MORTGAGE FRAUD CRIMES IN FEDERAL COURT
“Mortgage fraud” as it is generally called, is prosecuted in federal court as a felony offense that usually involves misrepresentations to a bank or other lender, or to a mortgage broker, real estate agent or seller of real estate. The ending result in a mortgage fraud case usually is a loss of monies by a lender on a foreclosure of the property due to the fact that: 1) the property was purchased without a real intent by the purchaser to move into the residence; 2) the borrower was a “straw borrower” or “straw purchaser” who was paid a nominal amount to represent himself as the borrower, when in fact he was listed as the title owner of the property yet did not intend to live in or take responsibility for the property; and/or 3) there is a “flip” or re-sale or double sale that is not represented or disclosed to the lender, which involves the fraudulent inflation of the property purchase price in order to facilitate the second sale to allow the purchaser (who becomes the seller immediately thereafter) to gain a significant amount of monies at closing that is not disclosed to the lender.
There are variations of these scenarios, but these are the most common ones found in mortgage fraud cases. These cases are investigated and prosecuted by the United States Attorney’s Office, that is, the federal prosecutor’s office.
Although the phrase “mortgage fraud” is commonly used by law enforcement, attorneys and the public, there is not a specific charge or offense in the federal criminal code that alleges “mortgage fraud.” Usually, the U.S. Attorney’s Office will seek an Indictment charging either one of these offenses or a combination of them:
- 1) Bank Fraud – Title 18, U.S. Code, Section 1344;
- 2) Mail Fraud – Title 18, U.S. Code, Section 1341;
- 3) Wire Fraud – Title 18, U.S. Code, Section 1343;
- 4) Conspiracy to Commit Fraud – Title 18, U.S. Code, Section 1349; and/or
- 5) Money Laundering – Title 18, U.S. Code, Sections 1956 and/or 1957.
Indictments charging criminal offenses in federal court are “returned” by a federal grand jury after the U.S. Attorney’s Office presents enough evidence to establish that probable cause exists to believe that a fraud involving real estate was committed. Once an Indictment is returned (meaning the target of the investigation, now the “defendant” is formally charged), there will be court appearances before the U.S. Magistrate Judge and the U.S. District Judge.
When an Indictment is returned, a warrant will issue from the U.S. District Clerk’s Office, and the Defendant will be arrested by federal agents. In lieu of an arrest, if a target of the investigation, or a Defendant (so named as a defendant when the Indictment is returned formally charging the person), has an attorney who has been in contact with the U.S. Attorney’s Office, the court may issue a summons that commands the Defendant to appear, rather than an arrest. Also, a Defendant whose attorney has contacted the U.S. Attorney’s Office may be allowed to surrender on the warrant without being arrested at his/her residence or place of employment.
Mortgage fraud investigations focus on properties that usually result in foreclosure and/or some type of monetary loss to the lender and or others. Purchasers who flip a house utilizing misrepresentations of fact regarding the origin of the down payment, their financial status or the financial status of a straw borrower, the occupancy status as a primary residence, are targeted for prosecution. The straw borrowers can also be prosecuted due to the fact that these people engaged in misrepresentations to the lender and others, even though they are usually not the orchestrators of mortgage fraud schemes. Loan brokers and real estate appraisers can be targeted and prosecuted for such participation, with appraisers mostly involved in fraudulently inflating the subject real estate values to facilitate the inflated second sale, or flip.
V. Negotiations, Trial, and U.S. District Court
Please see the Federal Criminal Process within the site for an explanation as to the federal criminal procedures in these types of cases.
Any person convicted of fraud or other charges in federal courts is subject to a sentence that is largely controlled, or at least influenced, by the U.S. Sentencing Guidelines. The Sentencing Guidelines are a “point system” that is driven to a good degree in fraud or white-collar crime cases by the dollar amounts. That is, the higher the dollar amount of the fraud or the loss, then the more points that are added onto a defendant for Sentencing Guidelines purposes. Other enhancements, such as use of sophisticated means, and/or abuse of a position of skill or trust, are commonly assessed in fraud cases. The U.S. District Judge makes the final determination of a sentence, taking into consideration the recommendation punishment range from the calculations of the U.S. Sentencing Guidelines.
Cooperators with the U.S. government can be rewarded in the form of a sentence reduction, if the Defendant provides substantial cooperation.