Mortgage fraud is an incredibly complicated crime. It is believed that, if accidental omissions and errors were included, at least 10% of all mortgage applications would be fraudulent. What makes something a crime, however, is intent. It can be very difficult to prove whether or not someone intentionally omitted a piece of information, or intentionally provided the wrong information. As a result, it is very rare for a mortgage fraud case to make it to court.
Mortgage Fraud Laws
Mortgage fraud is covered under the 2009 FERA (Fraud Enforcement and Recover Act). This Act has highlighted the fines and prison sentences relating to mortgage fraud. FERA is a federal legislation, and most states also have their own laws in place. If charges are brought, they usually also incur tax fraud and bankruptcy fraud charges. Those most often targeted are real estate professionals, real estate attorneys, appraisers, and mortgage brokers. However, it is possible for a regular home buyer to be targeted as well.
Mortgage fraud laws are divided into two specific categories, which are:
1. Fraud for housing, in which someone submits inaccurate information in order to be able to buy a home under more favorable terms
2. Fraud for profit, in which a real estate professional falsifies information so that they can get more money out of a transaction
Mortgage Fraud Crimes & Charges
The crime of mortgage fraud only takes place if omissions are made or false information is intentionally submitted. Accidental mistakes, therefore, do not constitute a crime. It is very difficult to make the distinction between these two, particularly when an individual home buyer is involved. With mortgage professionals, however, the distinction is often easier to spot due to repeated mistakes and evidence of kickbacks. Federal prosecutions exist in terms of mortgage fraud. Almost exclusively, these target fraud for profit, rather than for housing. If applicable, federal prosecutors may also bring forward RICO (Racketeer Influenced and Corrupt Organizations) charges. This has become more common in professional mortgage situations since the housing bubble burst.
Mortgage Fraud Punishments
The crime of mortgage fraud is very serious, and the penalties are hefty. Most often, multiple crimes are involved and they exist at federal and state levels. As a result, there is a wide variety of penalties possible as well. Most of the time, mortgage fraud is classed as a felony offence, although if the amount involved in below $1,000, it is usually classed as a misdemeanor. Common punishments include:
• A prison sentence. On federal level, this could be as much as 30 years at federal level, or around five years at state. For a misdemeanor offense, jail sentences of up to one year can be imposed.
• A fine, which is often significant. A single federal charge can result in a fine of $1,000,000. At state level, they usually range from a few thousand to $100,000, depending on whether the crime was a misdemeanor or a felony.
• Restitution, which means that injured parties are compensated for any injury they sustained. This is usually a payment to the mortgage lender.
• Probation, which is usually one year in length and follows a prison or jail sentence. It is becoming increasingly common for probation to be longer than one year. Terms of probation include frequent reports to probation officers, not committing further criminal acts, and submitting to random drug tests.
Under FERA, law enforcement officials can further enforce the laws. It is under FERA that a prison sentence of 30 years can be imposed, as well as a $1,000,000 fine.
Mortgage Fraud Sentencing Guidelines
Sentencing guidelines urge a judge to first determine whether fraud for housing or fraud for profit was committed, with the latter being a more serious offense. The amount of offenses, the length of time it was committed, and the amount of money involved are also important factors. Additionally, the judge will take into consideration whether other crimes have been committed as well.
Mortgage Fraud Statute of Limitations
In the past, the statute of limitations across the country for all fraud cases was five years. However, a new law was established in 2009 by President Obama, which increased it to 10 years. Furthermore, the statute can be tolled if the defendant is not in the state or the country.
Mortgage Fraud Cases
• A woman from Webster has been sentenced to four months of weekend jail time after having been convicted of being involved in a mortgage fraud case. The case itself happened in 2010. Fifty one year old Janet Leigh Faticone also has to pay restitution, or face a further six months in jail. She paid the restitution, and this enabled the judge to give her a lower sentence, as well as five years’ probation. Interestingly, Faticone was charged with a number of other offenses. Furthermore, it wasn’t the first time that she faced fraud charges, and has been convicted of them. (WHEC Rochester)
• Ten people have been sentenced to a total of over 52 years in jail for mortgage fraud. Spiritualist faith healer Saint Pir Pandariman was identified as the main culprit and he was jailed the longest. Interestingly, this case took place in the United Kingdom, but it is believed Pandariman may have fraudulently obtained properties abroad as well. Further investigations are pending. (Stoke Sentinel)
• An attorney has been sentenced to four years in prison for mortgage fraud. Forty seven year old Avalon Betts-Gaston, from Naperville, has been convicted of two wire fraud cases. She claimed to help customers refinance their home, while she actually sold them to straw buyers, effectively defrauding home owners of their property rights. She has been sentenced to 57 months and also has to pay restitution. (Chicago Sun Times)
• Paul Chemidlin Jr has been sentenced to five years in prison for mortgage fraud. He provided false property records for many years. Besides a prison sentence, he will also have to pay $1.5 million in restitution, as well as three years’ probation. Chemidlin entered a guilty plea in relation to 15 different properties. Losses of $5 million followed due to the behavior of Chemidlin and nine other people. (NJ True Jersey)
• Alberta Law Enforcement is making a second attempt at charging someone with mortgage fraud. In 2013, a $200,000 Ferrari was seized, believed to have been purchased through criminal activity. The Ferrari had to be returned when no proof was forthcoming. However, several years later, further charges have been brought against some of the original defendants as there is now more clarity in terms of who actually did what within the crimes. (Calgary Sun)
Mortgage Fraud Laws by State
Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Florida, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Utah, Vermont, Virginia, Washington, West Virginia, Wisconsin, Wyoming