What is Mortgage Fraud?
Financial institution fraud (FIF) is the term used to refer to a class of criminal schemes that target traditional credit unions, retail banks and other financial institutions insured by the federal government. Many of these schemes involve compromising the customers of these institutions by stealing their personal information or account information.
Mortgage fraud is classified as a white-collar crime and is a sub-category of FIF because this crime is characterized by the misrepresentation, material misstatement or the exclusion of information that the lender relies upon to determine whether to approve an applicant’s home loan, accept particular repayment terms or agree to a reduced payoff amount.
Types of Mortgage Fraud
Fraud for Profit
Insiders use their expertise and/or authority to enable or perpetrate this kind of mortgage fraud. According to the FBI’s Financial Institution Fraud Investigations Bureau, a large percentage of the mortgage fraud seen today involves collusion between industry insiders, including appraisers, attorneys, bank officers, loan originators, mortgage brokers and others within the housing industry. Those involved in fraud for profit schemes are not attempting to secure housing but are misusing the lending process to steal equity and cash from homeowners or lenders.
Fraud for Housing
In an attempt to maintain or acquire possession of a home, the borrower may perform illegal actions. For example, a borrower may misrepresent his/her asset information and income on a mortgage loan application or persuade an appraiser to manipulate the value of the borrower’s property.
Most Common Mortgage Fraud Schemes in Nevada
- False Loan Application – When a prospective home buyer conceals or lies about important information on his/her mortgage application, this is referred to as falsifying a loan application. This misinformation may relate to his/her identification, debts, income and/or intention to honor the home loan, etc.
- False Appraisals – A false appraisal occurs when an individual who is selling his/her home bribes an appraiser to inflate the value of the property. The bribe may involve a kickback or some other type of incentive for the appraiser.
- Illegal Property Flipping – An individual purchases a piece of property, an erroneous appraisal is performed to increase the value of the property and the property is swiftly sold at or near the newly-appraised, inflated price.
What Constitutes Mortgage Fraud?
A person participating in a home loan transaction who knowingly:
- misrepresents or makes an untrue statement regarding a material fact;
- neglects to disclose or conceals a material fact;
- facilitates or uses a misrepresentation or an untrue statement from another individual regarding a material fact;
- uses or makes it easier for another individual to fail to disclose or to conceal a material fact;
- accepts proceeds or money connected with a loan transaction that came from an infringement listed above;
- files or initiates the filing of any document with the county recorder that includes a misrepresentation, omission or misstatement regarding a material fact.
Each transaction in which an individual violates any of these provisions will constitute a separate violation.
Mortgage Loan Fraud-Penalty
One-Time Conviction: A Category C Felony
Upon conviction an individual may:
- be sentenced to the state penitentiary for a minimum of one year and a maximum of 10 years; or
- be penalized with a fine of up to $10,000; or
- receive a monetary fine as well as time in state prison.
A Pattern of Mortgage Fraud: A Category B Felony
If an individual participates in a pattern of mortgage fraud or collaborates, or attempts to engage in a pattern, he/she is guilty of a category B felony. A category B mortgage lending fraud conviction is punishable by fine, by imprisonment or by both.
Upon conviction an individual may:
- be imprisoned for no less than three years with a maximum term of 20 years; or
- be fined up to $50,000; or
- receive a fine as well as time in the state penitentiary.
Defending Mortgage Fraud Charges
Some of the common defenses used in mortgage fraud cases include:
- the search and seizure conducted by the police was unlawful;
- the defendant did not intent to defraud anyone.
Many times, Nevada prosecutors are willing to work with us to plea bargain charges down to a lesser offense: Sometimes, even a dismissal.
Nevada Mortgage Fraud Laws
If the lender or the lender’s agent is convicted of lending fraud, that specific lending transaction can be canceled by the borrower; however, this action must be requested within six months of the lender’s conviction date. The borrower must provide this cancellation notice in writing to the lender as well as to the county recorder in the county where the mortgage itself was recorded; however, if the lender has already transferred the borrower’s mortgage to a genuine purchaser, cancellation is not permitted.
In the state of Nevada, individuals convicted of mortgage fraud are also subject to a civil penalty of up to $5,000 per violation.
These penalties are recovered through civil actions that are brought by the Attorney General (AG) in the name of Nevada. The AG can request reasonable legal costs and attorney’s fees. Furthermore, the holder or owner of the property may choose to bring a civil action to recover damages as well as reasonable legal costs and attorney’s fees.