Mortgage fraud is a complex crime. It is estimated that at least 10% of all mortgage applications could be considered fraudulent if you included omissions and errors. But the difference is intent. Proving that someone intentionally omitted information on a mortgage application or intentionally gave wrong information is difficult. Thus, mortgage fraud cases do not often make it to the courtroom.
Mortgage Fraud Laws
Mortgage fraud in Massachusetts and other states is administered through the 2009 Fraud Enforcement and Recovery Act, or FERA. This act describes fines and prison sentences that relate to convictions for mortgage fraud. FERA is a federal law, and most states including Massachusetts also have their own laws in place. If charges are made of mortgage fraud, there also are charges involving tax fraud and bankruptcy fraud. The people who are targeted most often are real estate attorneys, real estate professionals, mortgage brokers and appraisers. But it also is possible for the typical home buyer or owner to be a target.
There are three categories of mortgage fraud laws to be aware of:
- Mortgage fraud for housing, where a person gives inaccurate information in able to purchase a property with more favorable terms, such as a more expensive home or a lower interest rate.
- Mortgage fraud for profit, where a real estate professional provides false information so they can get paid better in a real estate transaction.
- Mortgage fraud for criminal enterprise, where there is involvement with criminal organizations. This type of mortgage fraud scheme may involve laundering funds by buying properties with dirty funds that was had through some type of criminal activity and then turning and selling the homes. Usually there are several criminals involved, but a conspiracy to commit mortgage fraud can occur with as few as two people. The most common type of mortgage fraud here is flipping a house to launder illegal money.
Mortgage Fraud Crimes and Charges
Mortgage fraud occurs if with intent, omissions are made or false information is provided. Accidental errors on a mortgage application do not constitute a crime. It is challenging for the prosecuting attorney to make a distinction between an accidental and intentional error. This is especially the case when a consumer home buyer is the subject of the case. With a mortgage professional, the distinction is easier to see because of repeated errors on several applications and also possible evidence of kickbacks being made.
Federal prosecutions for mortgage fraud are usually made on cased for profit and not for housing. If the case warrants it, federal prosecutors also may make RICO (Racketeer Influenced and Corrupt Organizations) charges. This is a common charge since the mortgage meltdown of 2008 and 2009.
Mortgage Fraud Punishments
A mortgage fraud conviction is serious, and penalties are substantial. Usually, there are several state or federal charges involved. So, there are many penalties possible. Usually, mortgage fraud is considered a felony offense, but if the money involved is less than $1000, it is usually considered a misdemeanor. Some of the most common punishments include: (Malegislature.gov)
- Prison sentences. If it is charged as a federal crime, you could get as much as 30 years in federal prison. Many states will impose a prison sentence of up to five years. For a misdemeanor, you may get a jail sentence of up to one year.
- It is possible to be fined on a single federal charge of mortgage fraud as much as $1 million. At the state level, the fines often range from a few thousand to $100,000. It depends if the crime was charged as a misdemeanor or a felony.
- This means the injured party is compensated for any financial injury they had through your crime. You usually need to pay back the mortgage lender.
- This can be a year or more in length after your prison or jail sentence is concluded. But it is becoming more common for probation sentences to be much longer.
In Massachusetts, a conviction for residential mortgage fraud can receive up to 15 years in state prison and a fine of at least $50,000.
Mortgage Fraud Cases
Three Men in Massachusetts Charged in Multi-Year Mortgage Fraud Scheme
In September 2018, three men from Massachusetts were charged in Boston federal court related to a 10 year mortgage fraud scheme that involved at least 24 fraudulent loan transactions that netted around $4.3 million in losses for mortgage lenders.
George Kritopoulos, a real estate developer, was arrested in September 2018 and charged with a single count of conspiracy, two counts of wire fraud, six counts of bank fraud and one count of aiding preparation of a false tax return. Two other men were charged with similar federal crimes.
According to the Department of Justice, from 2006 to 2015, the three men engaged in a mortgage fraud scheme to defraud lenders by having false information to be submitted to those financial institutions by borrowers. Most of the people and properties were located in Salem, Massachusetts. The properties normally were multi-family properties with two or four units, which the men then made into condominiums. The three men recruited other borrowers to buy the condominiums, which were then financed with loans that were gotten through fraud.
False information that was submitted to mortgage lenders included false information about employment, income, assets, and the intent to occupy the property. False information included claims that the borrowers were employed by organizations that were actually shell companies. Employment information included claims about income that borrowers got from the shell companies, when the borrowers actually had little to no income from them.
The borrowers did not have the ability to repay the loans, so they mostly defaulted on their payments, which resulted in foreclosures and losses for the financial organizations of more than $4 million.
With all of the federal charges considered, each of the accused faces decades in federal prison, as well as fines as high as $250,000 for each federal charge. (Justice.gov).
Massachusetts Accountant Pleads Guilty to Bank Fraud in Mortgage Scam
In late February 2019, a Massachusetts accountant pleaded guilty for his role in a 10 year long mortgage fraud scheme that involved dozens of properties. According to the US Attorney’s office, David Plunkett, 53, from Lynn, Massachusetts, pleaded guilty to bank fraud and aiding in submission of false tax returns. (USNews.com)
Prosecutors stated Plunkett created false tax returns for borrowers that were turned into borrowers to support fraudulent loan applications. The borrowers then bought multi family properties. Plunkett could get up to 33 years in prison and a fine of $1.25 million.
Massachusetts Couple Faces 7 Years in Prison for Mortgage Fraud Scam
A couple from Ludlow, Massachusetts is going to prison after they pleaded guilty to mail fraud, ID theft and tax evasion. Joanne Murray, 54, and James Murray, 53, each pleaded guilty to a single count of conspiracy to commit mail fraud, aggravated ID theft and tax evasion.
The couple was involved in a complex scheme to defraud Freddie Mac. Joanne worked at a real estate brokerage in Springfield which was the manager of hundreds of foreclosed homes owned by Freddie Mac. The couple agreed to turn in fraudulent reimbursements by the mortgage brokerage to Freddie Mac, which totalled $1.37 million in repair, improvement and maintenance projects. (Mpamag.com)
So What's Next
If you have been charged with mortgage fraud in Massachusetts or another state, you need an experienced criminal defense attorney in your corner. If you have been charged with this crime, Attorney Geoffrey Nathan can help you. For a criminal defense legal consultation, please contact him at (617) 472-5775.
- Massachusetts General Laws Section 35A. (n.d.). Retrieved from https://malegislature.gov/Laws/GeneralLaws/PartIV/TitleI/Chapter266/Section35A
- Three MA Men charged for Mortgage Fraud Scheme. (2018). Retrieved from https://www.justice.gov/usao-ma/pr/three-massachusetts-men-charged-connection-multi-year-mortgage-fraud-scheme
- Accountant Pleads Guilty for Role in Mortgage Fraud Scheme. (2019). Retrieved from https://www.usnews.com/news/best-states/massachusetts/articles/2019-02-26/accountant-pleads-guilty-for-role-in-mortgage-fraud-scheme
- Massachusetts Couple Faces 7 Years in Prison for Freddie Mac Scam. (2019). Retrieved from https://www.mpamag.com/news/massachusetts-couple-faces-7-years-in-prison-for-freddie-mac-scam-160700.aspx