By Criminal Defense Attorney Jeremy Rosenthal
Mortgage fraud is committed where someone lies to a bank to get a real estate loan. Mortgage loans are heavily regulated by the US government as evidenced by the mountain of paperwork you do when taking out a mortgage on a house. Mortgage fraud is prosecuted by the federal government and the controlling statute is 18 U.S.C. Section 225. The punishment for mortgage fraud can be up to 30 years of prison but as with other federal offenses – the more indicative indicator is the federal sentencing guidelines for any given case.
Common Types of Mortgage Fraud Schemes:
- Appraisal fraud – where an appraiser or other party is paid to falsify the value of property to the bank;
- “Air Loans” – where the borrower basically falsifies everything and pockets the bank’s cash;
- Occupancy fraud – where the buyer certifies the house is not an investment property but a homestead;
- “Straw Man” – where a person cannot qualify for a loan (or is barred from receiving a loan) and instead uses another “straw man” to complete the transaction.
- Underwriting fraud – where phony assets or other falsification occurs when the bank is trying to verify assets. Examples would be moving chunks of money around to fool a bank into thinking a person has assets when they really don’t.
Any type of falsification you can think of to a bank in the process of a real estate or home loan can probably be characterized as mortgage fraud with the key qualification the mis-representation is “material” in nature.
Conspiracies to Commit Mortgage Fraud
Remember – the federal government is keen on prosecuting what they characterize as conspiracies. So people such as appraisers, builders, and even the bank employees themselves can be investigated and prosecuted for mortgage fraud if the government thinks they played a role.
Defenses to Mortgage Fraud
Lack of intent – or misrepresentations being a mistake are a main defense to mortgage fraud. To help show a misrepresentation was an honest mistake and not part of a larger and more sinister plot – the government and potentially a jury need to be shown the broader picture including perhaps forensic accounting of the persons assets and portfolio and the person’s sophistication level when it comes to taking out loans.
As with all federal cases – mitigation and reducing liability also commonly include cooperation with the government if necessary, the amount of the alleged fraud in question, and the scope and degree of the person’s involvement if it is a conspiracy.
*Jeremy Rosenthal is certified in criminal law by the Texas Board of Legal Specialization. He is designated as a Texas Super Lawyer by Thomson Reuters.