Remember the banking crisis of 2008 when the house of cards of subprime mortgages went tumbling down? Those days prior to the crisis, when you didn’t even need a pulse to get a mortgage—remember them?
There were “no doc” loans, “no income verification loans,” “no verification of deposits”. Just a bunch of hungry banks and mortgage brokers looking to place the mountain of money available to any warm body, then sell off the loans and the risks that went with them, and nobody really cared about the consequences—until it was too late.
Mortgage brokers traded in their Fords for Mercedes, and borrowers were able to get the kind of house that, under more stringent guidelines that existed prior to this free-for-all, they could never qualify for.
Everybody was happy, until the false foundation supporting those loans caved in, and foreclosures were busting out all over. Bankers wanted to get paid back, and by reviewing the loan documentation, they might just discover a very effective way of obtaining restitution—contact the federal authorities and have them investigate the borrower, the seller, the mortgage broker for mortgage fraud, and see what stuck to the wall.
When something stuck to the wall, the defendant was often up against the wall, and the more restitution he could make, the less jail time he might do.
Now, the climate has changed, and there are both state and federal mortgage fraud statutes, (the newer Federal one came about in 2009 after the crisis exploded, expanding bank fraud to mortgage institutions as victims). If Federal loan funds were involved, or if the documentation was provided by fax, phone, mail, email or the like, they could obtain Federal jurisdiction.
In reality, banks didn’t care what you did, as long as you kept paying them on time. Where the trouble started is when you didn’t pay on time, when you defaulted.
Bankers are not known for their sense of humor, and if they could get the assistance of the state or federal prosecutors to recover their losses, they didn’t hesitate to do so. They don’t hesitate now.
Now, as a borrower, perhaps you provided inaccurate information on your mortgage application, but you didn’t do it intentionally. If your attorney can demonstrate that to a prosecutor, you are going to be in a much better defense position; either via outright dismissal, jury verdict, or a decent plea bargain.
So how do you negate the element of the charges that deals with intent?
You might have lost your job during the pendency of the mortgage commitment and didn’t tell the bank, because you had been promised to be hired by someone else, and based upon that promise, you filled out that form at closing the bank provided, saying there were no material changes in your financial condition; (even though you had lost your job prior to closing.)
Or you might have fudged your financials and taken out an adjustable mortgage that has adjusted in a range that you can no longer afford, perhaps you are one of the victims of the current (January 2019) government shutdown where 800,000 federal workers suddenly stopped getting paid, and couldn’t pay their mortgage.
When you can’t pay, your friendly banker is no longer so friendly, and might, in addition to foreclosure proceedings, seek to have you criminally charged for telling not so little white lies on your mortgage application, so you have a very strong incentive to make restitution a priority to minimize your time eating institutional food in a gated community in which you don’t want to live.
The risks of being prosecuted for mortgage fraud are high.
Many people still have mortgages taken out before the subprime crises, because they took out twenty and thirty year loans. Some of those people, with the “assistance” of mortgage brokers may have been rather “optimistic” when it came to stating their income and financial situation.
Some of them—buyers and sellers–may have been rather careless in contracting for the sale, and padded the purchase price for a buyer who couldn’t come up with a down payment on his own, so that a bank thinking they were financing 80% loan to value, financed the whole deal.
When those people can’t pay, they are most at risk for charges of mortgage fraud, along with the brokers and other professionals who profited from making the fraudulent loan.
In New York, if you are a broker, a mortgage broker, a seller, or anybody else involved with the transaction deemed fraudulent, except for a buyer who intends to occupy the residential property, you could be prosecuted under Penal Law Section 187.
Again, like most crimes, (but not all), there is an element of intent that a prosecutor must prove to obtain a guilty verdict. Basically if you knowingly and with intent to defraud supply bogus documentation, or conceal material facts to obtain a mortgage for a borrower, or for yourself if you are an owner non-occupant of the property, you can be prosecuted. Your defense lies in your attorney fighting those “knowingly” and “intent to defraud” portions.
It is here where a good lawyer can possibly successfully defend you against the charges.
So there are a lot of things for a prosecutor to prove with respect to intent. Did you know that your responses were false, did you intend to defraud the bank. (There was a California case where a defense attorney proved the bank really didn’t care about the statements and was going to make the loan anyway, ergo, no intent to defraud. Score one for the defendant).
Let’s say you had your own business when you filed for the mortgage, and you hadn’t yet prepared a current income tax return. You put down income from the last return + what you assumed would be accurate for the current year based upon past experience—but you were wrong by a long shot, because a customer wound up getting a huge refund, or a deal you were sure was going North, went South instead.
Did you intend to defraud? Likely not. Did you knowingly defraud? Likely not. This could be crucial to your successful defense.
Perhaps you unknowingly concealed a judgment filed against you, because at the time of filling out the application, you weren’t aware that it had been entered. Intent? No.
In these cases, there is no dispute that the mortgage was taken out, no dispute that you’re not paying it. The focus on your defense is on the intent question. For sentencing and plea bargaining purposes, the amount of the loss, and your ability to make restitution are also crucial factors in minimizing or eliminating jail time, and minimizing the severity of the charge you eventually might plead to.
Let’s take a look at the ten year old federal statute. The Fraud Enforcement and Recovery Act, (FERA) of 2009 provides penalties of one million dollars and up to thirty years in jail for violations. In 2009 it added mortgage providers with potential victims of fraud.
While it is primarily targeted against lenders and mortgage brokers, it can be used against borrowers and sellers also.
Back in the day, less than a dozen years ago, the mortgage business was the Wild Wild West, and many magic pens created loan documents that were only true in fairyland. Those mortgages are still being paid down today, and a default under one, might not only bring on foreclosure proceedings, but a criminal prosecution.
If you are being investigated for, or are being charged with mortgage fraud, you must immediately contact an experienced and knowledgeable attorney to represent you. It can save you a lot of money and time—jail time.
