Given the recent failures of some of America's largest financial institutions, it is possible that we may see an increase in the number of mortgage fraud investigations initiated by law enforcement.
When working on a mortgage fraud case, it is important to note that there is no single federal statute that criminalizes mortgage fraud; instead prosecutors and law enforcement officers rely on a number of other criminal statutes. These statutes include bank fraud, mail and wire fraud and money laundering. See generally 18 U.S.C. 105 (false entries to federally insured institutions); 18 U.S.C. 1014 (false statements on loan credit application); 18 U.S.C. 1028 (identity theft); 18 U.S.C. 1341 (mail fraud); 18 U.S.C. 1343 (wire fraud), 18 U.S.C. 1344 (bank fraud) 18 U.S.C. 1956 (promotional money laundering) and 18 U.S.C. 1957 (monetary transactions with illegal proceeds).
Key Documents: The Loan Application (Form 1033)
As with most white collar crimes, mortgage fraud investigations tend to rely heavily on the contents of the relevant documents; as a result, in addition to a basic understanding of the statutory framework, it is important for to have an understanding of the documents involved in real estate loans and related transactions.
Two key documents are the loan application (form 1033) and the closing statement or HUD-1. If the fraud is alleged to have been perpetrated by the borrower, careful attention needs to be paid to the loan application. Form 1033 requires a borrower to disclose, among other things, income, employment, source of down payment, purpose of the property being purchased and assets and debts. These disclosures are often considered to be material in a bank's decision to approve a loan and, as a result, false information in the application often forms the basis of a mortgage fraud prosecution.
Key Documents: The Closing Statement (HUD-1)
The closing statement or HUD-1 is another key document. This document provides a line by line itemization of funds disbursed at closing and includes real estate commissions, loan fees, points, as well as a list of parties receiving distributions.
Questions to Ask When Reviewing the Loan Application
The following is a list of basic questions that should be asked when reviewing the loan application.
Is the income correct?
Was it verified and by whom?
Is the listed employer correct?
Are the assets and debts listed complete?
Does the application reflect that the property will be the primary residence and is this true?
Is the source of the down payment accurately reflected?
Who filled out the application?
Are there multiple versions of the application? Why? Are there material differences in the content of the applications?
Questions to Ask When Reviewing the Closing Statement (HUD-1)
The following is a list of basic questions that should be asked when reviewing the closing statement (HUD-1) .
Are there multiple versions of the HUD - 1? Why?
Was money disbursed at the closing that is not reflected in the HUD - 1? Why?
Are there disbursements to parties other than the seller? Why?
Compare the HUD-1 to the lender's instructions.
Are there differences between the HUD-1 and the loan application?
Do the disbursement records of the closing agent match the HUD-1?
Additional Questions and Key Documents
Are the comparables accurate?
Is there a relationship between the appraiser and any of the parties?
Is the same appraiser used in multiple, similar transactions by the seller, broker or promoter of the transaction?
Is there a relationship between the appraiser's fee and the sales price?
Is the seller listed on the title?
Has the seller owned the property for a short time?
Did the lender order a credit report and how does it compare to the borrower's current credit report?
Do the borrower's bank statements match those submitted to the bank?
Do the borrower's tax returns match those submitted to the bank?
In conclusion, an individual involved in a mortgage fraud investigation should keep in mind that every investigation and their related transactions are different and that careful attention needs to be paid to the documents controlling the transaction as well as the where the money flowed. It should surprise no one that given the current economic and political climate, greater scrutiny will be given by authorities to any suspect real estate transaction.