The FBI defines mortgage fraud as “any material misstatement, misrepresentation or omission relied upon by an underwriter or lender to fund, purchase or insure a loan.” Mortgage loan fraud in its simplest form involves someone making a misstatement to a lender in order to obtain a mortgage. Of course, this simple form of fraud can take on multiple forms. Any misstatement, misrepresentation, or omission can become fraud in the right context. Even slight exaggerations on your loan application can be considered fraud.

Mortgage fraud can have serious consequences, even if it happens by accident. If your lender discovers that any part of your loan application was false, it can demand immediate, full repayment of the mortgage loan. Not only that, but mortgage fraud is also considered a crime, and is a growing problem.

While a lot of people think of mortgage fraud in the context of a homebuyer lying on the loan application to obtain the loan, there are actually two separate areas of mortgage fraud, and one involves fraud on the part of the lenders:

  • Fraud for housing is the commonly understood context of mortgage fraud, where a homebuyer makes a misrepresentation in order to obtain or maintain ownership of their real estate.
  • Fraud for profit, however, is usually committed by mortgage industry insiders who have specialized knowledge about the industry and its rules and regulations. The purpose of fraud for profit is to abuse the system in order to steal funds and equity from lenders and/or homeowners.

When it comes to priorities, the FBI considers fraud for profit a higher priority for investigation than fraud for housing.

Mortgage fraud of any type is considered a serious criminal offense, and is usually charged as a felony. Punishments can include up to 30 years in prison as well as up to $1 million in fines.

What Are the Elements of Mortgage Loan Fraud?

In order to prove a case of mortgage loan fraud, the prosecution needs to prove that the defendant both intended to commit fraud and that they performed an action that counts as fraud.

To prove the intent to commit fraud, the prosecution must prove that the defendant either knew that the action was fraudulent or that the defendant planned to commit fraud from the beginning. For example, a case where a defendant deliberately misreported their income, telling the lender that they made $5000 per month when they fact only made $1000 per month in order to qualify for a particular loan, would serve as evidence of fraud.

What Are the Most Common Ways to Commit Mortgage Loan Fraud?

The best way to avoid allegations of mortgage fraud is to make sure that everything on your loan application is true and accurate to the best of your knowledge. This includes everything from information about your income to the truth about your credit cards and outstanding debts.

The most likely ways to trigger a mortgage fraud investigation include:

  • False Statements: Making false statements on loan documents such as your loan application, including false statements about outstanding debts that are intended to mislead the other party; 
  • Non-Disclosure: Concealing information or failing to inform the lender about certain crucial facts, such as having a second lender or a second mortgage;
  • Identity Theft: Using another person’s name and information without knowledge or consent;
  • Occupancy Fraud: Providing false information about the occupancy of the property (whether it is intended to be the buyer’s primary residence, an investment property, or left vacant);
  • Income Fraud: Making false statements about the borrower’s income level.
  • Straw Buyers: Allowing someone to use your identity or credit information to obtain property when the actual buyer may not qualify for a mortgage or qualify for the best possible rates.

What if My Lender Committed Mortgage Loan Fraud?

This situation was actually one of the factors that contributed to the Subprime Mortgage Crisis of 2008. After the housing bubble burst, many mortgage lenders failed or were unable to produce the documents they needed in order to foreclose on homeowners. In many cases, lenders began creating new, forged documents in order to move forward with foreclosure proceedings.

In many cases the forged documents were poorly done, with misspellings, wrong names and dates, and other clear errors. As a result, many judges relaxed some of the rules regarding lender error in the foreclosure process, and became more willing to hear mortgage fraud as a defense to foreclosure.

New regulations have tightened up the lending process in the United States, but there is always a risk of fraud in any transaction. The best practice is to make sure that you tell the truth on your loan application, and remain aware of your situation. If you believe that you are a victim of lender fraud, it is in your best interests to talk to an attorney as soon as possible.

Should I Talk to a Lawyer About My Mortgage Loan Fraud Case?

If you are concerned about mortgage loan fraud, it is in your best interests to talk to a lawyer. The right lawyer can give solid advice on your case, and help you decide what (if anything) needs to happen next in your situation.

If you have been accused of loan fraud, an experienced criminal defense attorney can help you protect your rights and advise you on the best way to move forward with your case.

If you believe you are the victim of mortgage fraud, consulting a real estate attorney can help you determine what rights you have against your lender, and what path to take.