The use of cooperating co-defendants, in search of lenient sentences, has plagued criminal prosecutions since there have been criminal prosecutions. The use of cooperation agreements infects almost every aspect of the federal criminal justice system, tempting cooperators, and snitches, to tell the Government what they want to hear in exchange for significantly reduced prison time.
This is also true in a surprising number of mortgage fraud cases, where cooperating with the Government can mean the difference between decades in prison or no jail time at all. Obviously, this system of carrot and stick justice causes concern for defense attorneys who represent defendants that maintain their innocence. Unfortunately, those that stand on principle and refuse to admit guilt are often the last standing and, if unsuccessful at trial, receive punishments that are much more severe than their equally culpable cohorts.
Federal, state, and local law enforcement agencies have invested enormous resources to detect these mortgage fraud schemes. The FBI operates the Financial Crimes Task Force through numerous field offices that work with state and local law enforcement and regulatory agencies to address large scale mortgage fraud schemes. Through shared resources and intelligence, these federal and state agencies can initiate and maintain long term investigations to detect, and prevent, mortgage fraud.
Mortgage fraud is a crime by making a material misstatement, false statement, misrepresentation on a loan application used by a lender to underwrite the loan.
There are essentially two kinds of mortgage fraud: fraud for profit and fraud for housing. The Federal government does not have a single statute that criminalizes mortgage fraud. Rather, federal prosecutors utilize a host of fraud-related criminal statutes to prosecute mortgage fraud: mail and wire fraud, bank fraud, money laundering, false entries to federally insured institutions, false statements on loan credit application, and identity theft.
Most people charged with mortgage fraud for profit are industry insiders who use their knowledge, expertise, and authority to either commit or facilitate a fraud scheme. These insiders include bank officers, mortgage brokers, appraisers, attorneys, loan organizers, etc. FBI data and independent mortgage fraud sources attribute a “high percentage” of mortgage fraud to these insiders.
The lesser, or secondary, grade of mortgage fraud is committed by the borrower who generally tries to secure housing through false pretenses such as inflating income or asset information to secure a loan.
Because of the substantial amount of money generally involved, mortgage transactions—often involving many parties—create an opportunity receptive to allegations of fraud. These mortgage fraud schemes come in a variety of shades and colors:
• Property flipping: property is purchased, its value falsely appraised, and it is then resold for a profit. The fraudulent appraisal is normally the crux of the crime.
• Straw buyer: a borrower’s identity is concealed with the use of another’s name whose credit history is used to secure a loan.
• Equity skimming: An investor will use a straw buyer name, along with false documents and credit reports, to obtain a loan in the straw buyer’s name. Once the loan process is complete, the straw buyer surrenders the property to the investor who rents or leases the property until the property is foreclosed on.
• Silent second: a buyer takes out a second mortgage, or undisclosed private loan, to cover the down payment on the initial mortgage loan. The lender believes the buyer has used his own money to make the initial down payment. The second mortgage is generally not recorded to keep it hidden from the primary lender.
• Fraudulent supporting loan documentation: loan applicant uses forged or altered paycheck stubs or other false documents to secure the loan.
There are a host of other common mortgage fraud schemes: stolen identity, inflated appraisal, home equity conversion mortgage, commercial real estate loans, and air loans.
Given that the seriousness of mortgage fraud cases is driven by the amount of the loan applied for, rather than actual loss amounts, mortgage fraud cases become very serious very fast. Therefore, anyone investigated for any connection with mortgage fraud-related case should immediately request an attorney and refuse to speak with investigators until he or she has counsel present.