Since the housing market bust, there has been an explosion in the number and types of federal investigations of mortgage fraud schemes across the country. The U.S. Department of Justice's field offices, United States Attorney's Offices, throughout the country are prosecuting fraudulent activities related to residential real estate loans and purchases/sales transactions. These prosecutions in federal court are commonly referred to as "mortgage fraud" cases. As a result, the Federal Bureau of Investigation (FBI) has pushed fraud investigations to the top of its list of priorities.

With funding from the federal government, the FBI created special task forces to investigate and prosecute these crimes in conjunction with the Department of Justice (DOJ) and other federal agencies. In 2009, the Mortgage Fraud Task Forces opened more than 1500 investigations and secured nearly 500 convictions.

The DOJ and United States Attorney's Offices are primarily targeting industry insiders, including lenders, mortgage brokers, real estate agents, appraisers, title loan officers, attorneys, builders and investors. However, borrowers also have been involved in mortgage fraud and may be the subject of state and/or federal investigations. In addition to the Federal Bureau of Investigation, other federal agencies are investigating mortgage fraud, including the U.S. Postal Inspection Service, Internal Revenue Service (IRS) - Criminal Investigation Division, and the U.S. Secret Service.

Types of Mortgage Fraud

In general, the federal government defines mortgage fraud as the use of false or misleading information or the omission of information to fund, purchase or insure a loan. These criminal cases are indicted as charges of bank fraud, mail fraud, wire fraud, conspiracy, fee splitting and/or money laundering.

Some of the most common types of mortgage fraud schemes that FBI and local investigators are pursuing include:

• House flipping: buying a property and then having an appraiser inflate the value with a fraudulent appraisal; a straw buyer then secures a home loan, generally with false or stolen credit information, and purchases the home; the mortgage is not paid and the lender is forced to foreclose on the property

• Builder bailouts: builders or developers who are unable to sell their properties may try to attract buyers by offering excessive incentives that are not disclosed as required on the mortgage documents

• Short-sale frauds: use straw buyers to purchase a homes, then default on the loans and secure lender agreement to allow a short-sale of the property; the defrauder then purchases the home in the short-sale at a below-market price

• Foreclosure rescue scams: companies promising to help homeowners keep their homes out of foreclosure, sometimes in exchange for high fees and other times in exchange for the deed to the property

• Seller-assistance programs: companies offering to help sellers sell their homes quickly by obtaining false, inflated appraisals for the property and sometimes using straw buyers to finance and purchase the property

• Seller pay: the sellers of real estate will provide monies to the buyer for a down-payment and other closing costs, when the buyer does not have these monies and when a buyer would not qualify for a real estate/home loan due to the absence of monies for such costs. Providing these monies in such a manner is not disclosed to the lender, who is lead to believe that the buyer independently owns funds for down-payment and closing.

• Identity theft: often a component of many different mortgage schemes where false or stolen employment and financial records are used to secure a line of credit to purchase a property

Since there is no singular federal mortgage fraud statute, individuals accused of committing mortgage fraud may be charged with wire fraud, mail fraud, bank fraud, identity theft or conspiracy to commit anyone of these crimes. In Texas, mortgage fraud often is charged as engaging in organized criminal activity (similar to a "federal conspiracy" charge in U.S. District Court), theft or conspiracy. In general, however, most people accused of mortgage fraud are indicted on federal charges.

In 2009, the Fraud Enforcement and Recovery Act (FERA) went into effect and with it, increased penalties for those found guilty of committing crimes in connection with one of the various mortgage fraud schemes. Under FERA, those found guilty of mortgage fraud face up to a maximum of 30 years in prison and/or up to a $1 million fine. The Act also increased the statute of limitations from five years to 10 to give federal investigators more time to investigate and prosecute mortgage fraud cases.

Innocent People Can Be Ensnared by Mortgage Fraud Schemes

Not everyone who is charged with a state or federal mortgage fraud crime is guilty of the act. Homeowners and lenders frequently are victims of these crimes, but may face conspiracy charges or worse for unwittingly being a participant in a mortgage scheme. While conspiracy charges do not carry the 30-year federal prison sentence that other mortgage crimes do, they still carry up to a 20-year sentence - which is much too long for someone who did not intend to commit the fraud.

For more information on your options for fighting state or federal mortgage fraud charges, contact an experienced criminal defense attorney today. The sooner you begin working on your defense, the better the opportunity you will have of securing the best possible outcome for your charges.