Mortgage fraud investigations have increased dramatically over the past five years, for obvious reasons. Mortgage fraud contributed significantly to the collapse of the housing loan market several years ago, which touched off the tailspin our economy has been in since then. The Federal Bureau of Investigation has increased its investigations into this area, and has consolidated much of its investigations in this area into its Financial Institution Fraud Unit.
The general definition of mortage fraud is ”the material misstatement, misrepresentation, or omission relied upon by an underwriter or lender to fund, purchase or insure a loan.” Federal Bureau of Investigation, Financial Crimes Report to the Public, at 20 (Mar. 2007). Mortgage fraud is sometimes confused with “predatory lending,” but the difference is that the victims of mortgage fraud are banks and lending institutions, and the victims of predatory lending are the borrowers. Although it has been discussed, there is not currently a federal statutute specifically addressing mortgage fraud. Instead, in federal courts mortgage fraud is prosecuted under the wire fraud, bank fraud, mail fraud, and money laudering statutes, with penalties of up to thirty years imprisonment for each count.
Mortgage fraud schemes are generally complex. The government spends tons of money investigating and prosecuting these crimes, and so if you are caught up in a mortgage fraud investigation or case you can expect to have the weight of the federal government against you. Some common examples of how mortgage fraud schemes work are:
- Foreclosure scheme – a person’s home is in danger of foreclosure, and someone convinces that person that the home can be saved by transferring the deeds and paying some fees. The home is then mortgaged again, and the fees get put in someone’s pocket.
- Property flipping or shotgunning – a property is purchased through a sham indentity or shell company and then the price is artificially inflated through false appraisals. The inflated valued properties are then repurchased several times for higher prices by associates of the “flipper.” Following three or four “sham sales,” the properties are foreclosed on by victim lenders.
- Equity skimming – occurs when someone figures out how to get a loan for more than a home’s value. The homeowner is then convinced to sign over the deed to the home. This is a popular method to dupe homeowners and investors out of the equity they may have built up in their home.
- Nominee loans/straw buyers – borrower’s identity is concealed through use of nominee who allows borrower to use nominee’s name/credit history to apply for a loan.
- Fictitious/stolen identify – Occurs when a person steals the identity of another and uses that identity to obtain a mortgage without that person’s knowledge.
- Appraisal Fraud – Occurs when an appraiser provides a lender with an inaccurrate and misleading report that inflates the property’s value. Or, in reverse, the property’s value is understated in order to get a lower price on a foreclosed home.
Indictments for mortgage fraud are on the rise, and Mississippi is not immune from this increased level of prosecution for these crimes. If you would like more information, even on Mississippi cases, The Mortgage Fraud Blog, published by a lawyer and mortgage broker in California, does a very good job of keeping up with this area of law.
Any person involved in a mortgage transaction may be subject to investigation and charges of mortgage fraud, and could be subject to both civil and criminal penalties. This would include the lender, mortgage broker, the homeowner, and any others accused of misrepresenting a material fact on a mortgage application or bank document. Remember that you may be prosecuted not only on the actual loss amount, but also on the intended loss. The government is going to try as hard as they can to increase the intended loss in these cases, and you will need a lawyer experienced in federal court challenge the valuations and minimize the intended loss, reducing your exposure in these types of cases.