Federal Mortgage Fraud - 18 U.S. Code § 1014
After the 2008 mortgage crisis, federal authorities have taken a much different approach to reviewing mortgage loans. They want to ensure that businesses or individuals are not being defrauded and that the loans are in the interest of economic stability. Federal loan fraud is a serious charge, and you must act immediately to address the situation.
The federal government's extensive involvement in mortgages across the United States, facilitated through entities like the Federal National Mortgage Association (Fannie Mae) and the Federal Housing Administration (FHA) loans, underscores the broad reach of mortgage fraud laws.
Their direct lending involvement means mortgage and loan fraud cases can be filed as either a California state or federal crime. In simple terms, if you have been accused of lying or making false statements in order to obtain a mortgage or loan, you could find yourself facing criminal charges.
Mortgage fraud is a serious federal offense that involves providing false information or omitting material facts to deceive lenders during the mortgage application process. The crime falls under the umbrella of white-collar crimes and is typically prosecuted under
18 U.S. Code 1014, which specifically addresses fraud and false statements made to financial institutions, carries severe penalties. A conviction under this federal statute could result in excessive fines and a lengthy prison sentence of up to 30 years, highlighting the gravity of the offense.
Suppose you are under investigation or already charged with loan fraud. In that case, our federal criminal defense lawyers can thoroughly review the details of your case and go over your legal options.
There has been a rise in real estate fraud recently. Consequently, the federal government has begun actively investigating and prosecuting alleged real estate and mortgage fraud schemes involving investors, brokers, and straw buyers.
Because the consequences of a conviction are so severe, you must hire an experienced and knowledgeable federal criminal defense attorney who can provide you with proper representation in mortgage fraud or real estate fraud cases.
Our attorneys have over 50 years of combined experience in criminal defense. We will help to provide you with the best defense available, giving you the reassurance you need during this challenging time.
What is Mortgage Fraud?
Mortgage fraud, as defined, involves a number of schemes to defraud a federally insured lending institution (a bank). There are various mortgage fraud schemes, ranging from silent second schemes and foreclosure schemes to schemes involving inflated appraisals and air loans. Most mortgage fraud or real estate fraud cases involve one of the following:
- Nominee/straw buyer loans to purchase property: A straw buyer is used to purchase property for an investor who may not otherwise have qualified for the loan due to multiple other property loans. While the investor had the intention to resell the property within months for profit, the sudden drop in the market caused the investor to default and get caught in the property flipping scheme. While the property flipping scheme had legitimate and legal intentions, the investor faces fraud charges for the deception used to purchase the real estate.
- Inflated appraisals: Straw buyers are used to purchase property on behalf of an investor. The property is sold and repurchased several times, each time at a higher price, through the use of corrupt appraisers, title companies, and other individuals. The investor, appraiser, broker, or other interested party often pocket proceeds.
A mortgage fraud offense occurs if you make a misrepresentation or omission to the lender in order to obtain a loan or get better loan terms. Additionally, it also involves willful lying or deceit to a homeowner, buyer, or seller with the intent of financial gain or to obtain a property.
A mortgage fraud case actually covers a wide range of unlawful activity, such as mortgage fraud, rent skimming, fraudulently obtaining deeds to real estate, and even foreclosure fraud.
A common example of mortgage fraud is when someone lies on their mortgage application by stating they earn much more money than they actually earn and even presents false pay stubs from their employer so they can get a lower interest rate.
What Does the Law Say?
18 U.S.C. 1014 criminalizes making false statements, providing false information, or overvaluing property in relation to a loan application submitted to a federally insured financial institution.
This statute covers a wide range of financial transactions, including mortgage applications where borrowers may provide false information to obtain mortgage loans under false pretenses, other attempts to obtain credit, and even crop insurance.
Generally speaking, making a false statement to a federal agency or financial institution to obtain credit or insurance constitutes a federal crime.
According to the statute, it is illegal to “knowingly make any false statement or report, or willfully overvalue any land, property, or security for the purpose of influencing in any way the action” of federally insured institutions. These institutions include:
- Banks
- Credit unions
- Mortgage lending institutions
- Federal Housing Administration programs
Federal Loan Fraud Charges
Readers will note that the majority of the statute's text is dedicated to enumerating certain public and private entities to which the statute applies.
Regardless of which agency is in question, 18 U.S.C. § 1014 criminalizes the behavior of knowingly making a false statement to one of the enumerated agencies for the purpose of attempting to influence that agency's decision-making.
For example, suppose one were to apply for a loan from an “agricultural credit association” and, in so doing, make knowingly false statements about one's monthly income and the value of one's assets.
These statements could form the basis of a conviction under 18 U.S.C. § 1014.
The Federal Bureau of Investigation (FBI) will investigate accusations of bank and mortgage fraud. In many cases, financial institution fraud involves an employee of the bank or a lender perpetrating it against an actual customer.
It can entail embezzlement and identity theft. Mortgage fraud normally involves individuals seeking a profit.
Our federal loan fraud lawyers handle common offenses, including foreclosure rescue schemes, fraudulently obtained home equity conversion mortgages, fraudulent commercial real estate loans, loan modification schemes, equity skimming, unlawful property flipping, and silent second mortgages.
If you are facing allegations of mortgage fraud, you could be criminally charged with a wide variety of federal offenses, including the following:
- 18 U.S. Code 1343 – Wire Fraud
- 18 U.S. Code 1344 – Bank Fraud
- 18 U.S. Code 1956 – Money Laundering
- 18 U.S. Code 371 – Conspiracy
- 18 U.S. Code 1001 – Submitting False Statements
- 18 U.S. Code 1014 – False Loan or Credit Application to Federal Agency
A conviction for 18 U.S.C. § 1014 may be punished by a maximum sentence of 30 years incarceration in federal prison, a $1,000,000 fine, or both.
What Must Be Proven to Convict?
To successfully prosecute someone under 18 U.S.C. 1014 federal mortgage fraud, the government must prove certain elements beyond a reasonable doubt. These elements are essential in understanding how the statute applies to cases of mortgage fraud:
- False Statement or Report: The defendant must have made a false statement, submitted false information, or overvalued property. In the context of mortgage fraud, this could involve inflating the value of a property, misstating income or assets, or omitting significant debts.
- Knowledge and Intent: The defendant must have acted “knowingly” or “willfully.” This means that the person accused was aware that the information provided was false and intentionally submitted the information with the aim of deceiving the lender.
- Influencing a Financial Institution: The false information must have been intended to influence the decision of a federally insured financial institution. Mortgage fraud typically involves misleading a lender to approve a mortgage loan that the borrower would not otherwise qualify for.
- Materiality of the False Information: The false information or statement must be “material,” meaning it is important enough to affect the lender's decision-making process. For example, a slight miscalculation in the borrower's income may not be material, but grossly overstating one's earnings to secure a loan likely would be.
What are the Penalties for Mortgage Fraud?
The penalties for violating U.S.C. 1014 can be quite severe and reflect the seriousness with which the federal government views mortgage fraud. Individuals convicted under this statute face both criminal and financial consequences, including:
- Imprisonment: A person found guilty of mortgage fraud can face up to 30 years in federal prison.
- Fines: In addition to prison time, individuals may be fined up to $1,000,000.
- Restitution: In some cases, courts may order the defendant to pay restitution, which involves compensating the victims of the fraud for their financial losses.
Federal sentencing for mortgage fraud often considers several factors, including the amount of money involved, the defendant's role in the fraud, and any prior criminal history. The Federal Sentencing Guidelines provide judges with a framework for determining the appropriate sentence.
Still, judges have the discretion to deviate from these guidelines based on the specific circumstances of the case.
What are the Common Defenses to Mortgage Fraud Charges?
If you have been accused of mortgage fraud, being charged does not mean you are automatically guilty. A skilled federal criminal defense attorney can employ several defenses to challenge the prosecution's case. Common defenses include the following:
- Lack of Intent: One of the most important elements the prosecution must prove is that you acted “knowingly” or “willfully.” If the defense can show that the false statements were made by mistake or without intent to deceive, it may weaken the prosecution's case.
- Good Faith: Another potential defense is that you acted in good faith, believing that the information you provided was true. For example, if you relied on inaccurate information from a third party, such as an appraiser or accountant, your attorney may argue that you did not intentionally commit fraud.
- Duress or Coercion: In some cases, individuals may be coerced into providing false information by others involved in the transaction. A defense of duress could apply if you can show they were forced into committing the fraud under threat of immediate harm to yourself or your family.
- Statement was not false: Truth is always a defense given the statute's requirement that a false statement be made.
- Statement was not knowingly false: If your attorney can show that you were simply mistaken or did not intend to convey false information, you cannot be convicted.
- Statement was made to an individual or entity outside of the statute's coverage: Note the long list of institutions contained in 014's text. That list is extensive but not comprehensive. It may be that the allegedly false statement for which you are being charged was made to an entity not covered by the provisions of the statute.
These defenses are all fact-specific and may or may not apply in a given case. Consult with your attorney about the best possible way to defend yourself based on the specific circumstances of your case.
Mortgage fraud charges are very serious. Defendants may be prosecuted not only for the actual loss caused by the mortgage fraud scheme but also for the intended loss. In federal mortgage fraud cases, prosecutors will try to use every tactic available to inflate the intended loss.
At Eisner Gorin LLP, we have the experience and knowledge to effectively challenge the valuations and minimize the intended loss, thus reducing the potential consequences you may face. Call our law firm, based in Los Angeles, for additional information.
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