Allegations of mortgage fraud have grown rapidly in recent years. A common form of white collar crime, mortgage fraud involves knowing and intentionally making false statements to lenders to impact their decision to loan money. Any misrepresentation or omission that alters a bank's lending decision could qualify as the federal crime known as mortgage fraud.
Because of the rapid growth of mortgage fraud, federal prosecutors and the FBI have taken a keen interest in preventing the crime. This has led to rapid growth in federal mortgage fraud prosecutions. If are under investigation for mortgage fraud or have been arrested, it is important that you speak with legal counsel right away. Contact Houston mortgage fraud lawyer Doug Murphy to discuss the facts and circumstances of your case and to get started on a smart, aggressive defense.
Understanding Mortgage Fraud in Texas
Mortgage fraud could involve many different people or entities. Fraud is often committed by buyers looking to turn an illegal profit or obtain housing they cannot afford. Mortgage brokers or underwriters could commit fraud in an effort to earn a commission on the transaction. A seller could commit fraud in an effort to unload a property to buyers who would not ordinarily qualify for credit.
Regardless of the parties involved, any statement or omission that is both false and made intending to defraud the financial institution could lead to mortgage fraud charges. These statements are typically made through legal documents, including:
- Loan applications
- Mortgage deeds
- Title opinions
- Verification of income
- Verification of deposit
- Tax forms.
Typically, there are two broad categories of mortgage fraud based. These categories are based on the intentions of the person involved. Some acts of fraud occur with profit as a motivator, while others occur in an attempt to obtain housing.
Fraud for profit can materialize in many forms. Given the complexities of the mortgage industry, this form of fraud is often perpetrated by those with insider knowledge. Not all fraud for profit is the result of people working in the industry, though. Savvy buyers are also capable of entering into a fraudulent loan scheme. These schemes can involve obtaining loans in the name of another person or fraudulently liquidating equity from property belonging to the victim.
Fraud for housing includes different motivations. This form of fraud is typically committed by homeowners or prospective homeowners. It involves falsifying information provided to lenders to obtain loans the homeowner would otherwise not qualify for. This could be done to obtain a house that is out of their price range or to simply remain in the home they currently have.
How The Federal Government Could Prove Mortgage Fraud in Texas
Historically, there was no federal statute dedicated exclusively to mortgage fraud. However, the federal code provided many fraud statutes that could be applicable. A federal prosecutor would typically review the facts of a case during the course of the investigation. The prosecutor would then bring charges under the statute that best applied to the situation.
In 2009, the federal government enacted a statutory change targeting mortgage fraud. Known as the Fraud Enforcement and Recovery Act (FERA), this statute outlaws knowingly making false statements or omissions with the intent to defraud a mortgage lender. This charge involves the knowing commission of fraud, meaning it takes more than a mistake to violate the statute.
Examples of Mortgage Fraud
Mortgage fraud can occur under many circumstances. Examples can provide a glimpse into how broad this statute could be. Consider the following examples of mortgage fraud.
Example #1: Income Fraud
After years of renting, Jim is ready to buy a house. Unfortunately, Jim is unemployed and has poor credit. After facing rejection of loans in the past due to his low income, Jim takes action. He forges pay stubs from a fake company to reflect that he has a large income. He uses these documents to obtain a home loan for a bank. This act constitutes mortgage fraud.
Example #2: Occupancy Fraud
Frank has purchased a home to use as an income rental property. Knowing the lenders typically charge much higher interest on rental homes compared to residences, Frank claims he will live in the property. Frank then rents out his property but has the renters forward his mail to keep the scheme going. This is an example of mortgage fraud for profit.
Example #3: Appraisal Fraud
Susie buys a house and relies on her friend Dave as her appraiser. They agree to a scheme where Dave will dramatically overvalue the home, allowing Susie to quickly resell the home at an inflated price. Susie would then take the illicit gains and split them with Dave. Unfortunately for both of them, the buy caught on to the scheme and reported them to the FBI. Dave admitted to the scheme under questioning. Both Susie and Dave could be found guilty of mortgage fraud for their scheme despite the fact that it has not yet been completed.
Example #4: Nominee Fraud
Jake has poor credit and bankruptcy in his history. Because of his credit score, lenders will not give him a loan despite his proof of adequate income. He convinces his friend Charlie to apply for a loan. Charlie has great credit, and the bank loans him the money to purchase the house Jake had his eye on. Charlie then transfers the property to Jake, who gives Charlie the money each month to make the mortgage payments. Both Jake and Charlie are guilty of mortgage fraud.
Mortgage Fraud Penalties
The penalties for a conviction under FERA are steep. The same sentencing range applies to first-time offenders as it does with anyone who has previously been convicted of mortgage fraud. According to 18 U.S.C. § 1014, a conviction carries a maximum sentence of 30 years in federal prison, up to $1 million in fines, or a combination of both. Those penalties are maximums, and the sentences handed down by the court are often much lower. That said, the worst-case scenario in these cases could leave you behind bars for most or all of your remaining years.
If convicted, you could also face the possibility of restitution. Similar to a civil lawsuit, restitution requires that you pay back anyone that you financially damaged due to the act of fraud. Given the amount of money common in mortgage transactions, this amount could be substantial. This money is in addition to the fine assessed by the judge.
Defenses to a Mortgage Fraud Charge in Houston, TX
When the federal government brings mortgage fraud charges, they typically have documentation to back it up. However, many incidents of mortgage fraud are simple mistakes or misunderstandings. Defeating charges of mortgage fraud is possible, but only with the right defense. Your attorney can carefully review the facts of your case to identify the best strategy for you. Below, we discuss some of the most common defenses in a mortgage fraud case.
Mortgage fraud requires a scheme that intends to defraud a financial institution or other entity. If you incorrect statements or omissions the prosecutor is relying on are based on an honest mistake, you might be able to avoid a conviction. Fraud is a crime of intent, so no manner of mistake should lead to a conviction.
The important thing to understand about the defense of mistake is that it will be your word against the prosecutor's word. In some cases, it could be impossible to distinguish an honest mistake from an act of fraud. Your Houston mortgage fraud attorney could guide you on how to convince a jury that a mistake occurred.
Like with any criminal prosecution, you are protected by the Fourth Amendment during your mortgage fraud case. If law enforcement searches your home and seizes your financial records without a warrant, your attorney could seek to have that evidence excluded. The government is not allowed to build a case using illegally obtained evidence, making this a powerful defense in some cases. However, most of the documents relied on in a mortgage fraud case are transmitted to the lender, making them easily obtainable by prosecutors.
Unfortunately, some targets of federal mortgage fraud investigations are in fact victims of another crime – identity theft. In the age of the internet, it has become common to learn that your identifying information has been stolen. In some cases, the perpetrator could use your social security number and other identifying information to take out a mortgage loan in your name. After they pocket the loan money and disappear, you could be left holding the bag.
Work With a Houston Mortgage Fraud Attorney
Beating mortgage fraud charges in federal court is not easy, but it is possible. To discuss your options, contact Board Certified Criminal Defense Attorney Doug Murphy at the Doug Murphy Law Firm, P.C. right away.