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Mortgage Fraud: A Leading White-Collar Crime

Nov 18 2024
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It is estimated that the United States loses between $1-10 billion each year due to mortgage fraud, making it one of the leading white-collar crimes in the country.

This past October, a Houston real estate developer was sentenced to 15 months in a federal prison followed by three years of supervised release and ordered to pay $571,000  restitution for his involvement in a $1 million fraudulent scheme by falsely informing investors that their money would be used in a real estate developing.

Mortgage and real estate fraud comes in all stripes.

As the COVId-19 pandemic spread across America in 2020, suspicious mortgage fraud reports increased 938% over 2019. The most common mortgage fraud during that year, according to CoreLogic, was income fraud, representing over 30 percent of the mortgage fraud applications.

These mortgage frauds cost the financial institutions involved in underwriting the mortgages millions of dollars.

The statistics are staggering. They reflect the immense damage mortgage fraud does not only to financial institutions but to individual lives as well. The Federal Reserve estimates that between 600,000 and 1.2 million homeowners experienced some form of mortgage fraud in 2020.

Disproportionately, income fraud is the most significant driver in this increasing fraud market as home buyer applicants use what CoreLogic’s 2022 Annual Mortgage Fraud Report says are “doctored paystubs or W-2’s to longer-term falsification schemes involving [use of] false information with ‘seasoned’ bank account information.”

After significant mortgage fraud increases in 2021 and 2022, CoreLogic’s2023 Annual Mortgage Fraud Report showed a minor decrease in such reports in 2023.

The latest report by the U.S. Sentencing Commission for fiscal year 2021 (reported in August 2022) reveals that 57,287 mortgage fraud cases were reported to the commission. 70.7 percent of these offenses were committed by men, and 98.3 percent of them were U.S. citizens. 43.1 percent of the offenders were white, 27.6 percent were Black, and 20.7 percent were Hispanic.

The median monetary loss attributed to the offenders was $371,818, and the overwhelmingly majority of these offenders (82.8%) had no prior criminal history. 74.1 percent of the offenders were sent to prison with an average sentence of 14 months—54.2 percent of those sentences being within the sentencing guideline range. Some had their sentences enhanced for the following reasons permissible under the guidelines:

  • the number of victims or the extent of harm to victims;
  • using sophisticated means to execute or conceal the offense;
  • using an unauthorized means of identification, ID Fraud;
  • deriving more than $1 million in gross receipts from or substantially jeopardizing the safety and soundness of a financial institution;
  • a leadership or supervisory role in the offense;
  • abusing a public position of trust or using a special skill;
  • obstructing or impeding the administration of justice.

There is no single federal statute that covers mortgage fraud.

Mortgage fraud is charged and prosecuted under a number of federal statutes that deal with defrauding or attempting to defraud mortgage lenders. The two primary statutes—18 U.S.C. § 1341 (mail fraud statute) and 18 U.S.C. § 1343 (wire fraud statute) cover most fraudulent activity related to a mortgage.

And 18 U.S.C. § 1344 (bank fraud statute) was expanded by the Fraud Enforcement and Recovery Act of 2009(FERA), to not only include FDIC-insured institutions, credit unions, and federal home loan banks, but mortgage lending businesses.

Finally, 18 U.S.C. § 1014 prohibits false statements to a financial institution, such as providing false information regarding income, assets, debt, or matters of identification, or willfully overvaluing any land or property in a loan or credit application to influence in any way the action of a financial institution.

To illustrate how these statutes work in conjunction with each other, a U.S. Attorney, for example, may charge someone who makes a false statement on a loan application with mail fraud, wire fraud, or bank fraud.

Other federal statutes used by federal prosecutors in mortgage fraud schemes are:

  • 18 U.S.C. § 1001 – Statements or entries generally
  • 18 U.S.C. § 1010 – HUD and Federal Housing Administration Transactions
  • 18 U.S.C. § 1014 – Loan and credit applications generally
  • 18 U.S.C. § 1028 – Fraud and related activity in connection with identification documents
  • 18 U.S.C. § 1342 – Fictitious name or address
  • 42 U.S.C. § 408(a) – False Social Security Number

These schemes can include but are not limited to:

  • Silent second schemes: A silent second mortgage placed on an asset (such as a home) for down payment funds that are not disclosed to the original lender on the first mortgage. The second mortgage is “silent” because the borrower does not disclose its existence to the original lender.
  • Inflated appraisal schemes and air loans schemes: Appraisal fraud occurs when someone intentionally misrepresents the value of a property in order to secure a mortgage loan or make a profit from the sale of the property. This can involve falsifying documents, inflating property values, or engaging in other fraudulent activities.
  • Falsifying information on the borrower’s loan application: Trying to obtain a loan or obtaining inflated appraisals to obtain favorable loans.

Depending on the statute used to bring charges, mortgage fraud is punishable by up to 30 years in federal prison and a fine of up to $1,000,000.

A successful defense strategy in mortgage fraud cases requires an experienced white-collar defense attorney who understands the demands, complexities, and seriousness involved in white-collar crime defense.

 

 

 

 

 

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