Mortgage fraud is a serious crime, but it is a crime that is not always intentional. It is possible to inadvertently commit mortgage fraud but in the eyes of the law, a crime is a crime.

That is why it is so important to be represented by a strong, experienced attorney.

At the federal level as well as the state level, mortgage fraud carries some serious penalties. This is one instance where you could find yourself behind bars for years when you never even intended to commit a crime.

What’s worse, felonies follow you for the rest of your life. You will always have that mark on you, and you will have to contend with the results of the punishment for the crime, whether you purposefully committed it or not, for years to come.

Job applications, leases, even starting a new business can all be tainted by a felony on your record.

It isn’t worth it. You need an attorney.

Overview of Mortgage Fraud

Mortgage fraud is more complex than it may sound. It involves intentionally circumventing the system in order to receive a larger loan amount than you normally would have received if you had been honest on your application.

There are two types of mortgage fraud:

  • Fraud for profit – This is typically done by industry insiders who use their specialized authority or knowledge to facilitate or commit fraudulent action. This can be any professional at any point of the mortgage process including bank officers, attorneys, appraisers, loan originators, mortgage brokers, and more. The goal of this type of mortgage fraud is for financial gain.
  • Fraud for housing – This is typically done by the borrower who wants ownership of the house. They may misrepresent asset or income information on the loan application or bribe the appraiser to change the apprise value of the property. 

Some of the more common mortgage fraud schemes include:

  • Illegal property flipping – After the property is purchased it is appraised at a higher value and the owner moves to sell it quickly. The fraudulent appraisal and false transactional information make it illegal.
  • Foreclosure rescue schemes – The perpetrators approach homeowners in foreclosure or who are about to default on their mortgage loan and deceive them into believing that they can save their home by transferring the property ownership to an investor. The perpetrators sell the property to the investor (straw borrower) and use a fraudulent appraisal to create equity. They steal the proceeds from the seller and effectively steal the house.
  • Home equity conversion mortgage (HECM) – HECM is a legitimate program, a reverse mortgage loan that is offered to borrowers 62 years old or older who own and occupy their property as their primary residence. Scammers find seniors and get a HECM in their (the senior’s) name and convert the equity into cash. The scammers then keep the cash, sometimes paying the homeowner a fee. The loan does not have to be repaid until the homeowner does not live in it as their primary residence any longer. This means that the lender may not detect any fraud until the death of the homeowner.
  • Builder bailout/condo conversion – Builders identify buyers who get loans for their properties then allow them to go into foreclosure. Developers get straw buyers to buy while inflating the value of the property to get a higher sale price at closing. The straw buyer inflates their asset and income information so that they qualify for a property that they would be unqualified or ineligible to purchase.
  • Loan modification schemes – These are much like foreclosure rescue scams. Perpetrators claim to help homeowners who are late on their mortgage payments to the point where they are about to lose their homes. The scammers offer to renegotiate the homeowner’s loan for them. However, they typically demand large fees upfront and the terms they negotiate are usually detrimental to the homeowner, causing them to ultimately lose their home.
  • Air loans – Scammers create these fake property loans with no collateral. The brokers invent properties and borrowers. They set up accounts for payments and keep custodial accounts for escrow. Some even go so far as to create a bank of phones for the fake employer and others for the fake borrower in an effort to deceive the creditors who call to verify the information.
  • Equity skimming – An investor obtains a mortgage loan in a straw buyer’s name using false credit reports and false income documents. Just before closing the straw buyer uses a quitclaim deed to sign over the property to the investor. The investor makes no mortgage payments and will typically rent the property out, but it eventually goes into foreclosure.
  • Commercial real estate loans – Individuals who own distressed commercial real estate get financing by illegally inflating the appraised value of the property. They may exaggerate the profitability of the building by creating bogus leases. The borrower does not make needed repairs or maintenance while neglecting to pay on the loan. Eventually, they default on the loan and the lender has a run-down property that is difficult, if not impossible, to rent.
  • Silent second – The property buyer borrows the down payment from the property seller via a non-disclosed second mortgage. They lead the primary lender into believing that the borrower used their own money for the down payment when it is actually borrowed. 

There are many other mortgage fraud schemes, but these are the ones that the FBI has noted as the most popular or common.

How do People get Caught Up in Mortgage Fraud?

Innocent people can get caught up in mortgage fraud schemes by trusting the wrong person. It is better to go with a trustworthy mortgage professional or broker as opposed to one whose fees are a little too low or their promises are a little too good to be true.

It isn’t hard to find yourself caught up in a mortgage fraud scheme as a perpetrator if you aren’t careful. When presented with a way to make a lot of money quickly, look at the “opportunity” very carefully before taking part in it. If it seems sketchy or doesn’t feel quite right, then you should just back away.

Federal Mortgage Fraud Charges

There is not a specific statute under federal law that covers mortgage fraud. However, there are several federal laws that address situations that involve attempting to defraud or defrauding a mortgage lender. A mortgage fraud case may be bumped up to a federal case under certain conditions such as crossing state lines or if any federal agencies like the FHA are involved or if financial institutions that are federally regulated are involved. It is important to note that federal prosecution typically addresses professional fraud as opposed to housing fraud.

New York Mortgage Fraud Charges

New York has laws on the books that are specifically for mortgage fraud but first it is important to know how the state defines mortgage fraud (and other relevant terms):

New York Penal Law – Article 187

  • Definitions
    • “Person” means any individual or entity.
    • “Residential mortgage loan” means a loan or agreement to extend credit, including the renewal, refinancing, or modification of any such loan,  made to a  person,  which loan is primarily secured by either a mortgage, deed of trust, or other lien upon any interest in residential real property or any certificate of stock or other evidence of ownership in,  and a  proprietary lease from, a corporation or partnership formed for the purpose of cooperative ownership of residential real property.
    • “Residential real property” means real property improved by a one-to-four family dwelling, or a residential unit in a building including units owned as condominiums or on a cooperative basis, used or occupied, or intended to be used or occupied, wholly or partly, as the home or residence of one or more persons, but shall not refer to unimproved real property upon which such dwellings are to be constructed.
    • “Residential mortgage fraud” is committed by a person who, knowingly and with intent to defraud, presents, causes to be  presented, or  prepares with knowledge or belief that it will be used in soliciting an applicant for, applying for, underwriting, or  closing  a  residential mortgage  loan, or filing with a county clerk of any county in the state arising out of and related to the  closing  of  a  residential  mortgage loan, any written statement which:
      1. contains materially false information concerning any fact material thereto; or
      2. conceals,  for the purpose of misleading, information concerning any fact material thereto.
  • New York Penal Law Article 187.05 – Residential Mortgage Fraud in the Fifth Degree
    • A  person is guilty of residential mortgage fraud in the fifth degree when he or she commits residential mortgage fraud.
  • New York Penal Law Article 187.05 – Residential Mortgage Fraud in the Fourth Degree
    • A person is guilty of residential mortgage fraud in the fourth degree when he or she commits residential mortgage fraud and thereby receives proceeds or any other funds in the aggregate in excess of one thousand dollars.
  • New York Penal Law Article 187.05 – Residential Mortgage Fraud in the Third Degree
    • A person is guilty of residential mortgage fraud in the third degree when he or she commits residential mortgage fraud and thereby receives proceeds or any other funds in the aggregate in excess of three thousand dollars.
  • New York Penal Law Article 187.05 – Residential Mortgage Fraud in the Second Degree
    • A person is guilty of residential mortgage fraud in the second degree when he or she commits residential mortgage fraud and thereby receives proceeds or any other funds in the aggregate in excess of fifty thousand dollars.
  • New York Penal Law Article 187.05 – Residential Mortgage Fraud in the First Degree
    • A  person is guilty of residential mortgage fraud in the first degree when he or she commits residential mortgage fraud and thereby receives proceeds or any other funds in the aggregate in excess of one million dollars.

Penalties for Federal Mortgage Fraud Conviction

The many different federal laws that can be used to prosecute mortgage fraud at the federal level makes pinning down an exact penalty quite difficult.

Overall, federal mortgage fraud can carry these penalties:

  • Maximum 30 years in prison
  • Maximum fine $1 million
  • Restitution
  • Probation

Penalties for a New York Mortgage Fraud Conviction

  • New York Penal Law Article 187.05 – Residential Mortgage Fraud in the Fifth Degree
    • Class A Misdemeanor 
      • Maximum 1 year in jail
      • 3 years probation
      • Maximum $1,000 fine or twice the amount of the financial gain from the crime
  • New York Penal Law Article 187.05 – Residential Mortgage Fraud in the Fourth Degree
    • Class E Felony
      • Maximum 4 years in prison
      • Fine
  • New York Penal Law Article 187.05 – Residential Mortgage Fraud in the Third Degree
    • Class D Felony
      • Maximum 7 years in prison
      • Fine
  • New York Penal Law Article 187.05 – Residential Mortgage Fraud in the Second Degree
    • Class C Felony
      • Maximum 15 years in prison
      • Fine
  • New York Penal Law Article 187.05 – Residential Mortgage Fraud in the First Degree
    • Class B Felony
      • Maximum 25 years in prison
      • Fine

Defenses for Mortgage Fraud

Your attorney will begin building your defense by talking to you to get your side of the story. The next step is to examine the documents for signs of forgery and fraud. They will look at the loan application, appraisal, verification of employment, mortgage documents, and other records relevant to the case.

As they build your defense, some of the arguments they use may include:

  • Challenge the experts testifying for the prosecution
  • Removal of prejudicial statements (i.e., “mortgage fraud’ in a federal case)
  • Challenge the search warrant
  • Unlawful search and seizure
  • Lack of knowledge 
  • Lack of intent
  • Good faith belief
  • Substantial assistance
  • Forgery
  • Identity theft
  • Fraud

If you are facing mortgage fraud charges or believe you are under investigation for mortgage fraud, don’t wait to see what happens. Get a lawyer now. 

You need a criminal defense attorney who has the skill, education, and experience to handle your mortgage fraud case and ensure that your rights are protected.

You need The Litvak Law Firm. Mr. Litvak will bring his extensive experience and education into the courtroom and use it to fight for you so that you get the best possible outcome in your case. Call today (718) 989-2908 to schedule your free consultation and get the representation that you deserve.