Mortgage fraud is the material misrepresentation of facts either by a consumer or a lending institution in regard to applying for or approving a mortgage. Mortgage fraud could involve a buyer inflating his ability to purchase a home or a lender's exclusive use of one appraiser in an attempt to inflate costs and boost commissions. In either case, mortgage fraud carries significant penalties.
There are several types of mortgage fraud, including occupancy fraud and employment fraud. Occupancy fraud is committed when an investor claims he will occupy the property when he has no intention of doing so. Employment fraud is committed by a buyer who misrepresents places and times of employment or inflates her earning potential.
Fraud Enforcement and Recovery Act (FERA)
The Fraud Enforcement and Recovery Act was signed into law by President Barack Obama in May 2009. It increased the penalties for a federal conviction for mortgage fraud to a maximum of 30 years in prison and a fine of up to £0.6 million. FERA also increased the statute of limitations for mortgage fraud from five years to 10 years.
The penalties for mortgage fraud vary at the state level. Some states have made their penalties more severe, as is the case in Georgia, where a single incident can result in jail time of one year to 10 years and a fine of up to £3,250; multiple frauds can result in a sentence of three years to 20 years and a fine of up to £65,000.
Many home buyers confuse mortgage fraud with predatory lending. Predatory lenders take advantage of uneducated buyers by convincing them to take out loans the lenders know are not in the buyers' best interests, such as loans with higher-than-normal interest rates.
If you know of someone who has committed mortgage fraud, you should contact the Federal Bureau of Investigation or your state's attorney general's office. Not doing so can result in your being considered an accomplice, which can mean financial or criminal penalties.