Mortgage loan fraud is defined as “any material misstatement, misrepresentation or omission relied upon by an underwriter or lender to fund, purchase or insure a loan.” Basically, the crime of mortgage fraud involves lying and deception in order to obtain a mortgage. There are two different areas of mortgage fraud, each defined by the person making the misrepresentation:

  • Fraud for housing involves a homebuyer or mortgage borrower making a misrepresentation in order to obtain or maintain ownership of real estate and obtain the mortgage loan; and
  • Fraud for profit is usually committed by mortgage industry insiders and professionals, such as lenders, underwriters, appraisers, and agents, who have specialized knowledge about the industry that helps them create the fraud. In fraud for profit, the most common purpose is to use the system to steal money from lenders.

What Are Common Ways to Commit Mortgage Loan Fraud?

Mortgage fraud can occur in a variety of ways, and may involve other crimes beyond the fraud itself. However, there are fairly common instances that arise in fraud cases:

  • False Statements: Making false statements on your loan application, even “little white lies,” have the possibility to result in mortgage fraud charges, especially if those statements mislead the lender about your income or outstanding debts;
  • Non-Disclosure: Concealing information or failing to inform about certain crucial facts, especially if those facts would affect how the lender approaches processing the potential mortgage;
  • Identity Theft: Using another person’s name and information without knowledge or consent;
  • Income Fraud: Making false statements about your income level. This can be extremely serious because many lenders use information about your income to determine your eligibility for loan programs and interest rates;
  • Occupancy Fraud: Providing false information about the occupancy of the property, and whether it is intended to be occupied as a primary residence, an investment property, or left vacant, can also be considered fraud.

That being said, it is more common for instances of professional fraud to be investigated. Federal prosecutions for mortgage fraud generally target professional fraud and larger-scale operations, and don’t tend to focus on individual homebuyers involved in fraud for housing.

What Are the Penalties for Mortgage Loan Fraud?

The first penalty for mortgage fraud can affect you directly. If your lender discovers that there was a misrepresentation in your loan application, they can call your loan balance due. This means that the lender will require you to pay the entirety of the outstanding loan immediately. If you are unable to pay, then the lender can try to seize the property or foreclose.

On another level, mortgage fraud is also a criminal offense, and the authorities take mortgage fraud seriously. Since this particular crime can involve other crimes at both the state and federal level, the potential penalties can vary. Most of the time, penalties can vary depending on whether charges are pursued by federal prosecutors or state district attorneys.

Depending on the severity of the fraud, mortgage fraud cases can be prosecuted either as felonies or misdemeanors. Most cases involve felony charges, but misdemeanors are possible where small amounts of money are involved (usually less than $2000).

Penalties for mortgage fraud convictions can include:

  • Prison Time: Depending on the circumstances of the case, penalties for mortgage fraud can include prison time. Misdemeanor fraud charges can result in jail sentences up to a year. Federal mortgage fraud cases can result in prison sentences of up to 30 years;
  • Fines: Fines for mortgage fraud tend to be large, especially when the case involves professional fraud. State fines can range from a few thousand dollars in misdemeanor cases to over $100,000 in felony cases. Federal mortgage fraud fines, however, can amount up to $1 million;
  • Restitution: Often, the courts may require restitution payments, which are different from fines. Fines are imposed as punishment for wrongdoing, while restitution is intended to compensate the injured party or help to make them whole after the injury. In mortgage fraud cases, you may have to pay restitution to the lender (basically pay back the loan, in some cases) in addition to any fines; and
  • Probation: Probation can be used either instead of or in addition to fines and prison sentences. When on probation, you will be required to comply with a list of requirements, such as checking in regularly with a probation officer, submitting to drug testing, and not being charged with any new criminal offenses.

In addition, defendants who also happen to be real estate professionals (such as real estate agents, appraisers, lenders, and others) can also receive disciplinary action from their state licensing boards. Penalties from the licensing boards can include suspension of their professional license for a period of time (or complete revocation).

Should I Talk to a Lawyer About Mortgage Loan Fraud?

If you are concerned about mortgage loan fraud, it is in your best interests to talk to an experienced real estate lawyer. Your lawyer can provide advice when it comes to the legal issues that are involved in mortgage loans, and answer any questions you may have about the mortgage process.

If you have been accused of mortgage loan fraud, consult a criminal defense attorney right away. They can discuss the circumstances of your case with you and put together a plan to protect your rights. Your lawyer can also represent you in court and help you get the best possible outcome for your case.