What is Mortgage Fraud?

What is Mortgage Fraud?

Mortgage Fraud is becoming more frequent as investors seek to take advantage of the housing boom in many markets. Mortgage Fraud is when a person or corporate entity makes any material misstatement, mispresentation, or omission during the mortgage lending process with the intention that the misstatement, misrepresentation, or omision will be relied on by a mortgage lender typically a bank or other financial institution.

How does mortgage fraud happen?

Mortgage fraud can occur in many different ways. It can be as simple as intentionally misstating one’s income in order to procure a loan or leaving out pertinent facts about one’s assets or current liabilities.

It can also be very sophisticated and involve collusion on the part of the buyer and seller which the bank doesn’t know about. Many real estate transactions in today’s market are “short sales” which require that an affidavit or form signed under penalty of perjury and Federal False Claims criminal statutes. The affidavit or form will typically promise the bank that the parties do not know each other and that there is no pre-existing relationship between the buyer and the seller, that there are no hidden terms or special agreements relating to the current or subsequent sale of the property among buyers, sellers and/or agents and that all amounts to be paid to any person or entity will be reflected on the HUD-1 Settlement statement at closing.

Is “flipping” considered mortgage fraud?

It has become common for lenders to prohibit “flipping” properties for a profit, that is buying and selling the property with a pre-arranged agreement that the bank does not know about, often on the same day. Banks have provisions in their closing documents which often prohibit this practice and in order to get around it people often engage in some form or mortgage fraud.

Purchasers may develop a scheme to defraud by identifying properties with mortgages that are in default and facing foreclosure. The purchaser will tell a homeowner whose properties arein default that the foreclosure sale can be stopped, that there is a pre-arragnged buyer for the property, and the homeowner could receive payments for participating in a short sale of their home. After identifying a subject property the purchaser may structure two interrelated transactions in a “short sale flip” of the property where the original owner sells the property to a buyer who represents to the bank holding the mortgage that the buyer is willing to pay a specific price for the subject property which is less than the full amount owed on the property. After that, the purchaser sells the property or “flips” it to another purchaser who has surreptitiously funded the original purchase. The second sale or “flip” sale typically then closes for significantly more than the first transaction. This is a more sophisticated manner of mortgage fraud but has become prevalent especially in booming markets.

What are the federal penalties for Mortgage Fraud?

Mortgage Fraud is typically prosecuted in Federal Court with jurisdiction emanating from the fact that banks and other financial institutions are FDIC (Federal Deposit Insurance Corporation) insured, but State court prosecutions do occur typically in less sophisticated cases not involving a conspiracy.

Penalties for mortgage fraud in Federal Court often include a prison sentence depending on the amount of the loss to the financial institution from the fraudulent activity. The greater the loss the longer the potential prison sentence. It is important to contact an experienced Federal Criminal defense attorney who has experience in understanding the nuances of mortgage fraud cases if you have been contacted by the FBI or other law-enforcement. Never speak to a law- enforcement agent or hand over documents to them without first consulting an experienced Federal Criminal attorney. They want to make you feel as if you’re being cooperative but all you are doing is assisting them in putting the paper trail together which may end up in you being Indicted and arrested.

Written by

Ray Lopez has practiced since 1990, with prior experience as a Hillsborough County assistant State attorney and lawyer for the Tampa Police Department. He handles all criminal charges, from traffic violations and misdemeanors to serious felonies and federal drug charges. He practices in all state and federal courts of the Tampa Bay area and throughout Florida, as well as criminal appeals, juvenile court, administrative hearings, and civil forfeiture proceedings.

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