Mortgage and Real Estate Fraud

Pursuant to the real estate market crash of 2007, government officials and agencies across the nation have been facing enormous political pressure to bring to justice those responsible. While there were a great many lenders, real estate investors and mortgage brokers involved in deceptive practices, there are also homebuyers and investors who borrowed money to buy homes in good faith, but who have also been targeted by law enforcement agencies and prosecutors.

The number of prosecutions for mortgage fraud is on an uptrend. According the Justice Department's Transactional Records Access Clearing House (TRAC), there were three times as many prosecutions in 2010 than there were in 2008—with parts of Florida leading the nation. Inevitably, this type of aggressive prosecution can lead to the indictment of individuals who have been either mislead by a more culpable professional, or are completely innocent of wrongdoing.

Mortgage fraud and real estate fraud are often terms used to describe the same family of fraudulent practices, as mortgages and real estate are closely associated with one another. Freddie Mac attempts to identify emerging fraud trends by breaking them into three categories: Fraud for Housing, Fraud for Profit and Fraud for Criminal Enterprise.

*Fraud for Housing* – This usually occurs when an individual wants to buy a house that they can't afford. It's characterized by the following traits:

– Perpetrators may include the borrower and/or loan officer.
– Normally involves a single loan.
– Contains loan-level misrepresentations to qualify.
– Borrower intends to repay – the loan usually does not default.
– The appraised value is not typically inflated at origination.

An example of this type of fraud would be when a borrower claims a higher income to qualify for a loan. While this is illegal, in many borrowers' minds, it is a crime without consequence or victims since they (the borrowers) fully intend to repay the loan. In many cases, the borrower may have even been mislead by someone in the lender's employment, saying that the income requirement is "merely a formality."

*Fraud for Profit* – According to Freddie Mac, "These schemes often involve a group of people who play multiple roles in the fraud. The initiators often receive a larger percentage of the profit while others may be paid several thousand dollars for their part in the misrepresentation. For example, a mortgage broker may partner with a loan processor to create a fictitious credit profile and collude with an appraiser to inflate the property value."

As with other types of fraud, a purchaser or investor who is acting in good faith can still find himself or herself caught up in the investigation.

*Fraud for Criminal Enterprise* – This type of fraud usually involves an organized crime and is often seen in money laundering operations.

It is not uncommon for people who view themselves as ordinary law-abiding citizens to be caught up in a state or federal investigation. For instance, four South Florida police officers were recently acquitted after being charged with mortgage fraud. It was found that two mortgage brokers falsified the officers information in loan applications without their knowledge.

Mortgage fraud prosecutions brought by the United States and the State of Florida are felonies that carry the real possibility of substantial sentences of imprisonment, fines, restitution and forfeiture. Because the laws surrounding mortgages and real estate can be complex, it benefits anyone who thinks that he or she is involved in a fraud investigation to seek competent legal counsel. A mortgage/real estate fraud attorney can assist the accused in having the charges reduced or dismissed.



Charles B. Lembcke has been recognized as one of the Best Lawyers in America in the area of white collar criminal defense.

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