Federal Mortgage and Bank Fraud

If you or someone you love is under investigation for, or has been charged with, federal mortgage fraud or bank fraud, you probably want to know what the charge means, what the government has to prove, and how much prison time is possible. The short answer: both crimes involve using lies to get money from a bank or mortgage lender. The main laws carry up to 30 years in prison and a $1,000,000 fine for each count (each separate charge). Those are maximums, and most sentences are far lower, but the stakes are high.

Criminal Center handles federal mortgage and bank fraud cases at every stage: before trial, at trial, at sentencing, and on appeal. These cases turn on details, like how a deal was put together, who knew what, and which defenses fit the facts. So it helps to have a lawyer who understands the whole federal process and can see how your defense may play out from investigation through appeal.

What do mortgage fraud and bank fraud charges mean?

Both charges come down to lying to get money from a bank or a mortgage lender. Here is how each one works.

What is federal mortgage fraud?

There is no single "mortgage fraud" law. In general, mortgage fraud means knowingly making a false statement in a home loan or real estate deal. In a typical case, a home buyer or a real estate professional knowingly puts false information on a mortgage application, a home appraisal, or another home sale document.

A buyer or investor might try to get a property under false pretenses or with false information. A real estate professional might try to make more money from a deal by using false information. Common examples:

• Inflating a property's value or appraisal.
• Hiding known defects when "flipping" a property (buying and quickly reselling it).
• Putting false income, job, or debt information on a loan application so a buyer gets a mortgage they would not qualify for.
• Taking out a second mortgage to pay a buyer's down payment without the lender knowing, or otherwise hiding where the down payment came from.
• Using a "straw buyer" whose name is on the loan in place of the real buyer.

If any of these sound like your situation, talk with a federal criminal defense lawyer as soon as possible, and ideally before you speak with investigators.

In 2009, Congress passed the Fraud Enforcement and Recovery Act (FERA) to give federal prosecutors more tools to go after mortgage fraud. Among other things, FERA expanded the definition of "financial institution" to include mortgage lending businesses, including private mortgage companies (18 U.S.C. §§ 20 and 27). In the decade after FERA passed, more mortgage fraud cases were prosecuted at the federal level than ever before.

A federal mortgage fraud investigation usually leads to more than one charge, such as wire fraud, bank fraud, or making a false statement on a loan application. That is because of how these deals are usually carried out, with many documents, emails, and money transfers. So even if you are first charged with only mortgage or bank fraud, expect that the government may add more charges. A lawyer who gets involved early in the investigation can help you see where the case may be headed.

What is a false statement on a loan application?

18 U.S.C. § 1014 makes it a crime to knowingly make a false statement, or to knowingly overvalue property, to influence a covered lender. Covered lenders include federally insured banks and credit unions and mortgage lending businesses. It applies to loan applications and to later changes like renewals and extensions.

What is federal bank fraud?

Bank fraud is a crime under 18 U.S.C. § 1344. It applies to anyone who "knowingly executes, or attempts to execute, a scheme or artifice" either (1) "to defraud a financial institution," or (2) "to obtain any of the moneys, funds, credits, assets, securities, or other property owned by, or under the custody or control of, a financial institution, by means of false or fraudulent pretenses, representations, or promises." In plain terms, it covers carrying out, or trying to carry out, a plan to cheat a bank, or to get money the bank owns or holds, by lying.

A "financial institution" includes federally insured banks and credit unions. Since 2009 it also includes mortgage lending businesses (18 U.S.C. §§ 20 and 27).

Bank fraud can target the bank itself or the people who keep money there. A common example against the bank is writing a check to be cashed when you know your account does not have enough money to cover it. A common example against depositors is using a customer's personal or financial information without permission to open an account or borrow money in that customer's name.

It is also a crime to pretend to be a federally insured bank to get deposits from people, investors, or companies. Banks get a charter (a license to operate) from either a state or the federal government, and deposits are insured by the Federal Deposit Insurance Corporation (FDIC). Falsely claiming that deposits are FDIC-insured, or using the words "Federal Deposit" without authorization, is a federal crime with up to one year in prison (18 U.S.C. § 709). When it is used to take people's money, it can also be charged as fraud.

When should you talk with a lawyer? As soon as possible. That is true whether you took part in any of these actions knowingly or not, and whether you are only under investigation or have already been charged. Even after charges are filed, it is not too late to get counsel and start building your defense.

How much prison time do mortgage and bank fraud carry?

• Bank fraud (18 U.S.C. § 1344): up to 30 years in prison and a $1,000,000 fine for each count.
• False statement to a lender (18 U.S.C. § 1014): up to 30 years and a $1,000,000 fine.
• Wire or mail fraud that affects a financial institution (18 U.S.C. §§ 1341, 1343): up to 30 years and a $1,000,000 fine. Wire or mail fraud that does not affect a financial institution carries up to 20 years.

These are maximums. Most sentences are far lower. The federal sentencing guidelines, the rules judges use to calculate a recommended sentence range, raise that range as the loss amount goes up (U.S. Sentencing Guidelines § 2B1.1). In most fraud cases the judge must also order restitution, which means paying back the victims' losses (18 U.S.C. § 3663A). The government can also seek forfeiture, meaning it asks the court to take property tied to the crime.

Can the bank or other victims also sue you?

Yes. Besides the criminal case, you may face a separate civil lawsuit. Mortgage fraud and bank fraud are not victimless crimes, and people and lenders who lost money can sue the people they say are responsible.

A civil judgment does not reduce a fine in the criminal case. Restitution works a little differently: if the victim later recovers money for the same loss in a civil case, the restitution owed is reduced by that amount (18 U.S.C. § 3664(j)(2)). A criminal conviction can also stop you from denying the main facts of the crime in a later civil suit by the victim (18 U.S.C. § 3664(l)). Together, the criminal and civil cases can be financially devastating, which is one more reason to have a lawyer look at both early on.

Read about federal wire fraud

What should you do next?

Book a consultation to talk it through with Brandon Sample.

Book a consultation