18 USC 1344, 18 USC 1341

Financial Institution & Mortgage Fraud

When someone commits mortgage fraud they are either defrauding an individual, a financial institution, or both, depending on the circumstances.

In general, fraud involves the party providing false information and the party that relies on that information to complete a transaction e.g. a home purchase, a mortgage refinance, a loan modification, or a foreclosure rescue. Such crimes are commonly prosecuted as wire fraud, bank fraud, and conspiracy.

Federal law does not specifically single out “mortgage fraud.” What this means is a wide range of conduct related to real estate transactions could lead to a criminal case for financial institution fraud. This includes submitting false pay stubs to help you get a mortgage, using a fraudulent appraisal to make a home seem more or less valuable than it actually is, or deceiving someone during the foreclosure process to obtain ownership of their home.

Examples of Financial Institution Fraud

The list below is not exhaustive by any means. It is merely an example of some kinds of financial institution fraud. Do not rely on this article alone. Consult a licensed criminal defense attorney to obtain advice for your unique case.

The following are some examples that have been cited by the Federal Bureau of Investigation as financial institutions fraud:

Foreclosure rescue fraud: Fraudsters seek out property owners in distress and induce them into a scheme whereby someone else purchases their home and rents it back to the homeowner. Along the way, fraudulent appraisals, and other fees, are paid by the homeowners. What the homeowners don’t know is that the proceeds of any coming sale will never be funneled to them, leaving them with a huge burden and nothing to show for it.

Loan modification schemes: These fraudsters also target distressed homeowners and claim that they can renegotiate a mortgage after the payment of an advanced fee. However, like most schemes, the claims are frequently too good to be true with borrowers often ending up with unfavorable lending conditions after giving the last of the money they had to a loan modification agency.

Illegal property flipping: Purchased property is falsely appraised and quickly sold to create a quick buck for the fraudsters. Most people wonder where the fraud lies because everyone wants their home to be appraised for more, right? Wrong. The fraud lies in how an appraisal is created to artificially inflate the home’s value. The buyer is getting less than they thought and the seller is getting a windfall. Falsifying a crucial fact is the epitome of fraud.

Builder fraud: Often this fraudulent scheme takes shape near a housing crisis. Builders with millions of dollars invested into the project see their bottom line shrinking because home values are dropping. They use a variety of sales tactics, including paying buyers to buy property, without informing those lending money to borrowers. This results in a down payment or monthly income for the borrower that is misleading or outright fake. As a result, the lender lends to a borrower that normally would not have qualified, and borrowers often lose their homes after realizing they cannot afford the payments, while builders walk away with a completed project and millions of dollars.

Equity skimming: A fraudster manufactures a fake identity and income documents so that an imaginary person obtains a mortgage and buys a home. The fraudster then creates documents showing the fake identity has deeded the home to the fraudster. Once the fraudster “owns” the property he or she can rent it to unsuspecting tenants and collects the rents until the bank takes the home for non-payment of the mortgage.

Silent second: Instead of putting down cash, a buyer will give the seller of a home a second mortgage on the home after the sale is completed. The buyer does not tell their first mortgage lender, who assumes all of the down payment belongs to the buyer alone. As a result, the buyer is actually overextended and cannot afford to pay both the seller holding the second mortgage and the lender who leant the first mortgage, resulting in a foreclosure. The seller, in that case, held a silent second mortgage.

Reverse Mortgage Fraud: Reverse mortgage fraud naturally involves the elderly because reverse mortgages are only for people 62 years of age or older. Instead of resulting in an income source for retirees, fraudsters funnel the proceeds of a reverse mortgage into unnecessary home improvement projects or unlawful fees associated with origination. Since home improvement and some fees are required as part of the reverse mortgage process, unsuspecting seniors can find it difficult to take action to safeguard themselves from unnecessary charges.

Commercial real estate loan fraud: Commercial real estate owners can manufacture a portfolio of false lease agreements to dupe lenders into lending them money. Instead of using the loans to improve the property, the proceeds are often used to prop up already failing businesses. As a result, lenders are often left with run down properties that are grossly insufficient to replace the money borrowed leaving banks holding the bag.

Air loans: This form of fraud is aptly named because fraudsters invent property and appraisals out of thin air. As a result, banks lend based on collateral that never existed, allowing fraudsters to run away with hundreds of thousands of dollars of stolen money with no real property to offset any losses.

Penalties and Defenses

Penalties for financial institution fraud can include up to $1 million in fines, up to 30 years in prison, or both, depending on the facts and circumstances of the individual case. Consult a licensed criminal defense attorney for more information.

You may have a defense if you did not intend to deceive or if you did not know the information you were giving was false. Again, this is a complex area of law that requires a careful and thorough licensed criminal defense attorney to advise you about the details of your case.

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https://www.fbi.gov/investigate/white-collar-crime/mortgage-fraud (accessed December 30, 2016.)

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