The Federal Bureau of Investigation (FBI) and other authorities are taking cases of mortgage fraud very seriously. Beginning with the discovery of rampant fraud exposed during the housing crisis a few years ago, authorities began to crack down on individuals taking advantage of distressed homeowners. Now, as the country struggles to recover, authorities are pursuing individuals who would defraud homeowners with renewed vigor.
Because a conviction could result in serious consequences, individuals often need the expertise of a Los Angeles mortgage fraud lawyer. Recently the leader of a Hells Angels motorcycle gang was sentenced to a year in prison and $130,000 in restitution for his role in falsifying documents to obtain mortgages in 2006 and 2007. A Pakistani beauty queen is now wanted for her role in luring ethnic homeowners with false promises of securing new mortgages at lower interest rates. Despite promising a refund to anyone who wasn’t fully satisfied, the beauty queen and her husband never returned a penny to homeowners who requested it. As a result, many homeowners lost their homes. If convicted, the beauty queen could face four years in prison. Her husband faces twenty years.
Basics of Mortgage Fraud
According to the FBI, most mortgage fraud plots often employ a form of “material misstatement, misrepresentation or omission relating to the property or potential borrower.” These “errors” are then used by people such as the lender or underwriter to “fund, purchase or insure a loan.”
The FBI notes that these misstatements, misrepresentations and omissions may manifest themselves in several types of fraudulent techniques, including:
- Fictitious or stolen identities
- False loan applications
- Straw buyers
- Inflated appraisals
- Kickbacks to people involved in the fraudulent scheme
- Filing or filling out supporting loan documents that are false
Mortgage fraud is considered a white collar crime. The cases are often complex involving extensive documentation. While there are numerous types of mortgage fraud schemes, the FBI classifies them, generally, in one of two ways:
- Fraud for profit often involves the defrauding of banks or lenders by those involved in the mortgage process, such as mortgage brokers, appraisers, attorneys or others.
- Fraud for housing involves borrowers who may misrepresent their income or other information on loan applications to acquire ownership of a house.
Common Mortgage Fraud Schemes
According to the FBI’s 2009 Financial Crimes Report, there are several common types of mortgage fraud schemes or programs that may be fraudulently manipulated, including:
- Foreclosure rescue schemes – involves finding homeowners who are at risk of or in foreclosure and offering to assist them keep their home. To keep the house, homeowners are told to transfer the title/deed of the property to an investor. The homeowners are told they can stay in the home and pay rent with the option to repurchase the property at a later date. The property is then sold by the company offering help to a straw purchaser or the investor after securing a fraudulent appraisal, all while the mortgage goes unpaid and the home goes into foreclosure.
- Loan modification programs – similar in nature to foreclosure rescue schemes, homeowners who are struggling to make their monthly mortgage payments are told that their loans can be modified, for an upfront fee. Often, those that offer to help renegotiate the terms of the loan either negotiate unfavorable terms or fail to negotiate with the lender at all.
- Illegal property flipping – after property is purchased it is appraised at a much higher value and then sold. According to the FBI, this scheme may include one or more false documents, false buyer information and/or kickbacks.
- Builder bailouts – builders who built too many homes prior to the housing crisis find buyers to purchase these still empty homes. The buyers then fail to make mortgage payments and let the homes go into foreclosure.
How the FBI Investigates Schemes
According to information from the FBI, the agency employs several methods to investigate and catch people who are involved in mortgage fraud, including:
- Suspicious Activity Reports (SARs) – SARs are documents that federally-insured institutions file with the agency. The FBI uses this information to find new fraudulent practices and aid in current investigations.
- The National Mortgage Fraud Team (NMFT) – the NMFT manages the FBI’s mortgage fraud programs at a higher level and provides assistance to field offices. The NMFT helps identify the “most egregious” cases of mortgage fraud.
- Partnerships – the FBI has increased its working partnerships with other federal agencies and state and local authorities through Mortgage Fraud Task Forces (MFTF) and Mortgage Fraud Working Groups (MFWG).
Penalties for Mortgage Fraud
In 2009, the Fraud Enforcement and Recovery Act (FERA) was signed into law. Along with providing additional funds to law enforcement agencies, including the FBI, FERA increased the severity of the penalties that those accused of committing mortgage fraud face and extended the statute of limitations from 5 to 10 years.
With the passage of FERA, mortgage fraud penalties now include up to 30 years in prison and a maximum of a million-dollar fine.
With the seriousness that the FBI and other authorities give perceived mortgage fraud and the severity of the possible penalties, it is imperative that those accused of or under suspicion of wrong-doing aggressively protect their rights.
If you or your company has been accused of or is under investigation for mortgage fraud, you should enlist the services of an experienced criminal defense attorney as soon as possible. Without the help of a mortgage fraud attorney, law enforcement and prosecutors will be pursuing these criminal charges, including a possible arrest necessitating bail and other expenses. If on the other hand, your story is presented to authorities before they draw conclusions, a reduction or even rejection of the case is possible.
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