Mortgage Application Lies.

Contrary to common belief, “mortgage fraud” is not a standalone federal offense listed in the United States Code. Instead, mortgage-related misconduct is prosecuted under a variety of separate federal statutes and regulations. For example, federal prosecutors can charge mortgage fraud conduct under:

• 18 U.S.C. § 1014 (False Statements to a Federally Insured Financial Institution)
• 18 U.S.C. § 1341 (Mail Fraud)
• 18 U.S.C. § 1343 (Wire Fraud)
• 18 U.S.C. § 1344 (Bank Fraud)

Section 1014, which addresses providing false statements and information to specified federally connected entities and mortgage lending businesses, is often used to prosecute mortgage fraud cases. This section provides, in pertinent part, that anyone who “Whoever knowingly makes any false statement or report, or willfully overvalues any land, property or security, for the purpose of influencing in any way the action of the Federal Housing Administration, the Farm Credit Administration, Federal Crop Insurance Corporation or a company the Corporation reinsures, the Secretary of Agriculture acting through the Farmers Home Administration or successor agency, the Rural Development Administration or successor agency, any Farm Credit Bank, production credit association, agricultural credit association, bank for cooperatives, or any division, officer, or employee thereof, or of any regional agricultural credit corporation established pursuant to law, or a Federal land bank, a Federal land bank association, a Federal Reserve bank, a small business investment company, as defined in section 103 of the Small Business Investment Act of 1958 (15 U.S.C. 662), or the Small Business Administration in connection with any provision of that Act, a Federal credit union, an insured State-chartered credit union, any institution the accounts of which are insured by the Federal Deposit Insurance Corporation, any Federal home loan bank, the Federal Housing Finance Agency, the Federal Deposit Insurance Corporation, the Farm Credit System Insurance Corporation, or the National Credit Union Administration Board, a branch or agency of a foreign bank (as such terms are defined in paragraphs (1) and (3) of section 1(b) of the International Banking Act of 1978), an organization operating under section 25 or section 25(a) of the Federal Reserve Act, or a mortgage lending business, or any person or entity that makes in whole or in part a federally related mortgage loan as defined in section 3 of the Real Estate Settlement Procedures Act of 1974, upon any application, advance, discount, purchase, purchase agreement, repurchase agreement, commitment, loan, or insurance agreement or application for insurance or a guarantee, or any change or extension of any of the same, by renewal, deferment of action or otherwise, or the acceptance, release, or substitution of security therefor, shall be fined not more than $1,000,000 or imprisoned not more than 30 years, or both.” may be charged with a federal crime.

Federal mortgage fraud is prosecuted under various statutes, including 18 U.S.C. § 1014, which prohibits knowingly making false statements or reports, or willfully overvaluing property, to influence a mortgage lending business or other specified entity, and 18 U.S.C. § 1344, which prohibits bank fraud. Mortgage fraud may involve “Whoever knowingly executes, or attempts to execute, a scheme or artifice-(1) to defraud a financial institution; or (2) to obtain any of the moneys, funds, credits, assets, securities, or other property owned by, or under the custody or control of, a financial institution, by means of false or fraudulent pretenses, representations, or promises; shall be fined not more than $1,000,000 or imprisoned not more than 30 years, or both.ion involving any real property.”

What Are the Consequences of Mortgage Fraud for Individuals and Companies?

The consequences of mortgage fraud for individuals, companies, and financial institutions can be severe. Some of the risks of being accused of mortgage fraud are:

• Civil Litigation: Federal agencies such as the U.S. Department of Justice and the Department of Housing and Urban Development aggressively target mortgage fraud in civil litigation. Civil lawsuits can result in financial penalties and other liability.
• Fines and Monetary Sanctions: Individuals and companies charged with mortgage fraud can face substantial fines and monetary sanctions. Depending on the statute charged and the applicable fine provisions, mortgage-fraud convictions can result in imprisonment and substantial fines; for example, 18 U.S.C. §§ 1014 and 1344 each authorize a fine of up to $1 million and imprisonment of up to 30 years.
• Imprisonment: Individuals charged with mortgage fraud face a maximum that depends on the statute charged.
• Professional License Revocation: Individuals licensed to practice in the finance and legal fields can lose their professional licenses. For example, professional licensing boards can suspend or revoke a professional’s license if it is found that the professional has committed mortgage fraud.

Which Mortgage Schemes Turn False Information into Charges?

Mortgage fraud is often the result of one of a number of specific types of mortgage schemes. While lenders rely on the information they receive from the apparent borrower, in many cases, the false information is the result of a scheme in which one or more other parties are involved. Some of the mortgage schemes that can expose a party to criminal liability include:

• Inflated Appraisals. Along with lending institutions, real estate agents and lenders rely on the property appraisals prepared by licensed appraisers. However, a property appraisal can trigger fraud allegations when the licensed appraiser coordinates with one or more other transaction participants to artificially inflate the property’s value on the appraiser’s assessment. While inflating appraisals can be a red flag, it is not evidence of mortgage fraud on its own. Prosecutors must still prove that the valuation was willfully inflated for the purpose of influencing the action of a covered institution or agency.
• Straw-Buyer Schemes. In a straw-buyer scheme, the apparent borrower is not the actual borrower, but rather is a straw buyer whose personal and financial profile is used to conceal the identity and/or poor creditworthiness of the true borrower.
• Silent-Second Schemes. A silent-second scheme is a type of mortgage fraud where a borrower seeks mortgage financing from a primary lender and fails to disclose the existence of a second loan.
• Air-Loan Schemes. An air-loan scheme is a form of mortgage fraud in which the loan seeker or a network of co-conspirators seeks mortgage financing for a loan on a nonexistent property.
• Property Flipping. Property flipping is a legitimate investment strategy in many cases, but it also takes on a fraudulent form. Real estate investors who flip properties often purchase the properties at a steep discount from distressed sellers. While legitimately flipping requires the investor to renovate the property before reselling it, criminal property flipping involves artificially inflating the property’s valuation to resell at an inflated price.

What Can Follow When a Lender Finds Inaccurate Loan Information?

When a lender finds an inaccuracy on a mortgage application, it will trigger a chain reaction. The consequences for borrowers will depend on the borrower’s role in the loan transaction, as well as the circumstances surrounding the loan application. Along with borrowers, loan brokers, appraisers, lenders, title insurance agents, attorneys, loan coordinators, and home sellers can all end up under scrutiny, as each has a role to play in mortgage lending transactions.

Are Civil and Criminal Proceedings Mutually Exclusive?

Civil disputes between lenders and borrowers seeking to defraud lenders are not necessarily mutually exclusive. Federal criminal prosecutions can proceed independently and simultaneously with civil enforcement proceedings. While a civil settlement between a lender and a borrower may be an important consideration in a criminal prosecution, a civil settlement doesn’t automatically terminate criminal proceedings.

What Is the Federal Government’s Role in Mortgage Fraud Investigations?

When federal prosecutors pursue mortgage fraud charges, federal investigators have full access to the target’s loan files, bank records, telephone and email communications, and property appraisal history. Some of the information gathered during federal investigations can result in grand-jury subpoenas. Grand-jury subpoenas are similar to subpoenas in civil litigation. They require recipients to provide information, and the information requested can range from loan documents and financial records to email archives and witness testimony.

If federal agents are at your door, the firm's advice is the same as every defense lawyer's: say you want your lawyer, then stop talking.

How Are Federal Mortgage-Fraud Penalties Calculated Across Charges?

Calculating the potential penalties in a federal mortgage fraud case is complex. Depending on the extent of the fraud, the nature of the fraudulent conduct, and the specific statute(s) at issue, a defendant could face multiple counts, and their potential penalties can increase proportionately.

For example, if the defendant has committed mortgage fraud, the prosecutor may seek to secure a conviction under:

• 18 U.S.C. Section 1014: 30 years maximum federal imprisonment.
• 18 U.S.C. Section 1341 (Mail Fraud): 20 years maximum federal imprisonment.
• 18 U.S.C. Section 1343 (Wire Fraud): 20 years maximum federal imprisonment.
• 18 U.S.C. Section 1344 (Bank Fraud): 30 years maximum federal imprisonment.
• 18 U.S.C. Section 1956 (Money Laundering): 20 years maximum federal imprisonment.

What Is the Difference Between Bank Fraud and Mortgage Fraud?

Bank fraud has a statutory maximum of 30 years’ imprisonment and a $1 million fine under 18 U.S.C. § 1344, while “mortgage fraud” is not a standalone federal offense and its penalties depend on the statute charged.

Can a Borrower Face Multiple Counts for a Single Mortgage Transaction?

A borrower can face multiple counts under one or more of the federal laws described above, depending on the charged conduct and the applicable unit of prosecution. For example, if a borrower commits mortgage fraud involving multiple transactions that are considered to be in a single scheme, federal prosecutors may seek to secure a conviction on multiple counts.

Generally, each counts as a separate offense, and prosecutors will seek convictions on all counts. But defendants can still fight the charges, and if you are facing criminal charges, you need a strong defense in federal court to avoid a prison sentence.

Is Mortgage Fraud a Civil Offense, or a Criminal Offense?

Mortgage fraud can be either a civil offense or a criminal offense. Often, federal agencies will attempt to resolve mortgage fraud claims through civil litigation. However, criminal mortgage fraud is also a major focus for prosecutors in criminal law. The difference between these two is largely depending on whether the lender has the means to pursue a civil case and the severity of the incident.

In most cases, a civil settlement is not binding when facing criminal charges, even if the parties involved settle their disputes before a trial.

Where Do State Charges and Federal Consequences Overlap?

Federal mortgage-fraud sentencing can depend heavily on sentencing-guideline calculations. Along with other factors, sentencing-guideline calculations can heavily depend on the government’s estimated “loss amount.” Because this calculation plays such a role in determining a defendant’s sentence, challenging the government’s loss calculation is often a primary objective for a defendant’s defense attorney. For example, depending on the specific circumstances involved, challenging the government’s loss calculation can involve arguing about the “actual loss” versus the “intended loss,” challenging the validity of the intended loss calculation, or challenging the estimated amount of collateral recovery.

If a borrower is accused of lying on an application for an FHA-insured mortgage, federal prosecutors may bring charges under applicable federal statutes, including 18 U.S.C. § 1014. While the FHA does not provide mortgage funds directly, the federal government assumes the lender’s loss if the borrower defaults on the mortgage. In addition, the federal government pursues mortgage fraud cases under the criminal provisions of the Securities Exchange Act of 1934.

Mortgage Fraud Under Arizona Law

When dealing with state charges for mortgage fraud, the state’s laws also play a significant role. In Arizona, for example, Arizona Revised Statutes § 13-2320 defines “residential mortgage fraud” as follows:

Arizona Revised Statutes § 13-2320 defines residential mortgage fraud to include, with the intent to defraud, knowingly making or using a deliberate misstatement, misrepresentation, or material omission during the mortgage-lending process that is relied on by a mortgage lender, borrower, or other party to the mortgage-lending process.

The statute also discusses the penalties associated with committing residential mortgage fraud, noting that “A person who violates this section is guilty of a class 4 felony, except that a person who engages or participates in a pattern of residential mortgage fraud or who conspires to engage or participate in a pattern of residential mortgage fraud is guilty of a class 2 felony.” However, certain factors can elevate the charge to a class 2 felony. For example, under A.R.S. § 13-2320(D), residential mortgage fraud is a class 2 felony if the person engages or participates in a pattern of residential mortgage fraud or conspires to engage or participate in a pattern of residential mortgage fraud.

If You Want Someone to Look at Your Case

Reading about a charge is not the same as having someone read your file. Spodek Law Group keeps an attorney on call around the clock, and the first consultation costs nothing and runs as long as your questions do. The number is 888 348 8028.