Investigators on the Lookout for Mortgage Fraud

More than a decade after one of the worst financial crises in the mortgage lending industry that unfolded in 2008, law enforcement authorities continue to apprehend some who still choose to blatantly take unfair advantage of the nation’s homebuyers (and this include those lenders who are well-intentioned by stretching evaluations for potential homebuyers who are just beyond the scope of approval criteria), placing them in jeopardy of serious jail time, massive fines, and worse – a felony record.


Just last month, seven Californians were found guilty of targeting and defrauding Sacramento’s Latino community out of some $10 million in a mortgage fraud scheme. Clear across the country, one Floridian is currently facing a 9-year prison term on a $1.7 million mortgage fraud conviction.


In the wake of the mortgage crisis tsunami that swept the nation in 2008 – at an estimated loss to Americans of about $8 trillion in equity alone – it’s no wonder that authorities seem a bit “jumpy” at any sign of mortgage fraud.


Today, we’ll share some key information about what constitutes mortgage fraud, what activities are being red-flagged by authorities, and the charges and penalties you may face if you get caught up in them.


If you’ve found yourself under the microscope for this white-collar crime, an experienced attorney can help guide you on what need to be you very careful next steps.


Mortgage Fraud Defined


The truth is, there are no specific statutes addressing “mortgage” fraud. This can make cases complicated and difficult to prove, and until recently prosecution for mortgage fraud was fairly rare. The first thing to remember, though, is that an actual crime of mortgage fraud involves intentional deception — not errors or mistakes.


Black’s Law Dictionary defines fraud as “knowing misrepresentation of the truth or concealment of a material fact to induce another to act to his or her detriment. While fraud is usually a civil matter, when the conduct is willful, there may be criminal prosecution. Mortgage fraud…can be defined as committing some sort of fraudulent activity in conjunction with the mortgage process.”


Sound vague?


It is.


There are a plethora of suspicious activities that can signal fraud to investigators, and below we are going to share a number of them.


Activities Signaling Lending Fraud


Here is a laundry list (though not an exhaustive one) of notable activities during an FBI mortgage fraud investigation:


  • Inflated appraisals
  • Single appraiser relationships
  • Sharp increases in commission/bonus
  • Fees above standard cost
  • False information on applications
  • Fake supporting documentation
  • Buyers signing blank forms or applications
  • Purchase loans disguised as refinances
  • Pool of short-term investors
  • Multiple “holding companies


The FBI also recognizes those schemes often surfacing in mortgage fraud court cases like relatively quick sales after purchase, property flipping, nominee loans, and silent second mortgaging.


Houston Mortgage Fraud Attorney

These red flags are what lead investigators to dig deeper, and usually when a single lender or tight ring of parties are found participating in more than one of these activities, there is a strong chance an indictment will follow.


Four Mortgage Fraud Umbrella Crimes


The Fraud Enforcement and Recovery Act (FERA) is the primary governing document over cases of mortgage fraud, and today, most charges fall under four primary umbrellas of mortgage fraud crimes:


  1. Borrower Fraud occurs when someone deliberately lies or falsifies information on their mortgage application or supporting documents in order to ensure they will secure a home loan.
  2. Professional Fraud is committed by one or more of the professional entities – from real estate agencies to mortgage and banking providers – with whom a borrower is working to secure a home loan.
  3. Single Action Mortgage Fraud is just as the name would imply — a situation where one fraudulent act takes place, such as a borrower knowingly inflating their income or accepting a kickback from the seller.
  4. Multiple Action Mortgage Fraud is more common, and usually happens through collaborative efforts to obtain a mortgage loan. Flipping houses is a good example if it involves a flipper giving an appraiser part of the profits in exchange for over-inflating a completed home’s value.


When these activities cross state lines or involve federal agencies (like the Federal Housing Administration) and other federally regulated financial institutions, federal prosecutors often step in.


After the 2008 housing bubble burst and large-scale mortgage fraud in this country was subsequently uncovered the, RICO statute is being applied more often in mortgage fraud cases wherever applicable.


Federal & State Penalties for Mortgage Fraud


Mortgage fraud is generally charged as a felony offense, and can carry a 30-year prison term upon conviction. Being found guilty of even a single count of federal mortgage fraud can also land you up to $1 million in fines. At a state level, jail time and fines can still be hefty – years behind bars and $100k or more in fines depending upon the crime.


Federal & State Penalties for Mortgage Fraud


If your fraud only involved a small amount of money – a thousand dollars or less – you may be lucky enough to get off with a misdemeanor, but that can still equate to a year of jail time and the same amount of probation.


It is also at the court’s discretion to require you to pay additional monies to parties you attempted to defraud as restitution.


For those out there thinking about fudging a little of this or that on a mortgage app – trust us.


Now is not the time.