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HUNDREDS ARRESTED IN “OPERATION MALICIOUS MORTGAGE

Local criminal defense attorneys have been noticing an increase in mortgage fraud cases in the New York City and Westchester County areas including White Plains. Over the last several months more than 400 people nationwide have been arrested by federal authorities in a crackdown on mortgage fraud. Those arrested include two former Bear Stearns executive. The Justice Department has been tenaciously pursuing “Operation Malicious Mortgage” in an effort to curb an ever increasing mortgage fraud problem that threatens the housing market as well as the economy. Mortgage Fraud is defined as a material misstatement, misrepresentation, or omission relied upon by an underwriter or lender to fund, purchase, or insure a loan.

Mortgage fraud (and related offenses such as falsifying business records) is one of the fastest growing white collar crimes in the country. There are several methods by which mortgage fraud is committed. The most common methods include inflating the borrowers’ income and inflating the assessed value of the property. Many times, a borrower will apply for a “no income check” loan and then illegally claim an inflated income on the loan application. In other instances, the borrower will work with unscrupulous appraisers who illegally overvalue the property so that the borrower can obtain a larger loan. This type of mortgage fraud is referred to as “Fraud for Property” as opposed to “Fraud for Profit”.

A Fraud for Property case typically involves one applicant who makes a material misrepresentation on his or her loan application in an effort to secure the loan. For example, the would be homeowner inflates his or her income, doesn’t list all of his or her debts, overstates his or her employment history or outright lies about being employed and/or lies about the source of the down payment. Typically, Fraud for Property cases involve borrowers who don’t intend to defraud the lender and truly believe they can repay the loan. However, this type of fraud makes up about 20 percent of all mortgage fraud cases. The problems arise when the borrower can’t make the payment.

Of course, the banks are happy to make these loans as long as they are paid back. When a borrower defaults, however, it is the bank that many times urges the authorities to pursue criminal charges. The banks, however, must bear some responsibility here. Why make a no-come check loan? To charge higher interest; that’s why. And certainly the loan officers must often know, or even encourage, borrowers to fib a little. In fact, don’t most borrowers just sign where they are told? How many borrowers really read the documents? Many borrowers are often coached by the loan officers and real estate brokers. Therefore, the lenders enable Fraud for Property cases by not carefully vetting the potential lender, by making no-income check loans and by looking the other way as their loan officers coach the borrowers on how to fill out the application. Then the bank collects on high interest loans but, once the borrower defaults, they want him or her prosecuted.

Future blogs will discuss “Fraud for Profit” as well as charges related to mortgage fraud such as falsifying business records, identity theft, larceny and criminal impersonation. If you have been charged with mortgage fraud or any other related offense in New York City, Manhattan, Bronx, Brooklyn, Queens, White Plains, Pelham, Pelham Manor, New Rochelle, Larchmont Westchester County or anywhere in the New York downstate area, contact Tilem & Campbell, PC for a free consultation.