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Mortgage Fraud Crimes Can Lead to Stiff Federal Penalties

| May 11, 2011 | White Collar Crimes

In the wake of the subprime mortgage implosion and the lagging economy, mortgage fraud has become increasingly common. But, the federal government has no intention of allowing the problem to continue unabated: significant resources have been dedicated to sniff out and penalize mortgage scammers. One pair of Minnesota siblings, Ericvan and Renee McDavid, have experienced firsthand the full force of the federal mortgage fraud enforcement system.

Mortgage Fraud, and the McDavids’ Case

Mortgage fraud involves the intentional misrepresentation of material information in efforts to obtain a mortgage. There are many different kinds of mortgage fraud, for example, inflating values of real property to secure a loan, using deception to take out mortgages on homes that do not actually exist, or even simply lying by an individual on a mortgage application.

The McDavids were involved in a scheme that helped “straw buyers” obtain at least 25 properties by falsifying their assets and employment information on loan applications. The buyers were given funds to apply toward the price by the McDavids, which convinced financial institutions that the straw buyers had the intention to repay their loans. The buyers, however, had no interest in paying back the loans; they were promised (but never given) a fee by Ericvan McDavid for their participation in the scam. Instead of using the mortgage loan proceeds to pay off the properties, the McDavids converted the money to personal uses, ultimately leading to a $9.2 million loss for the lending institutions. Both siblings pleaded guilty in Minneapolis federal court, and are awaiting sentencing.

Possible Penalties

The severity of sentences for mortgage fraud can vary widely based on the number of occurrences and the value of the illegally obtained mortgages. The crime can be charged at the state level, but federal courts are generally able to impose far more oppressive penalties. The Fraud Enforcement and Recovery Act (“FERA”) became federal law in 2009. In addition to expanding the reach of federal authorities in enforcing mortgage fraud laws, FERA provided for substantially heightened sentences for offenders: under FERA, a mortgage fraud conviction can result in as much as a $1 million fine and a stunning 30 years behind bars.

Clearly, mortgage fraud is a very serious offense. Anyone even tangentially involved in an improper mortgage operation is in serious personal jeopardy, and should contact an experienced attorney as soon as possible.

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