Loan fraud occurs when an individual falsifies their application for a loan. This can happen in situations involving personal or business loans. For example, if the borrower lies on their loan application, this will cause the bank or other lending institution to suffer monetary loss and setbacks in their business operations. This could occur by misstating information to get better loan rates. Over reporting income and claiming a piece of property is more valuable than it actually is are a few examples of loan fraud.
Lenders can also perpetrate loan fraud against potential borrowers. An example of this is a lender providing a fraudulent loan application to a potential borrower in a real estate transaction. Providing a false application could cause the buyer to suffer financial setbacks and miss out on opportunities to purchase other real estate.
It is important to know what constitutes loan fraud and what rights you have if you experience loan fraud. If you are accused of loan fraud, then being educated about the consequences and any possible defenses you may have will be very helpful if any criminal charges or other legal action results.
When Does Loan Fraud Occur?
Fraud can happen in any situation involving a loan. Some common transactions where loan fraud can occur involve mortgages, automobiles, boats or other recreational vehicles, home improvement contracts, credit cards or bank applications, and general personal loans.
When you think of loan fraud, mortgage transactions are probably the first thing that comes to mind. As noted above, mortgage loan fraud can occur on both ends – initiation by the borrower or the bank.
Other intervening parties involved in the transaction could also engage in fraud, like brokers or the real estate agencies. As such, there are many different stages of the home buying process where fraud could exist. It can even occur after someone owns property and requests to modify their loan terms.
What More Should I Know About Mortgage Fraud?
If you are a homebuyer, then it is good to know about the different ways you could be taken advantage of during the process. Predatory lending is when a financial institution offers a high interest rate loan to someone in exchange for valuable collateral, like the deed to the property.
If the buyer cannot pay back the loan in full, which often happens due to the high interest rate, then the lender can take the property and sell it at a much higher value to make a profit. This can be considered fraudulent behavior on the lender’s part if the bank conceals or misstates the term of the loan.
On the other side, lenders should know how loan applicants can try to fraud them to get a better loan. Some reasons people do this is to get approved for more money or obtain loans with lower interest rates. Some common examples of mortgage fraud include exaggerating income, claiming you are employed when you do not have a job, and trying to avoid higher interest rates by claiming you will occupy the property when the intention is to buy it as an investment property.
The above are just a few typical examples of mortgage fraud on each end of the transaction. If you think you have been frauded during a mortgage transaction in these or other ways it is a good idea to consult with a criminal defense lawyer and/or a real estate lawyer.
What are Some Potential Consequences of Loan Fraud?
Loan fraud can be considered a white collar offense with criminal consequences, especially if a large sum of money is involved. It can also have business and personal ramifications. Some possible consequences are fines, prison time, affected citizenship status, loss of future job prospects, damaged business reputation, and loss of future business opportunities.
As such, victims of loan fraud can press criminal charges. They may also have a civil case to get an award of money damages. A likely cause of action would be breach of contract or misrepresentation. A paper trail will be necessary to prove the fraud. This could include the loan agreement, emails, receipts, and other transaction documents.
What are Some Possible Defenses to Loan Fraud?
Whether you are accused of loan fraud or the victim, it is important to know the available defenses in order to prepare and formulate your strategy. The following are common defenses to loan fraud:
- Coercion: The accused could claim that they were forced to participate in fraud – whether it be a borrower providing false information or lender misstating the terms of the loan. However, this can be hard to prove and there is usually little to no evidence supporting the claim that they took these actions under threat of harm.
- Mistake: The accused could claim that there was no fraud and that it was based on a mistake of fact. If there is documentation to back up this argument, it will likely be successful.
- Lack of Damages: In a civil action, the defendant could claim that the victim of loan fraud did not suffer any damages (money or otherwise) as a result of the fraudulent behavior. This will usually be a weaker defense because the victim almost certainly suffered some type of harm as a result of the fraud.
Keep in mind that other defenses may be available. This will depend on the facts of the case, your jurisdiction’s laws, and the judge’s ruling.
Do I Need a Lawyer If I Have Been Charged with Loan Fraud?
Loan fraud is a serious offense and can have both criminal and civil legal consequences. Hiring a criminal defense lawyer to help with loan fraud charges brought against you is a good decision. A lawyer can look through your records and help formulate your defense.
If you are a victim of loan fraud, you will need to cooperate with the criminal investigation. You can also consult with a business lawyer to determine if you can get money damages as a result of the loan fraud.