“Mortgage fraud” refers to the act of knowingly and intentionally stating false information or omitting information on an application to fund, purchase, or insure a mortgage loan. Typically, the goal of mortgage fraud is to obtain a larger loan amount than a borrower would have been permitted if the application had been made truthfully.

The federal government aggressively investigates and prosecutes allegations of mortgage fraud, and the penalties for a conviction can be severe.

If you are charged with mortgage fraud, securing experienced, aggressive legal representation is crucial. For over 30 years, federal criminal defense attorney Hope Lefeber has represented people charged with mortgage fraud and other white-collar crimes.

Contact the Law Offices of Hope Lefeber today to schedule a confidential appointment to discuss your situation and how she can help.

What Are the Different Types of Mortgage Fraud?

Mortgage fraud typically falls into one of two broad categories: fraud for housing and fraud for profit.

Fraud in the Application:

In mortgage fraud for housing, a borrower falsifies or omits information in an effort to acquire or maintain ownership of a house. Examples of fraud for housing include:

Mortgage fraud can occur in many different forms, including:

• Providing inaccurate financial information on a mortgage application to obtain a mortgage that they would otherwise not qualify for., such as inflating income and/or assets.
• Completing a mortgage application with false or forged identification, which is a form of identity theft. Often, the person who ultimately receives the mortgage is ineligible for the loan due to poor credit history, insufficient income, or other disqualifying factors.
• Inflating the property’s appraisal to increase resale profits.
• Using a “straw buyer” to qualify for a loan, and subsequently “flipping” the property.
• “Equity skimming”, or taking out a mortgage loan, renting out the property, and not repaying the loan until the property goes into foreclosure.
• Fraud committed to avoid a property’s foreclosure.
• Intentional failure to disclose residential information, such as when a borrower misrepresents that a property will be occupied to obtain a more favorable bank rate. By claiming the home will be occupied, the borrower may qualify for lower mortgage rates, lower purchase costs, or a higher loan-to-value ratio.
• Fraudulent down payments, misrepresenting the source of a down payment, such as by claiming a gift is from personal savings.
• Non-Arms Length Transactions. A non-arms length transaction occurs when the parties involved in the transaction have some type of personal relationship, making the lender and buyer susceptible to manipulation.

Fraud by Third Parties

Fraud by Third Parties typically involves industry insiders who use their specialized knowledge or authority to obtain money or equity from homeowners or lenders. Bank officers, appraisers, mortgage brokers, attorneys, loan originators, and other professionals within the mortgage industry can all be investigated for mortgage fraud for profit. This can occur in many ways, including:

• Appraisal Fraud. An industry insider may inflate the property value to obtain a larger mortgage, or deflate the property value to obtain a lower purchase price.
• Straw Buyer Transactions. The “straw buyer” acts on behalf of the true purchaser, misrepresenting the true nature of the transaction. The real buyer might have bad credit or be trying to conceal something that would disqualify them from getting a mortgage.
• Property Flipping. Buying a home, improving it, and selling it for a profit is not illegal. However, purchasing a home well below market value then immediately selling it at an artificially inflated price is illegal, particularly if the property is sold with a fraudulent appraisal that misleads the buyer.
• Air Loan Fraud. Air loan fraud may involve creating a fake property, borrower, or seller to deceive lenders into funding a nonexistent property.
• Kickbacks. Owners or brokers receiving kickbacks.

What Are the Penalties for Mortgage Fraud?

Like all fraud cases, mortgage fraud is punished based upon the amount of the loss. Someone accused of mortgage fraud may also face criminal charges for bank fraud, conspiracy, obstruction of justice, and other offenses. The consequences of a conviction can be severe and may include fines, forfeiture, restitution, and prison time. The fraud sentencing guidelines for federal cases are set forth at U.S.S.G. Section 2B1.1.

What Are the Defenses to Charges of Mortgage Fraud?

Legal defenses to charges of mortgage fraud will vary based on the specific circumstances of the case. Common defenses to mortgage fraud include:

Lack of Knowledge or Intent. To be convicted of mortgage fraud, the defendant must have intended to deceive or defraud someone. Showing the errors or omissions were accidental or caused by a misunderstanding can be a defense to mortgage fraud charges. A defendant’s honest belief in the truth of his/her representations is strong defense. To secure a conviction for mortgage fraud, the prosecution must show that the defendant knowingly and intentionally made a false statement. If the accused did not have the intent to defraud, didn’t know they were committing fraud, didn’t notice a discrepancy, or if the fraud was the result of an honest mistake, this may serve as a formidable defense strategy.

Lack of Materiality: The prosecution must show not only that the accused intended to make a false statement, but also that the false statement was material, or important. If the inaccuracy or omission was minor and didn’t significantly impact the lender’s decision or the transaction as a whole, it’s difficult for that conduct to rise to the level of fraud. Emphasizing that the misrepresentation was minor, inconsequential, and immaterial is a strong defense.

Contesting Amount of Loss: Challenging the amount of the loss is a key to defending against mortgage fraud charges. The severity of a fraud charge depends on the value of the stolen assets. Reducing the amount of loss lessens the severity of the potential penalties.

Establishing Lack of Financial Benefit: Showing that there was no financial gain on the part of the accused may not be a complete defense, but it is powerful mitigation. Demonstrating that the accused did not stand to profit from the fraud and that any financial benefits were unintended, provides very powerful reasonable doubt for the defense to argue to obtain a not guilty verdict. If that is not successful and there is a conviction, the fact that the defendant did not benefit financially is a very important mitigating fact at sentencing.

Lack of Evidence. To secure a conviction for mortgage fraud, the prosecutor must prove every element of the crime, beyond a reasonable doubt. A defense attorney will challenge the admissibility, reliability, and weight of the evidence.

Lack of Knowledge. Mortgage fraud often involves complex financial transactions. A defendant can avoid a mortgage fraud conviction by showing they did not understand or were unaware of the fraudulent activity.

Proving the Lender is Not Within the Jurisdiction of the Federal Mortgage Fraud Statutes: In order to secure a conviction for mortgage fraud, the prosecutor must show that the defendant knowingly made a false statement to an entity that is covered by a state or federal mortgage fraud statute, for example, that the victim was a member of the FDIC. However, not every entity is covered by these statutes. By meticulously examining these statutes, an experienced defense attorney may be able to make a case that the lender does not qualify for legal protection under the mortgage fraud statutes on the state or federal level.

Challenging the Lender’s Practices: While the lender is usually the victim of mortgage fraud, they may have contributed to the fraud by their own conduct. By showing questionable practices on the part of the lender, such as inadequate verification procedures or a failure to conduct due diligence, the accused party can show that they’re not solely responsible for the alleged fraud.

Statute of Limitations: The statute of limitations for bank fraud is 10 years. If the fraud occurred prior to that date, there may be substantial grounds for dismissal, unless there was a conspiracy wherein some overt acts occurred within the 10 year period.

How a Criminal Defense Lawyer Can Help

If you believe you are under investigation or were charged with mortgage fraud, act quickly to secure experienced, aggressive defense counsel. Hope Lefeber has defended people accused of fraud and other white-collar crimes for over 30 years. She provides comprehensive legal defense and will work to obtain optimal results in your case.

Contact the Law Offices of Hope Lefeber Today

Contact the Law Offices of Hope Lefeber today to schedule a free and confidential appointment to discuss your situation.