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Federal Law Increases Severity of Penalties for Mortgage Fraud

     By Frank A. Rubino

Florida has been particularly hard hit by the sub-prime mortgage disaster. According to a 2008 report released by the Mortgage Asset Research Institute, Florida ranks 2nd in the country in the number of reported mortgage fraud cases.

At the state level, Florida's Attorney General has organized a task force to investigate and prosecute suspected cases of mortgage fraud. Since 2007, the AG's office has charged 40 individuals with criminal mortgage fraud.

Some of the most common types of mortgage fraud include:

Intentionally providing false financial information, including fake bank statements and bank deposit verifications
Lying about income
Proving false tax returns
Appraisal fraud (i.e. overvaluing a property's worth to secure the loan)
Fake employment verification
Manipulated credit scores and/or misinformation on credit reports
Predatory foreclosure scams also have been popping up not only in Florida, but across the country. In one of these scams, a person will present themselves as an agent of a company that helps homeowners prevent foreclosure and refinance their loans for a small fee. After receiving the fee, the homeowner will never hear from the agent again.

The Fraud Enforcement and Recovery Act of 2009

Previously, mortgage lenders not regulated or insured by the federal government were not subject to prosecution under federal fraud laws. But with the increase in the number of federal investigations into mortgage fraud, the government decided it needed to enhance its enforcement power and make these laws applicable to the entire mortgage industry.

As part of this effort, the Fraud Enforcement and Recovery Act (FERA) was introduced in Congress in February 2009 and signed into law by President Obama on May 20, 2009.

FERA provides nearly a half of billion dollars in additional funding to the FBI, Justice Department and other federal agencies to investigate and prosecute financial fraud, including mortgage fraud. Some of the highlights of the new Act include:

Amending the definition of financial institution in Title 18 of the US Code (i.e. the federal fraud laws) to include mortgage lending businesses, which are defined as organizations "which finances or refinances any debt secured by an interest in real estate, including private mortgage companies and any subsidiaries of such organizations, and whose activities affect interstate or foreign commerce"
Extending the reach of the false statements in mortgage loan application statute (18 USC 1014) to include material false statements and willful property overvaluations used to influence any action by a mortgage lending business
Amending the federal criminal money-laundering statute (18 USC 1856) to change the definition of "proceeds" to include not only the profits from the illegal activity, but also the gross receipts
The law also expands the coverage of the federal securities antifraud statute to include fraud involving commodities futures and options, extends coverage of the fraud laws to protect federal economic stimulus and relief money and creates a Financial Crisis Inquiry Commission to investigate the causes of the current financial crisis and make recommendations to the government for preventing a future crisis.

Federal Mortgage Fraud Charges Carry Stronger Penalties

By extending the federal fraud laws to cover mortgage fraud, FERA also increases the penalties faced by those charged for violating the law. Previously, a conviction for mortgage fraud may have resulted in no more than probation. Now, someone charged with mortgage fraud may face a maximum of 30 years in prison and up to $1 million fine.

Additionally, the statute of limitations for bringing a mortgage fraud claim has been extended from 5 years to 10 years, giving the DOJ a much greater opportunity to build a successful case against someone accused of committing the crime.

Mortgage Fraud Task Force

A bill has been submitted in the House (HR 529) and the Senate (S 365) that seeks to create a mortgage fraud task force to coordinate federal, state and local resources responsible for investigating and prosecuting mortgage fraud. As the bills are currently written, task force offices would be set up in the 10 states with the highest rates of mortgage fraud, which would include Florida. However, it is too early to tell whether or not anything will become of this initiative.


As the federal government continues to take action to further criminalize mortgage fraud under federal law, it is more important now than ever before for those facing mortgage fraud charges to seek guidance from an experienced criminal defense attorney. Charges that previously would have resulted in probation now carry up to 30 years in a federal prison.

The law firm of Frank A. Rubino represents doctors, lawyers, stockbrokers and businessmen facing major federal and international criminal charges.

Copyright Frank A. Rubino

Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.

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