Residential Mortgage Fraud in New York
Mortgage fraud in New York is a serious crime, limited to residential mortgages, and occurs when you intentionally falsify or conceal information in connection with the application, underwriting, closing or solicitation of an applicant for a residential mortgage loan.
The Legal Definition of Mortgage Fraud – Article 187
The relevant statute is Article 187 of the New York Penal Law, which describes the elements of the crime and five potential degrees that can be charged.
Article 187 Section 4 of the New York Penal Law, provides that a person commits residential mortgage fraud when he or she has intent to defraud when preparing a written statement in connection with the following:
- Soliciting an applicant for a loan;
- Applying for a loan;
- Underwriting a loan;
- Closing on a residential mortgage loan; or
- Any filing concerning the closing of a residential mortgage loan.
These written statements must contain false information or conceal information that relates to material facts. If you conceal material facts, you must do so with the express purpose to hide that information. It cannot merely be an error or mistake that you did not intend to include.
Significantly, Article 187 does not cover a person who applies for a residential mortgage loan and intends to reside in the property for which the loan is acquired. Still, you may be charged under this law if you are an accomplice with someone else in the loan transaction.
An Offense Under Article 187
For the prosecutor to establish the crime of mortgage fraud, and for you to be found guilty of this offense under Article 187, the following elements must be true:
- You acted knowingly, and with intent to defraud;
- You presented or prepared a written statement that you knew contained false information or concealed information for the purpose of misleading;
- You knew that the information would be used in soliciting an applicant for a residential mortgage loan, applying for underwriting, or closing of a residential mortgage loan; and
- The written statement you prepared contained materially false information concerning a material fact, or concealed information concerning a material fact, with the purpose of misleading.
The following examples will help you to understand these elements of the crime of mortgage fraud better.
In order to act knowingly and with intent, a person must be aware that what he or she is doing is wrong.
For example, if, when preparing a loan application, you accidentally put down the wrong street number for your address, this is not a case of knowingly presenting false information. Even if you wrote the wrong salary in error, which is material information, you could argue that you did not act knowingly.
However, if you present material financial information in a loan application, that you know to be false, you will meet this element of the crime. The element of intent was met in the case of Paul Manafort, who was charged with falsifying business records to obtain millions of dollars in mortgage loans.
Preparing a written statement that you know contains false information, or concealing information for the purpose of misleading. This second element also involves intent and does not contemplate a mistake or routine error.
For instance, suppose you used the amount earned in the previous tax year to estimate future earnings, and it turned out to be incorrect. If at the time you thought it was a good estimate, it would not constitute preparing a knowingly false statement.
You must know that the information will be used to solicit a mortgage applicant, to apply for underwriting, or to close on a residential mortgage loan.
For instance, if you prepare a written document that contains inaccurate information, but you are unaware that it will be used to apply for a mortgage loan, you would not satisfy this element of the crime. This could happen if the document is obtained by a mortgage broker or other participant in the loan transaction without your knowledge.
The information prepared must contain materially false information concerning a material fact or conceal material information for the purpose of misleading. If you simply prepare incorrect information that is not material to the transaction or materially factual, it will not satisfy this element of the crime.
For instance, writing a false telephone number on a document that is included in a loan transaction is not a material fact, even if you know it is false.
If, however, you omit information regarding self-employment on a loan application for the purpose of hiding income, that would satisfy the element of concealing material information for the purpose of misleading.
Related New York State Offenses
There are several related state criminal charges that can be attached to mortgage fraud. You should know that you could be charged with felonies such as identity theft, forgery, and falsifying business records. See New York State Penal Law Articles, 190.77, 170 and 175.
The penalties for identity theft range from up to one, four or seven years in prison, and can include fines from up to one thousand to five thousand dollars, or double the amount gained from the crime. The charges of forgery and falsification of business records carry penalties like mortgage fraud, including from up to three years to 25 years in prison.
Related Federal Offenses
Once you are charged with mortgage fraud, it is also common for related federal charges to be brought, including, bank fraud, wire fraud, and mail fraud. It is important to be aware of the possible crimes you may face, in addition to the potential sentences. Below is a discussion of some of these crimes.
Federal Bank Fraud:
- Bank fraud is when an individual or entity knowingly engages in a scheme to defraud a financial institution or obtains any of the money of a financial institution through false or fraudulent pretenses, representations, or promises.
- The crime of bank fraud is in violation of 18 U.S.C. § 1344 and can result in a sentence of up to thirty years in prison, and a maximum of a one million dollar fine.
- Wire fraud involves fraud that allegedly uses electronic communications. See 18 U.S.C § 1341.
- The punishment for a conviction of this offense is up to twenty years in prison and a fine of $250,000.00. If a financial institution is affected, the sentence is greater, with up to thirty years in prison and a fine of one million dollars.
- Mail fraud is a fraud that uses the United States Postal Service or another interstate commercial carrier, such as Federal Express or UPS. See 18 U.S.C § 1341.
- The punishment for a conviction of this offense is the same as for wire fraud.
Agencies Responsible for Prosecuting Mortgage Fraud in New York
The New York State Attorney General is responsible for investigating and prosecuting mortgage fraud in New York. If related federal charges such as bank fraud, mail or wire fraud are brought, the United States Attorney is responsible for handling these cases.
Penalties for Violating New York Penal Law, Article 187
Residential mortgage fraud is classified as either a misdemeanor or a felony, depending upon the amount of money, if any, involved in the crime. Below are the five degrees of residential mortgage fraud that you can be charged with under Article 187:
- Residential mortgage fraud in the fifth degree is essentially committing the crime without a monetary value attached. See Section 187.05. It is a class A misdemeanor, punishable by up to one year in prison.
- Residential mortgage fraud in the fourth degree involves receiving more than one thousand dollars, but less than three thousand dollars. See Section 187.10. It is a class E felony, and you are subject to one and one third and up to four years in prison.
- Residential mortgage fraud in the third degree involves receiving more than three thousand dollars, but less than fifty thousand dollars. See Section 187.15. It is a class D felony, and you are subject to two and one third, and up to seven years in prison.
- Residential mortgage fraud in the second degree involves receiving more than fifty thousand dollars. See Section 187.20. It is a class C felony, punishable by between five and fifteen years in prison.
- Residential mortgage fraud in the first degree involves receiving over one million dollars. See Section 187.25. It is a class B felony that carries a sentence of up to 25 years in prison.
Miscellaneous Consequences Arising from a Conviction for Mortgage Fraud
If you are convicted of residential mortgage fraud, there are repercussions that you will feel throughout all aspects of your life. The conviction will very likely result in loss of your license to practice your profession if you are a lawyer, broker, accountant or other licensed professional.
It can also cause significant business and personal financial losses. More intangible effects include diminishing of your personal and professional reputation.
Legal Defenses to Residential Mortgage Fraud
The burden of proof of mortgage fraud is on the prosecutor, so it is important for you to know how you can defend your charges. These are common defenses that you may raise if charged.
Lack of Intent or Knowledge:
- Since residential mortgage fraud is largely a crime of intent, an important defense is to establish that you were unaware that the information you presented was false.
Information is Not Material:
- If you can demonstrate that any allegedly false information you provided in connection with the loan transaction was not a material fact, that is a defense.
- As discussed earlier, information that is not dispositive of the loan transaction, such as a telephone number, is not likely to be a material fact.
You Intend to Reside in the Property:
- Another defense is that you intended to reside in the property at issue. This is important because Article 187 expressly provides that you may not be charged with mortgage fraud in that circumstance.
- For example, you may argue that even though you provided inaccurate information, it was for the property you were going to live in.
- This defense is only valid if you were not an accomplice along with someone else in the transaction to commit mortgage fraud. Also, be aware that even if you intend to reside in the property, you may still be charged under another criminal statute for actions in connection with your loan transaction.
High Profile Case of Mortgage Fraud
There are many different scenarios in which mortgage fraud can be established, and the crime encompasses several different levels of criminal charges. Although we often hear about the more high-profile cases of mortgage fraud prosecutions like that of Paul Manafort, Jr., you too can be prosecuted under the law.
Manafort’s case exemplifies the depth and breadth of mortgage fraud, and how related state and federal charges may also be brought in connection with this crime, but the same applies to anyone who engages in mortgage fraud.
It is important to be aware of some examples:
- Obtaining a false appraisal of the property, causing the buyer to pay an inflated price.
- If someone Used a false identity to apply for a mortgage, This type of mortgage fraud might be committed by a mortgage broker who creates a fake loan application.
- If someone acts as a buyer for the home and uses his or her financial information so that another person can live in the home, they are committing mortgage fraud. This is commonly known as being a straw buyer.
- You represent and intend to reside in the property you purchase but instead using it as an investment property.
Why You Need A Lawyer?
It is critical to have your particular facts analyzed by our attorneys who specialize in white collar crimes such as mortgage fraud based upon the complex nature of mortgage fraud and the related crimes discussed in this article. We have a White Collar Crimes Division, devoted to serving clients who are charged with these crimes.
Many of our attorneys are former prosecutors and have unique knowledge of how government agencies and district attorneys investigate and prosecute cases like mortgage fraud. We know that it is the burden of the prosecutor to prove your case, and we are in the best position to defend you because we have seen exactly how the prosecutor builds his or her case.
If you believe that you have been involved in mortgage fraud, there is no substitute for consulting an experienced law firm such as ours. For questions about the crime of mortgage fraud, or to discuss your case confidentially with one of our criminal defense attorneys, do not hesitate to contact us at (347) 263-8825.