What is mortgage fraud?

| by Max Soni

What is mortgage fraud?

Thanks for visiting Spodek Law Group. We’re a second-generation law firm managed by Todd Spodek – who has many, many years of experience successfully handling hundreds of criminal defense cases. Our team has over 40 years of combined experience, and we’re known for handling cases that other firms say are unwinnable. Some of our most famous cases include representing Anna Delvey – the fake German heiress whose story became a Netflix series – the Ghislaine Maxwell juror misconduct case, and the Alec Baldwin stalking case.

If you’re reading this, you probably need to understand what mortgage fraud is and whether the government might be investigating you. This article explains the two main types of mortgage fraud, the schemes federal prosecutors focus on, and what penalties you’re facing if they charge you.

Mortgage fraud is lying on a mortgage application or manipulating the mortgage lending process to get a loan you shouldn’t qualify for or to make money off the system. The FBI breaks mortgage fraud into two categories – fraud for housing and fraud for profit.

Fraud for housing vs. fraud for profit

Fraud for housing happens when someone lies on their application to buy a home they want to live in. You overstate your income, hide debts, or claim you’ll live in a property when you’re actually buying it as an investment. The most common version is occupancy fraud – you tell the lender you’re buying a primary residence to get better loan terms, but you’re really buying a rental property. Occupancy fraud has tripled since 2020, according to recent data from CoreLogic.

Fraud for profit is different. This involves industry insiders – appraisers, brokers, loan officers, real estate agents. They’re not trying to get a house. They’re trying to steal money by manipulating the mortgage process itself. These schemes are what federal prosecutors care about most, because the losses are bigger and the fraud is organized.

Common fraud schemes prosecutors target

Property flipping schemes – someone buys a property cheap, gets a fraudulent appraisal that inflates the value, then sells it at the fake inflated price to a buyer who gets a mortgage based on that bogus appraisal. The flipper pockets the difference between the real value and the fake value.

Straw buyer schemes – the actual buyer can’t qualify for the loan, so they use someone else’s name and credit. The straw buyer signs the mortgage documents pretending they’re buying the property, but they’re really just a front. The real buyer controls the property and often stops making payments, leaving the straw buyer holding the bag.

Short sale fraud – when a property is underwater and the homeowner negotiates with the lender to accept less than what’s owed. The fraud happens when the seller hides a side deal where they’re actually getting paid more than what the lender knows about.

The federal laws prosecutors use

Most federal mortgage fraud cases are charged under 18 U.S.C. § 1014, which makes it a crime to knowingly make false statements to influence a financial institution’s decision about a loan. You can also be charged with wire fraud, bank fraud, conspiracy, or money laundering depending on how the scheme worked. FinCEN requires financial institutions to report suspicious mortgage activity, which means your lender is legally obligated to flag transactions that look fraudulent.

The Fraud Enforcement and Recovery Act passed in 2009 increased the statute of limitations to 10 years for mortgage fraud – double the 5-year limit for most other fraud crimes. Federal prosecutors have more time to investigate and charge you.

If convicted under 18 U.S.C. § 1014, you face up to 30 years in federal prison and fines up to $1 million. Those are the maximums. The United States Sentencing Commission reports that in 2021, more than 74% of mortgage fraud offenders went to prison, with an average sentence of 14 months. The median loss in mortgage fraud cases in 2021 was $371,818.

How rare federal convictions actually are

Federal mortgage fraud convictions are vanishingly rare. In 2024, there were only 38 federal convictions nationwide. Four of those 38 people got no prison time. In 2023, only 34 people were convicted.

Why so few convictions when mortgage fraud attempts increased 8.3% year-over-year in 2024? Because proving criminal intent is extremely difficult. Prosecutors need to show you knowingly lied – not that you made a mistake, but that YOU intended to defraud the lender. Many mortgage fraud cases are civil matters, not criminal cases.

That doesn’t mean you’re safe if federal prosecutors decide to charge you. If they’re building a case, they believe they can prove intent. They don’t prosecute weak cases when they only have 38 convictions a year to show for their efforts.

What happens if you’re under investigation

You’ll know the government is investigating when FBI agents show up to interview you, when your bank notifies you that they’ve received a subpoena for your loan records, or when your business partners start getting questioned. Don’t talk to investigators without a lawyer. Federal agents are trained to get you to make statements they can use against you later.

If prosecutors charge you, your case will be in federal court. Federal judges follow the sentencing guidelines, which calculate your sentence based on the amount of loss involved in the fraud and your criminal history. Federal sentences are advisory after United States v. Booker, which means judges can depart from the guidelines if there are reasons to do so.

Restitution is mandatory in mortgage fraud cases. If the lender lost $400,000 because of your fraud, you’ll be ordered to pay that back even if you don’t have the money. Restitution obligations survive bankruptcy and follow you for decades.

Why you need experienced federal defense

At Spodek Law Group, we’ve defended clients in complex federal fraud cases for over 40 years. Todd Spodek is a second-generation criminal defense lawyer who grew up watching his father – also an attorney – handle difficult cases.

We’ve represented clients in cases involving wire fraud, securities fraud, and other white-collar crimes. Federal prosecutors have unlimited resources, and they’ve been investigating your case for months before they charge you.

We’re available 24/7, and we represent clients nationwide. Unlike other law firms who worry about their relationships with prosecutors and judges, our only loyalty is to you. We take on cases that other firms say can’t be won – that’s what we’re known for.

If federal investigators are asking questions about a mortgage transaction, if your lender has frozen your loan, if you’ve received notice of a grand jury subpoena – call us immediately. The earlier we get involved, the more options you have. Sometimes we can intervene before charges are filed. Sometimes we negotiate with prosecutors to reduce charges. Sometimes we take the case to trial and win.

Mortgage fraud cases are defensible. Intent is hard to prove. Mistakes happen in mortgage applications all the time – that doesn’t make them crimes. If federal prosecutors have targeted you, you need serious representation immediately.