A mortgage is a loan used to finance the purchase of a home or other piece of real estate. The loan is secured by the property that the loan is used to purchase. This implies that if the loan is not repaid according to the terms of the loan arrangement, which are usually a monthly principal and interest payments, the lender may foreclose on the property. Foreclosure is the process of forcing the sale of a home and utilizing the proceeds to pay down the loan sum.
“Any major misstatement, misrepresentation, or omission relied on by an underwriter or lender to fund, purchase, or insure a loan,” according to federal law is a mortgage fraud. Mortgage loan fraud is defined as a loan applicant misrepresenting a fact on a mortgage application to secure a loan. Mortgage loan fraud may, and does, take many different forms. In the context of mortgage lending, any misstatement of truth, misrepresentation of information, or omission of key facts can be considered fraud.
Mortgage fraud can have serious implications. If a lender discovers that any aspect of a borrower’s loan application was false, the lender has the right to demand prompt and full repayment of the loan. If the borrower defaults, the lender has the option to foreclose on the property. Furthermore, mortgage fraud is a crime. It’s also becoming a bigger issue.
Most people associate mortgage fraud with a homebuyer lying on a loan application. However, there are two distinct types of mortgage fraud:
Mortgage fraud is most usually associated with housing fraud. When a homebuyer makes a false statement to secure or keep ownership of their property through a first or second mortgage loan, this is known as cheval.
Insiders in the mortgage sector, such as brokers or appraisers, who have a specialized understanding of the industry and how it works, are more likely to perpetrate fraud for profit. Profit-driven fraud aims to take advantage of the system to steal money from lenders and homeowners. Mortgage brokers, for example, have been known to borrow money for an entirely fake home purchase. There is no genuine borrower and no genuine property. Instead, the loan proceeds are pocketed by the broker. When a loan is not paid, the lender realizes that there is no real estate to foreclose on.
Mortgage fraud could be prosecuted in federal court or state court by federal or local authorities. If federal authorities prosecute the case in federal court, it will most likely be charged as wire fraud or mail fraud, both of which have comparable features. The components of the offense in this scenario would be as follows:
Either the perpetrator:
The offender acted with the “intent to deceive” in mind;
In most cases, however, if the offense is prosecuted in a state court by a local authority, such as a municipal or county district attorney, the elements are as follows:
What Are the Most Common Mortgage Loan Fraud Techniques?
An applicant’s greatest defense against a charge of mortgage fraud is to ensure that everything on their loan application is true and accurate. One type of mortgage loan fraud includes falsifying facts on a mortgage application. This could include everything from a mortgage loan application lying about their salary to lying about their credit card balances or other ongoing problems. The following facts can trigger a mortgage fraud investigation:
False Statements: Acts such as falsifying information on a mortgage application, such as leaving out information about the applicant’s outstanding debts, and other misrepresentations and omissions intended to deceive the lender into making a loan that would not be made if the facts were reported.
Failure to Disclose: Withholding information or failing to disclose important facts to the lender, such as the existence of a second lender or a second mortgage.
Identity theft: Identity theft is when someone uses another person’s name and information without permission.
Occupancy Fraud: Giving misleading information about the property’s occupancy, such as not accurately stating whether the property is meant to be the buyer’s primary residence, an investment property, or left vacant;
Straw Buyers: When one person allows another to use their identity or credit information to get property when the true buyer may not be able to obtain a mortgage or the best feasible interest rates.
What are the penalties of Mortgage Fraud?
Mortgage loan fraud has the same penalties as other crimes: prison time, fines, and possibly restitution. According to reports, the average sentence for mortgage fraud is 28 months in prison.
Mortgage fraud is normally charged as a felony, though it can be punished as a misdemeanor if the amount involved is less than $1,000. The following are examples of possible punishments:
A prison term: In federal court, a sentence of up to 30 years is possible; in state court, the possible prison sentence varies by state but might be in the five-year range. A minor violation can result in a one-year jail sentence.
A fine: In federal court, a fine for a federal crime can be as high as $1,000,000. The fine in state courts can range from a few thousand dollars to $100,000, depending on whether the crime was a misdemeanor or felony; the fine usually reflects the seriousness of the crime, so if tens of thousands or millions of dollars were stolen through the fraud, the fine would be higher than if the loss was minor;
Restitution: In the event of regular consumer mortgage fraud, restitution may entail a payment to the mortgage lender.
Probation: Probation is a system of supervision by probation authorities that usually occurs after a prison or jail sentence. It entails reporting to probation officers, refraining from committing new crimes, and submitting to random drug testing.
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