraised for a higher amount and just as quickly resold “flipped” for the higher mortgage amount.
- Shot-gunning – When multiple loans are taken out simultaneously for the same property. This generally results the property entering foreclosure and the lenders fighting each other for scraps.
- Silent Second – When a buyer takes out a second loan to cover the down payment without disclosing this to the lender, mortgage fraud has occurred.
- Straw Buyer– A straw buyer is one whose identity is hidden during much of the mortgage transaction; a nominee is used along with that person’s credit history.
- Working the gap – This is perhaps the most sophisticated means by which Mortgage fraud occurs. The object is to use the timeline gaps in the U.S. Mortgage system to perpetrate fraud. The one working the scheme generally has a good understanding of the time required to record and post loans and other important mortgage documents. This permits time to take out additional loans or use the property in other ways to skim additional revenues. The shot-gun approach is often tied to working the gap and at times, the two terms may be used synonymously, though this is not the case.
Federal Mortgage Fraud violations almost always involve other than one person. This is because of the complexities of the housing market and the potential for larger gain when others assist in the fraud.
Federal Mortgage Fraud Violations
Federal Mortgage Fraud violations occur when someone engages in fraud by misusing the housing market/sales system. There are two primary categories which constitute mortgage fraud violations. These are…
- Fraud for Housing – This happens when someone seeks a mortgage and provides inaccurate, incomplete, or intentionally false information in order to secure a loan or better loan terms. Although strictly criminal, this form of mortgage fraud is seldom treated as criminal except in some states and rarely by the Federal government.
- Fraud for Profit – The U.S. mortgage industry is complex and offers many opportunities for fraud to occur. When professionals take advantage and commit mortgage fraud, it generally involves parties in other states. The interstate nature of the fraud makes the charges Federal. Also, the fraud could involve Federal agencies or property, which would also send the charges into the Federal jurisdiction.
What are the Penalties if Convicted of Federal Mortgage Fraud?
If convicted of Federal mortgage fraud, the penalties can be severe. These are
- Prison – Misdemeanor can receive up to one year in jail whereas felony fraud convictions can result in up to 30 years in a Federal Penitentiary.
- Fines – up to $1 million per count
- Restitution – no limit
- Probation – Probation sometimes does occur in the event of a conviction and when it does, the term is generally a year or more.
In addition to these, civil penalties/lawsuits will likely result in substantial penalization. There is no limit to the monetary damages which may be rendered in the case of a civil lawsuit, especially if you lose your criminal case.
For this reason, you need an attorney with experience in both Federal Mortgage Fraud criminal charges as well as civil litigation defense. You need Jason Korner.
What Banks, Governments and federal Law Firms Hope You Never Discover Mortgage Fraud Scam Exposed
FAQ
What is the average sentence for mortgage fraud?
What are the federal charges for mortgage fraud?
Do people get caught for mortgage fraud?
How often are people convicted of mortgage fraud?
Can federal authorities prosecute mortgage fraud?
Federal authorities can prosecute mortgage fraud in federal court or by a local authority in state court. When federal authorities prosecute mortgage fraud, it is typically charged as wire or mail fraud with similar elements.
What are the penalties for mortgage loan fraud?
The penalty for mortgage loan fraud may include prison time, fines, and restitution. Typically, mortgage fraud is charged as a felony offense. If the amount involved is below $1,000, it may be charged as a misdemeanor. Punishments may include a jail sentence for a misdemeanor offense of up to one year.
Can mortgage fraud be unintentional?
Mortgage fraud can indeed be unintentional. Some examples include: Borrowers often don’t realize they need to disclose debts such as student loans and car loans even if they are just cosigners and don’t make the payments. Not disclosing a free and clear property.
Can borrowers commit mortgage fraud?
Mortgage fraud is not just limited to borrowers; professionals in the mortgage industry can also commit fraudulent loans. The definition may give the impression that only borrowers can commit mortgage fraud, but in reality, fraudulent loans can be committed by those looking to exploit homeowners in distress to make more money.