Mortgage fraud is one of the most complex crimes around. Experts estimate that around 10% of all mortgage applications are actually fraudulent, due to accidental errors. The issue, however, is that it cannot be classed as mortgage fraud unless the error was intentional and it is difficult to prove whether it is or not. This is why mortgage fraud cases rarely go to court.
Laws and Penalties
Mortgage fraud is a federal crime covered under the 2009 FERA (Fraud Enforcement and Recovery Act). In Ohio, mortgage fraud committed by professionals providing or searching for loans is also covered under ORC 1322.01 Mortgage brokers – loan officers definitions.
There are two categories of mortgage fraud, with the first one being fraud for housing, which is done by those wanting to buy a house. The second is fraud for profit, which is committed by professionals. In order for mortgage fraud to take place, there has to be intentional omission or falsification of data. This makes it difficult to prosecute fraud for housing, as it is easy to make mistakes. This is why most cases are actually fraud for profit, which is also often covered under the Racketeer Influenced and Corrupt Organizations (RICO) Act.
Although hard to prosecute, the crime is incredibly serious and the corresponding penalties reflect this. This is also because there are often associated crimes. Penalties include:
- A prison sentence of between five and 30 years, unless it is a misdemeanor (if the value was less than $1,000, which is rare in mortgage fraud), in which case the sentence is up to one year.
- Fines of up to $1,000,000 for felonies or $100,000 for misdemeanors.
- Restitution, meaning that money has to be paid back, generally to the mortgage lender.
- Probation, often imposed after prison or jail, usually for one year at least.
Mortgage Fraud Defenses
There are a number of possible defenses against mortgage fraud. A good and experience lawyer will start by conducting interviews to determine whether there was intent. They may, for instance, have been misled or not have known that they were involved in a fraud case. Lawyers may also hire experts in order to conduct more thorough investigations. These include forensic accountants, property valuation experts, forensic appraisal experts, and more.
In order to prove mortgage fraud, a number of key documents have to be presented, forming critical evidence. A good defense attorney, therefore, may try to demonstrate that insufficient evidence is present to prove that mortgage fraud with reasonable doubt. Similarly, they may look at the actual loan application itself. On this application, they have to enter a number of critical pieces of information. If those are missing, the defense attorney may prove that the defendant did not actually commit mortgage fraud, but that their mortgage advisor is the real culprit in the case.
The most common defense, however, is lack of intent. It is very difficult to prove that somebody intended to withhold information or enter it incorrectly, as they may simply have misunderstood the question or made a genuine mistake. Lack of intent is more difficult to prove in the case of mortgage professionals, however. This is because there is an expectation of them to know the rules of mortgage applications and to check whatever information they provide. However, they may, in turn, claim that they completed the documents to the best of their knowledge and that it was actually the applicant who provided the erroneous information, not them. This is, naturally, easily checked through witness testimony.
Statute of Limitations
For a long time, there was a nationwide statute of limitations of five years on all fraud cases. However, after the housing crisis during the recent economic recession, when mortgage fraud also became more common, new laws and rules were put into place. In 2009, President Obama established a new law and this stated that the statute of limitations for mortgage fraud should be extended to 10 years. Additionally, as with all statutes of limitations, it can be tolled if the defendants have been out of state or out of the country. This is because charges cannot be brought against them during this time, meaning it would be too easy to hide in a country without an extradition treaty for a set period of time.
Ohio Mortgage Fraud Cases
- Mortgage fraud ringleader sentenced to 3-1/2 years in federal prison
- Three indicted in mortgage fraud involving 17 properties in Cuyahoga County
- Ohio mortgage company employees indicted on fraud charges
- Attorney General DeWine announces mortgage fraud convictions
- Five indicted for $4.1 million mortgage fraud involving homes in Medina and Gates Mills