Mortgage Fraud (2024)

Mortgage fraud is often a complicated crime that can involve bothmortgage lenders and borrowers. It's estimated, for example, that about10 percent of the nation's mortgage applications contain either mistakenor intentional omissions. What makes an intentional omission differentfrom an inadvertent one is often difficult to prove, which is whymortgage fraud prosecutions were, until more recently, relatively rare.

Mortgagefraud occurs when someone lies, confuses, or intentionally omitsimportant information during the mortgage application and approvalprocess. Mortgage fraud is possible through a single act by either alender or a borrower.

A wide range of activity can constitutemortgage fraud, and state laws that punish the crime differsignificantly. Some states do not have specific mortgage fraud law,while others do. Regardless, all states have laws that punish the typeof activity that occurs in mortgage fraud.

Borrower Fraud

Whenpeople want to buy a home and apply for a mortgage, they have to submitan application to a lender. If the borrower knowingly makesmisstatements, misrepresents important information, or omits importantinformation, these actions constitute mortgage fraud. This type of fraudis sometimes known as fraud for housing because the borrower is notseeking to make a profit from the fraud, but commits it to obtain ahome.

Professional Fraud

Lenders, as well as borrowers,can also commit a type of mortgage fraud in order to make a profit fromthe transaction, which is why this type of mortgage fraud is sometimesknown as "fraud for profit" or professional mortgage fraud. Professionalmortgage fraud often involves complicated schemes and collaborations bymultiple parties, such as mortgage brokers, real estate appraisers,real estate agents, accountants, attorneys, investment bankers,builders, and even credit agencies. The main purpose of these schemes isto make money and not to obtain a home for a buyer.

Mortgage Fraud: Single and Multiple Actions

Asingle act of mortgage fraud can occur, for example, when borrowersknowingly misrepresent how much money they earn or when they accept akickback or undisclosed payment from the seller.

Multiple acts ofmortgage fraud are more common and typically occur when several peoplecollaborate to obtain a mortgage. For example, house "flipping" canconstitute mortgage fraud in some situations. (This type of homeflipping is different than when a person buys a home, makes repairs, andthen sells it for a profit.) Mortgage fraud flipping occurs when abuyer purchases a home at a low price, then recruits an appraiser whoagrees to value the house at a much higher price. The new owner thensells the home at an artificially inflated profit, giving the appraiserpart of the profits.

Mortgage Fraud Involves Intent, Not Mistakes

Mortgagefraud crimes occur only when a borrower or a professional knowinglymakes misrepresentations or omissions. By contrast, a borrower whomistakenly reports income information does not commit mortgage fraud.Put another way, mortgage fraud exists as long as the intent to defraudis present. For example, an appraiser who intentionally misrepresents ahome's value in hopes to later get the buyer to sell and give theappraiser a kickback commits mortgage fraud. It doesn't matter if theseller never agrees to the scheme or the appraiser never makes a profit,because the appraiser knowingly made a material misstatement of thefacts in the mortgage application process.

Federal Prosecutions

Inaddition to state mortgage fraud crimes, federal prosecutors can alsoprosecute individuals or organizations for mortgage fraud. Federalcriminal laws often apply when the activity involved crosses statelines, involves federal agencies such as the Federal HousingAdministration, or involves mortgage lenders and other federallyregulated financial institutions. Federal prosecutions for mortgagefraud usually target professional fraud, not fraud for housing.

Fraud and Organized Crime

Insome situations, federal prosecutors have filed RICO charges againstlarge-scale mortgage fraud operations. RICO stands for the RacketeerInfluenced and Corrupt Organizations Act, a law that punishes a group ofpeople in an organization if members of the organization commit crimes.Federal prosecutors typically use RICO charges against organized crimeorganizations such as mafia groups or gangs. However, after the housingbubble burst in 2007-2008 and more large-scale mortgage fraud becameknown, federal prosecutors have increasingly used RICO charges inprofessional mortgage fraud cases.

Penalties

Mortgagefraud is a serious crime, and one punished by significant penalties.Because mortgage fraud can involve different crimes at either the stateand federal level, the potential penalties associated with the crimediffer widely. Mortgage fraud is typically charged as a felony offense,but misdemeanor crimes are possible in cases where only a small amountof money is involved, typically less than about $1,000.

• Prison.Prison penalties for mortgage fraud can be significant. A convictionfor federal mortgage fraud charges can result in a federal prisonsentence of 30 years, while state convictions can last a few years ormore. Misdemeanor fraud convictions can bring jail sentences of up to ayear.

• Fines. Finesfor mortgage fraud are often extremely high, especially whenprofessional fraud is involved. A conviction for a single count of afederal mortgage fraud can result in a fine of up to $1 million. Statefines can range from a few thousand dollars for a misdemeanorconvictions to $100,000 or more for felony convictions.

• Restitution. Mortgagefraud convictions often include restitution payments as well.Restitution is different than a fine, though they both involve money.Restitution is designed to compensate the injured party for yourwrongdoing, while the government imposes a fine as a penalty. If, forexample, you are convicted of mortgage fraud after you make falsestatements when applying for a mortgage, you may have to pay restitutionto the lender in addition to your fines.

• Probation. Probationsentences can be imposed for a mortgage fraud conviction separatelyfrom, or in addition to, fines and prison sentences. Probation sentencesfor mortgage fraud typically last at least one year, but longer termsare common. Someone on probation must meet specified court requirements,such as making regular reports to a probation officer, submitting torandom drug testing, and refraining from committing other criminal acts.

Find a Lawyer

Mortgagefraud charges are very serious, and convictions can mean you spend therest of your life in prison. You need to contact a criminal defenseattorney as soon as you learn you're being investigated for mortgagefraud, are contacted by law enforcement authorities, or even suspect youmay be in trouble. Your ability to defend yourself depends on yourability to know your rights, and only an experienced criminal defenseattorney in your area can provide the legal advice you need. Anexperienced criminal defense attorney will guide you through every stageof the criminal justice process at either the federal or state leveland will give you advice based on experience, legal expertise, andknowledge of the court systems in your area.