The Matlock Law Firm, P.C.
Mortgage Fraud
Mortgage Fraud Investigations
The FBI typically classifies mortgage fraud into two distinct categories: 1) Fraud for Profit, (FFP); and/or 2) Fraud for Housing (FFH). Fraud for Profit is often referred to as "Industry Insider Fraud," where the motive is to revolve equity, falsely inflate the value of the property, or issue loans based on fictitious properties. Nearly 80% of all reported fraud losses fall into the FFP category. Differently, FFH involves illegal actions perpetrated solely by the borrower. Here, the motive is to acquire and maintain ownership of a house under false pretenses typically perpetuated by a borrower who makes misrepresentations regarding his income or employment history to qualify for a loan.
The FBI supposedly claims that it is focusing its efforts on the fraudulent industry insider activities that fall within the FFP category. The FBI has compiled a list of activities that purportedly indicate mortgage fraud:
•Inflated Appraisals - Exclusive use of one appraiser
•Increased Commissions and/or Bonuses by Brokers and Appraisers - Bonuses might paid (outside or at settlement) for fee-based services and/or Broker or appraiser might receive higher than customary fees
•Falsifications on Loan Applications - Buyers instructed how to falsify the mortgage application and/or Buyers requested to sign blank application
•Fake Supporting Loan Documentation - Buyer requested to sign blank employee or bank forms and/or Buyer requested to sign other types of blank forms
•Purchase Loans Disguised as Refinance - Purchase loans that are disguised as refinances typically require less documentation or might be scrutinized less by the lender
•Short Term Investments with Guaranteed Re-Purchase - Investors might be used to flip property prices for a fixed percentage and/or Multiple "Holding Companies" might be utilized to increase property values
The FBI is also very suspicious of the following various types of schemes it claims to see in mortgage fraud cases:
•Property Flipping - Property is purchased, falsely appraised at a higher value, and then quickly sold. What makes this practice illegal is that the appraisal information is fraudulent. The schemes typically involve one or more of the following: fraudulent appraisals, doctored loan documentation, inflated buyer income, etc. Kickbacks to buyers, investors, brokers, appraisers, or title company employees are common in this scheme. In this type of scheme, a home worth $20,000 may be appraised for $80,000 or higher.
•Silent Second - The buyer of a property borrows the down payment from the seller through the issuance of a non-disclosed second mortgage. The primary lender believes the borrower has invested his own money in the down payment, when in fact, the funds are borrowed. The second mortgage may not be recorded to further conceal its status from the primary lender.
•Nominee Loans - The identity of the borrower is concealed through the use of a nominee (also known as a Straw Buyer) who allows the borrower to use the nominee's name and credit history to apply for a loan.
•Fictitious or Stolen Identity - A fictitious or stolen identity may be used on the loan application. The applicant may sometimes be involved in an identity theft scheme. In such a scheme, the applicant's name, personal identifying information and credit history are used without the true person's knowledge.
•Inflated Appraisals - An appraiser acts in collusion with a borrower and provides a misleading appraisal report to the lender. The report inaccurately states an inflated property value.
•Foreclosure Schemes - The perpetrator identifies homeowners who are at risk of defaulting on loans or whose houses are already in foreclosure. Perpetrators mislead the homeowners into believing that they can save their homes in exchange for a transfer of the deed and up-front fees. The perpetrator profits from these schemes by remortgaging the property or pocketing fees paid by the homeowner.
•Equity Skimming - An investor may use a straw buyer, false income documents, or false credit reports, to obtain a mortgage loan in the straw buyer's name. Subsequent to closing, the straw buyer signs the property over to the investor in a quit claim deed which relinquishes all rights to the property and provides no guaranty to title. The investor does not make any mortgage payments and rents the property until foreclosure takes place several months later.
•Air Loans - This is a non-existent property loan where there is usually no collateral. An example of an air loan would be where a broker invents borrowers and properties, establishes accounts for payments, and maintains custodial accounts for escrows. They may set up an office with a bank of telephones, each one used as the employer, appraiser, credit agency, etc., for verification purposes.
Mortgage Fraud Law
While mortgage fraud does not have its own specifically named federal criminal statute, the federal government typically aggressively prosecutes it under numerous other federal criminal statutes. Essentially, Assistant United States Attorneys (AUSAs) attempt to tie one or more existing fraud statutes to a specific mortgage act that is somehow allegedly fraudulent. Below are some typical examples of federal criminal statutes used to prosecute mortgage fraud:
•Mortgage Fraud Prosecuted Under 18 U.S.C. § 1341 (Mail Fraud)
•Mortgage Fraud Prosecuted Under 18 U.S.C. § 1343 (Wire Fraud)
•Mortgage Fraud Prosecuted Under 18 U.S.C. § 1344 (Bank Fraud)
•Mortgage Fraud Prosecuted Under 18 U.S.C. § 1001 (False Statements)
•Mortgage Fraud Prosecuted Under 18 U.S.C. § 1010 (HUD & FHA Fraud)
•Mortgage Fraud Prosecuted Under 18 U.S.C. § 1014 (False Statements on Loan Applications)
•Mortgage Fraud Prosecuted Under 18 U.S.C. § 2314 (Interstate Transfer of Funds)
•Mortgage Fraud Prosecuted Under 42 U.S.C. § 408 (Use of Another's SSN)
Mortgage Fraud Prosecuted Under 18 U.S.C. § 1341 (Mail Fraud)
Under this section, it is a crime for a person who has devised or intends to devise any scheme or artifice to defraud, to sell, dispose of, loan, exchange, alter, give away, distribute, supply, or furnish or procure for unlawful use any counterfeit or spurious coin, obligation, security, or other article, or anything represented to be or intimated or held out to be such counterfeit or spurious article, for the purpose of executing such scheme or artifice, to place in any post office or authorized depository for mail matter, any matter or thing whatever to be sent or delivered by the Postal Service, or to deposit or cause to be deposited any matter or thing whatever to be sent or delivered by any private or commercial interstate carrier, or to take or receive therefrom, any such matter or thing, or to knowingly cause to be delivered by mail or such carrier according to the direction thereon, or at the place at which it is directed to be delivered by the person to whom it is addressed, any such matter or thing.
The best way to understand mail fraud is to use the nation’s mail system to carry out any fraud or fraudulent scheme.
The punishment under section 1341 is a fine, imprisonment for not more than 20 years, or both. If the violation affects a financial institution, the punishment is a fine of not more than $ 1,000,000, imprisonment for not more than 30 years, or both.
Mortgage Fraud Prosecuted Under 18 U.S.C. § 1343 (Wire Fraud)
Wire fraud is an act of fraud using electronic communication. This electronic communication can be via wire, radio, or television. The Supreme Court has held several times that the wire fraud statute has a long arm, extending to 'everything designed to defraud by representations as to the past or present, or suggestions and promises as to the future.
Under section 1343, it is a crime for a person who has devised or intends to devise a scheme or artifice to defraud, or to obtain money or property by means of false or fraudulent pretenses representations, or promises to transmit, or cause to be transmitted by means of wire, radio, or television communication, any writings signs signals pictures, or sounds for the purpose of executing the scheme or artifice.
Much like the mail fraud statute, 18 U.S.C. § 1341, it is probably simpler to say that wire fraud consists of devising a scheme or artifice to defraud and then using the nation's telecommunications networks to carry that scheme out.
A violation of section 1343 can be punished by a fine, imprisonment for not more than 20 years, or both. If a violation of section 1343 affects a financial institution, the punishment will be a fine of not more than $1,000,000, imprisonment for not more than 30 years, or both.
Mortgage Fraud Prosecuted Under 18 U.S.C. § 1344 (Bank Fraud)
Bank Fraud is the "criminal offense of knowingly executing, or attempting to execute, a scheme or artifice to defraud a financial institution, or to obtain property owned by or under the control of a financial institution, by means of false or fraudulent pretenses, representations, or promises."
Under this statute, it is a crime for a person to "knowingly" execute, or attempt to execute, a scheme or artifice to defraud a financial institution; or to obtain any of the moneys, funds, credits, assets, securities, or other property owned by, or under the custody or control of, a financial institution, by means of false or fraudulent pretenses, representations, or promises.
The punishment for a violation of section 1344 is a fine of not more than $1,000,000, imprisonment for not more than 30 years, or both.
Mortgage Fraud Prosecuted Under 18 U.S.C. § 1001 (False Statements)
Making false statements is a very serious crime. It is defined as an untrue statement knowingly made with the intent to mislead. Accordingly, it is a violation of section 1001 to:
1.knowingly and willfully falsify, conceal, or cover up by any trick, scheme, or device a material fact; 18 U.S.C. § 1001(a)(1).
2.make any material false, fictitious, or fraudulent statement or representation; 18 U.S.C. § 1001(a)(2).
3.make or use any false writing or document knowing the same to contain any materially false, fictitious, or fraudulent statement or entry. Id. § 1001(a)(3).
The punishment for a violation of section 1001 is a fine, imprisonment for not more than 5 years, or both.
Mortgage Fraud Prosecuted Under 18 U.S.C. § 1010 (HUD & FHA Fraud)
It is a crime for a person:
•for the purpose of obtaining any loan or advance of credit from any person, partnership, association, or corporation with the intent that such loan or advance of credit shall be offered to or accepted by the Department of Housing and Urban Development for insurance; or
•for the purpose of obtaining any extension or renewal of any loan, advance of credit, or mortgage insured by such Department, or the acceptance, release, or substitution of any security on such a loan, advance of credit; or
•for the purpose of influencing in any way the action of such Department, make, pass, utter, or publish any statement, knowing the same to be false, or alter, forge, or counterfeit any instrument, paper, or document, or utter, publish, or pass as true any instrument, paper, or document, knowing it to have been altered, forged, or counterfeited, or willfully overvalue any security, asset, or income.
The punishment under this section includes a fine and imprisonment for not more than two years, or both.
Mortgage Fraud Prosecuted Under 18 U.S.C. § 1014 (False Statements on Loan Applications)
Under section 1014, it is a crime for a person to knowingly make any false statement or report, or willfully overvalue any land, property or security, for the purpose of influencing in any way the action of:
the Farm Credit Administration, the Federal Crop Insurance Corporation or a company the Corporation reinsures, the Secretary of Agriculture acting through the Farmers Home Administration or successor agency, the Rural Development Administration or successor agency, any Farm Credit Bank, production credit association, agricultural credit association, bank for cooperatives, or any division, officer, or employee thereof, or any regional agricultural credit corporation established pursuant to law, or a Federal land bank, a Federal land bank association, a Federal Reserve bank, a small business investment company, as defined in section 103 of the Small Business Investment Act of 1958 (15 U.S.C. 662), or the Small Business Administration in connection with any provision of that Act, a Federal credit union, an insured State-chartered credit union, any institution the accounts of which are insured by the Federal Deposit Insurance Corporation, the Office of Thrift Supervision, any Federal home loan bank, the Federal Housing Finance Board, the Federal Deposit Insurance Corporation, the Resolution Trust Corporation, the Farm Credit System Insurance Corporation, or the National Credit Union Administration Board, a branch or agency of a foreign bank (as such terms are defined in paragraphs (1) and (3) of section 1(b) of the International Banking Act of 1978 [12 U.S.C. § 3101(1) and (3)]), or an organization operating under section 25 or section 25(a) of the Federal Reserve Act, upon any application, advance, discount, purchase, purchase agreement, repurchase agreement, commitment, or loan, or any change or extension of any of the same, by renewal, deferment of action or otherwise, or the acceptance, release, or substitution of security therefore.
The punishment for a violation of section 1014 is a fine of not more than $1,000,000, imprisonment not more than 30 years, both.
Mortgage Fraud Prosecuted Under 18 U.S.C. § 2314 (Interstate Transfer of Funds)
It is a crime for a person to transports, transmits, or transfers in interstate or foreign commerce any goods, wares, merchandise, securities or money, of the value of $5,000 or more, knowing the same to have been stolen, converted or taken by fraud.
It is also a crime for a person, having devised or intending to devise any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises, to transport or cause to be transported, or induce any person or persons to travel in, or to be transported in interstate or foreign commerce in the execution or concealment of a scheme or artifice to defraud that person or those persons of money or property having a value of $5,000 or more.
It is furthermore, a crime for a person, with unlawful or fraudulent intent, transport in interstate or foreign commerce any falsely made, forged, altered, or counterfeited securities or tax stamps, knowing the same to have been falsely made, forged, altered, or counterfeited.
It is also a crime under this section for a person, with unlawful or fraudulent intent, to transport in interstate or foreign commerce any traveler's check bearing a forged countersignature.
It is a crime for a person with unlawful or fraudulent intent, to transport in interstate or foreign commerce, any tool, implement, or thing used or fitted to be used in falsely making, forging, altering, or counterfeiting any security or tax stamps, or any part thereof.
The punishment for a violation of section 2314 is a fine under this title, imprisonment for not more than ten years, or both.
Mortgage Fraud Prosecuted Under 42 U.S.C. § 408 (Use of Another's SSN)
The operative language under this statute is 42 U.S.C. § 408(a)(7)(B) which prohibits a person from falsely representing, with intent to deceive, a number to be the social security account number assigned by the Commissioner of Social Security, when it is in fact someone else's number. This behavior applies if it is done for the purpose of causing an increase in any payment authorized under 42 U.S.C. §§ 401 et seq. (or any other program financed in whole or in part from Federal funds), or for the purpose of causing a payment under 42 U.S.C. §§ 401 et seq. (or any such other program) to be made when no payment is authorized thereunder, or for the purpose of obtaining (for himself or any other person) any payment or any other benefit to which he (or such other person) is not entitled, or for the purpose of obtaining anything of value from any person, or for any other purpose.
A person who violates section 408(a)(7)(B) is subject to a fine, imprisonment for not more than five years, or both.
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