A mortgage is essentially a real estate lien that is placed on property. This lien is placed by the bank or financial institution that has lent the money to a borrower in order for that borrower to purchase the property. Typically, mortgage transactions involve a promissory note and a deed of trust. A promissory note is a contract that states that the borrower agrees to repay the lender for the money owed, plus interest. It holds the borrower accountable for repaying the loan, even in the event they sell the property.
A deed of trust document is what serves as a lien on the property. Thus, if the borrower does not repay the loan, the lender may force repayment by selling the property. Simply put, a signed and approved mortgage obligates the borrower to pay back the loan plus interest for the property. The lender is granted the right to foreclose on the property if the borrower fails to repay the mortgage.
There are several different types of mortgages, all of which involve different terms and conditions to meet the specific needs of a borrower. Some common types of mortgage arrangements include:
- Fixed Rate Mortgages: For fixed rate mortgages both the interest rate paid on the loan and the monthly payments are determined before the borrower accepts the loan;
- Adjustable Rate Mortgages: For adjustable rate mortgages the interest rate and monthly payment remain the same for an initial period of time. Then, once that time has passed, the interest rate and payments may periodically be adjusted; or
- Balloon Mortgages: For balloon mortgages a fixed interest rate and payment amount are fixed for the duration of the loan, but must be paid back in its entirety after a short amount of time as determined by the lender.
In order to apply for a mortgage, the following information must be provided by the borrower:
- Value of current assets and current debts;
- Employment history and current income;
- Source of down payment; and
- Credit history and score.
What Is Mortgage Fraud?
Essentially, mortgage fraud refers to falsifying information in order to get a better mortgage rate. Mortgage fraud occurs by providing false, incorrect, or exaggerated information on a loan application, and is currently one of the fastest growing forms of white collar crime. Mortgage fraud can come in many different forms, but the most common forms are:
- Income Fraud: This form of mortgage fraud occurs when the borrower overstates their income. They may do this to qualify for a higher loan or a better rate;
- Loan as a Gift: Treating a loan as a gift reduces the amount of debt the borrower appears to have, which could possibly cause the lender to approve a loan they may otherwise reject. An example of this would be when people borrow money from their family in order to make a down payment on a piece of property;
- Occupancy Fraud: Occupancy fraud occurs when a borrower wishes to obtain a mortgage in order to purchase an investment property while claiming that they will live on the property. This is considered to be a type of fraud because lenders generally charge higher interest rates for investment property mortgages, as they are considered to be a more risky type of loan for lenders;
- Appraisal Fraud: This type of fraud occurs when a home’s value is deliberately or fraudulently understated, or overstated. Overstated value leads to more money being obtained, with the value then being understated in order to obtain a lower price on a foreclosed home;
- Employment Fraud: Employment fraud happens when a borrower claims to be self employed in a company that does not exist, or claims a higher position in a real company. They may do so in order to misrepresent their income for the purpose of obtaining a mortgage; and
- Fraud for Profit: This complex scheme involves multiple professional mortgage lenders, in an attempt to defraud the lender of large sums of money. This could include a straw borrower, a dishonest appraiser, and a dishonest settlement agent all working together in order to get an under-served large loan.
Is Mortgage Fraud Considered to be Criminal Fraud?
Simply put, yes. Mortgage fraud is a white collar crime, and criminal fraud constitutes white collar crime as well. If someone knowingly lies about important or key facts in a transaction, with the other party relying on that false information then suffers some kind of harm, fraud has been committed. A borrower intentionally lying about key facts to a lender causes harm to the lender and is therefore criminal fraud.
A criminal fraud conviction could result in prison time, parole or probation, substantial fines, and restitution (paying victims back for the losses incurred). The exact penalties for criminal fraud are influenced by several factors. These include the severity of the fraud, the person or entity that experienced the fraud, and the amount of money or property that was taken by the defendant as a result of their fraudulent actions.
Do I Need an Attorney to Help With Mortgage Fraud?
It is important to note that many people who commit mortgage fraud do not do so on their own volition. Generally mortgage fraud is committed at the urging of a real estate agent in hopes of closing a deal. Regardless of the circumstances leading to the commitment of mortgage fraud, you should consult with a skilled and knowledgeable criminal defense attorney if you find yourself facing criminal fraud charges.
An experienced criminal defense attorney can help you determine if you have any defenses available to your case, as well as represent you in court as needed. Additionally, an attorney can assist you with any questions or concerns before moving forward with the mortgage process in order to avoid any accidental fraud.