Mortgage Fraud and Its Effects on Criminal Justice

2021-05-11 21:40:37
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Mortgage fraud refers to a crime involving an intent to falsify materially or omit crucial data on a mortgage loan application form. This is with intent to attain a loan or a larger loan, which the borrower might not have qualified to attain in the event the lender might have known the truth. In recent times, the reported cases of mortgage frauds in the United States have escalated. Consequently, the cases have posed serious challenges to the nations criminal justice system. This essay discusses mortgage fraud and its effect on the U.S. criminal justice system and also highlights the different forms of mortgage frauds faced in the nation.

Description of this Form of Crime

Mortgage fraud crimes have an intent to misrepresent intentionally or overlook crucial information in a mortgage loan application form. This is with the goal to attain a loan or a larger loan that would have otherwise not been attained by a borrower in the event the lender had known the truth. In the US, mortgage loan frauds are prosecuted in the federal courts in the form of wire fraud, mail fraud, bank fraud as well as money laundering. The frauds attract a heavy penalty of up to thirty years in prison. In the recent years, the cases of mortgage frauds in the nation have increased tremendously. This has made some states to develop their own penalties for mortgage frauds.

Mortgage frauds should not be confused to be the same with predatory mortgage lending. The latter occurs when a property owner is either deceived or misled by the agents of a mortgage loan lender. Nevertheless, predatory lending practices in most cases co-exist with various forms of mortgage frauds. Traditional mortgage frauds occur when either the property buyers and/or mortgage lenders falsify essential data on a mortgage loan application form. For this reason, property buyers should never sign any mortgage application documents that appear to have incomplete or inaccurate information.

Effects on the Criminal Justice System

High Costs of Solving the Crimes Incurred by the FBI

Since the Great Recession of 2008 in the U.S., the real estate industry in the nation has grown tremendously. Nevertheless, the cases of mortgage frauds have also increased significantly over the years. This has posed a serious challenge to the Federal Bureau of Investigation, in terms of financial expenses involved in solving the crimes. Mortgage frauds, in most cases, involve millions of dollars. Among them, eighty percent are perpetrated by lenders or large multinational corporations with strong financial backgrounds CITATION But16 \l 1033 (Butler, 2016). This makes the mortgage fraud financially intensive to the FBI department that is responsible for solving such cases.

Adds Up Cases Available for the FBI to Handle

The number of unsolved mortgage fraud cases in the U.S. FBI department is high. That number continues to rise each month, with the emergence of new mortgage fraud cases in the nation. As such, a significant number of FBI agents are involved in looking for new leads on the cases and collecting evidence to align the fraud culprits in court. This makes it a burden to the FBI, in terms of the number of qualified human resources involved in the cases. Such FBI agents would otherwise be involved in handling other criminal cases.

Burdens the Nations Judicial Systems

The judiciary is a key component of the criminal justice system in a nation. It involves the court of law, which is where all the criminal cases are handled and sentencing determined. The increased mortgage fraud crimes, in most cases, entails multiple hours of court hearings before sentencing is carried out. This is performed to ensure that all facts and evidence have been collected before the judges can give out a sentence. These hours displace the time that would otherwise be used in determining other equally important cases. This also adds to the budgetary expense that the U.S. judicial system incurs each year through the hearing of cases in the courts.

Forms of Mortgage Fraud

Identity Theft

This occurs when a person assumes another persons identity and then uses the new identity to attain a mortgage without the victims consent. Some of the details stolen during an identity theft case include names, street or physical address, telephone number, date of birth and social security number among others. In most cases, the identity thieves disappear without issuing payments on the mortgage. Such cases are not easily discovered. They are only discovered when the lender tries to collect the mortgage fees from the victim. In such an event, the victim might incur substantial costs in an effort to prove that his/her identity was stolen.

Occupancy Fraud

It occurs when a borrower states that he/she will be occupying the mortgaged property as his primary residence but instead uses the property for commercial reasons CITATION Mar12 \l 1033 (Geffner, 2012). If this form of fraud is undetected, he/she can attain lower interest rates on the mortgage than it is warranted. Lenders offer higher interest rates for commercially used properties due their higher delinquency rates. In an occupancy fraud, the lender attains insufficient returns on capital invested. When the fraud is detected, it is likely that the right taxes on gains are not paid. This results into additional fraud, which is prosecutable by the courts of law.

Income Fraud

This form of mortgage fraud takes place when a borrower overstates his/her personal income. This is an effort to qualify for a large value of loan than what he/she deserves. In this fraud, the borrower forges or alters his/her employer-attained W-2 form. The fraudsters may also forge tax return, and bank accounts record as a way to prove the validity of their inflated income. Legally, all lenders are entitled to acquire an officially signed IRS transcript, which matches the borrowers details of provided tax returns. It is considered a fraud since the borrower might not have qualified for the offered loan if his/her true income would have been disclosed.

Appraisal Fraud

It occurs when a propertys appraised value is intentionally overstated or understated CITATION Sar05 \l 1033 (Max, 2005). In the event it is overstated, more funds can be obtained from the loan borrower, in the form of a cash-out refinance by the seller of the property during the purchase transaction. An appraisal fraud also takes place when the value of a property is intentionally understated in an effort to acquire a lower price on the foreclosed property. The fraud also arises when there is a fraudulent attempt to persuade the loan lender to lower the amount owed on the property mortgage, in a loan modification exercise. A dishonest appraiser may prepare fraudulent appraisal report for his/her fraudulent gains.

Cash-Back Schemes

This mortgage fraud occurs when the price of a given property is unlawfully inflated in order to give cash-back gains to some of the transaction participants. In most cases, the participants are borrowers who attain a rebate that is not disclosed to the funds lender. In this case, a lender loans too much and the property buyer pockets the overpayment or splits it with the other scheming participants. Such schemers may include the real estate agents or the property sellers. In this scheme, an appraisal fraud must occur so as to deceive the lender. Most get rich quick real estate agent courses greatly rely on this mechanism for their profitability.

Shot Gunning Frauds

This form of fraud occurs when multiple loans are acquired for the same home or property. In this case, the loans are attained from different lenders simultaneously and the total amount attained is in great excess of the actual value of the property. This fraud leaves the fund lenders at a risk of substantial losses. This is because the property value is insufficient to cover the loan attained from different lenders in the event there is a need to a have a property foreclosure. Some of the renowned shotgunning fraud cases in the past include the case of Matthew Cox (2002) and the case of Robert Douglas Hartmann (FBI, 2009).

Employment Fraud

This form of mortgage fraud occurs when a loan borrower lies about his/her employment status CITATION Gen16 \l 1033 (Genworth, 2016). In most cases, such fraudsters claim to be employees of a non-existent company. They might also claim to have a high managerial position in a given corporation. In most cases, such information may be unverifiable, but the fraudsters may produce falsified information to validate their claims. The essence of lying about their job position is to cheat the lender, about their stated level of monthly income. The higher the stated income, the higher the principal amount of the loan they are likely to acquire.

Failure of Liabilities Disclosure Fraud

Some borrowers may conceal information pertaining their other regular obligations. The obligations may include recently acquired mortgage loans on other homes or properties. They may also fail to reveal information pertaining a recently acquired credit card debt. This is aimed at reducing the sum of declared monthly debt during the loan application exercise. The omission of such liabilities lowers the persons debt-to-income-ratio, which is a primary criterion used when determining the eligibility of numerous forms of mortgage loans. It is taken to be a fraud since it permits a borrower to attain an amount that he/she would otherwise not have been given CITATION Dasly \l 1033 (Dashfarrow, 2016).

Working the Gap Fraud

It is a fraud methodology that involves the excessive stacking of lien. This is shrewdly executed in a specified building or property within a short timeframe, through a serial recording of multiple Deeds of Trust, as well as Assignments of Note. In the US, when a person is recording a legal document, there exists a time gap. This is from the time the Deed of Trust is issued to the Recorder of Deeds up to the time it shows up in the recorders data. The instrument of propagating this form of fraud is the precision timing technique made between the time the deed is recorded and its succeeding appearance on the Recorder of Deeds database CITATION Law16 \l 1033 (Law Offices of Brian Silber, 2016).

In the event a lender conducts a title search during this period, before issuing the loan and prior to the deed recording, he/she might erroneously fail to see other concurrent liens associated with the specified property. In this case, a fraudster can deceive multiple lenders. All the lenders might simultaneously and speciously believe that their respective Deeps of Trust are in the first position, when in actual sense, there can only be one legally recognized deed CITATION DeW13 \l 1033 (DeWitt Law Firm, 2013). If the fraud is not determined during its initial stages, it could result in substantial losses of funds from several mortgage loan lenders.

Home Equity Conversion Mortgage Fraud

HECM is a mortgage loan product in the US that is offered to borrowers who are sixty-two years old and above. The loan is usually insured by the Federal Housing Administration CITATION FBI091 \l 1033 (FBI, 2009). The borrowers must have their own property, use the property as their primary residence and regularly attend the HECM counseling sessions. The HECM provides the qualified candidates access to equity, normally in the form of a lump sum payment CITATION Hom16 \l 1033 (Home Equity Conversion Mortgages (HECM), 2016). The fraudsters looking to benefit from the HECM program scams qualified seniors through the local churches, mailer advertisements, radio, television and investment seminars.

The fraudsters attain the loan in the name of the qualified seniors on grounds that they can help them co...

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