Mortgage Fraud
| Mortgage Fraud | |
|---|---|
| Statute: | 18 U.S.C. § 1014 |
| Code: | Title 18, Chapter 47 |
| Max Prison: | 30 years |
| Max Fine: | $1,000,000 |
| Guidelines: | USSG §2B1.1 |
| Base Level: | 7 |
| Agencies: | FBI, HUD-OIG, FHFA-OIG, FinCEN |
| Related: | Bank Fraud, Wire Fraud, Mail Fraud, Money Laundering |
Mortgage fraud is a federal crime under 18 U.S.C. § 1014 that prohibits making false statements or using false documents to influence a federally insured financial institution in connection with a loan or credit application. The statute is one of the primary tools federal prosecutors use to combat fraudulent mortgage lending and borrowing practices.
Elements of the Offense
To secure a conviction under 18 U.S.C. § 1014, federal prosecutors must prove each of the following elements beyond a reasonable doubt:
- The defendant made a false statement or willfully overvalued property or security
- The false statement or overvaluation was material
- The false statement was made knowingly
- The false statement was made for the purpose of influencing a federally insured financial institution
- The statement was made in connection with a loan, advance of credit, purchase of property, or other covered transaction
Materiality Requirement
The false statement must be capable of influencing the decision of the financial institution. A statement is material if it has a natural tendency to influence, or is capable of influencing, the decision-making body to which it was addressed—regardless of whether the institution was actually deceived or suffered any loss.
Federal Connection
The statute applies to institutions whose deposits are federally insured (FDIC), as well as agencies and entities of the United States, including:
- Federal Housing Administration (FHA)
- Department of Housing and Urban Development (HUD)
- Federal Home Loan Banks
- Fannie Mae and Freddie Mac
- Farm Credit Administration entities
- Small Business Administration (SBA)
Statutory Penalties
| Category | Maximum Imprisonment | Maximum Fine |
|---|---|---|
| Standard violation | 30 years | $1,000,000 |
| Conspiracy (18 U.S.C. § 1349) | 30 years | $1,000,000 |
| Organization | 30 years | $2,000,000 |
Federal Sentencing Guidelines
Mortgage fraud is sentenced under USSG §2B1.1, the general fraud guideline.
Base Offense Level
The base offense level for mortgage fraud is 7.
Loss Amount Enhancements
| Loss Amount | Level Increase |
|---|---|
| More than $6,500 | +2 |
| More than $15,000 | +4 |
| More than $40,000 | +6 |
| More than $95,000 | +8 |
| More than $150,000 | +10 |
| More than $250,000 | +12 |
| More than $550,000 | +14 |
| More than $1,500,000 | +16 |
| More than $3,500,000 | +18 |
| More than $9,500,000 | +20 |
| More than $25,000,000 | +22 |
| More than $65,000,000 | +24 |
Other Common Enhancements
- +2 levels - 10 or more victims
- +4 levels - 50 or more victims
- +6 levels - 250 or more victims
- +2 levels - Sophisticated means
- +4 levels - Offense involved a financial institution as a victim
- +2 levels - Abuse of position of trust (common for mortgage brokers and loan officers)
- +2 levels - Use of mass-marketing
Actual Sentencing Data (2024)
According to recent data:
- Average sentence for those receiving incarceration: 21 months
- Maximum sentence imposed in 2024: 10 years
- Percentage receiving no jail time: 15%
- Median restitution ordered: $500,000
Types of Mortgage Fraud Schemes
Fraud for Profit
Fraud for profit schemes are typically orchestrated by industry insiders—loan officers, mortgage brokers, appraisers, and real estate professionals—who use their specialized knowledge to defraud lenders.
Property Flipping
Illegal property flipping involves purchasing properties and artificially inflating their value through false appraisals, then quickly reselling them at the inflated price. This differs from legitimate property investment, which involves actual improvements to increase value.
Straw Buyer Schemes
A straw buyer is someone whose credit and identity are used to obtain a mortgage loan on behalf of another person who could not otherwise qualify. The straw buyer may be compensated for their participation or may be an unwitting victim of identity theft.
Equity Skimming
An investor uses a straw buyer, false income documents, and false credit reports to obtain a mortgage loan in the straw buyer's name. The investor then collects rent without making mortgage payments, allowing the property to go into foreclosure.
Air Loans
Air loans are mortgage loans obtained for properties that do not exist or for borrowers who do not exist. These schemes typically involve the creation of fictitious borrowers, employers, appraisals, and title insurance.
Fraud for Housing
Fraud for housing involves misrepresentations by borrowers seeking to obtain or maintain homeownership, typically including:
- Income inflation or fabrication
- False employment verification
- Undisclosed debts or liabilities
- Misrepresentation of occupancy intent
- False asset statements
COVID-Era Fraud
The COVID-19 pandemic created opportunities for mortgage fraud through:
- PPP and EIDL loan fraud involving false certifications
- Forbearance fraud claiming false hardship
- Fraudulent applications for mortgage assistance programs
Notable Cases
Lee Farkas (2011)
Lee Farkas, former chairman of Taylor, Bean & Whitaker Mortgage Corp., was sentenced to 30 years in prison for orchestrating a $2.9 billion fraud scheme that contributed to the collapse of Colonial Bank. This remains one of the longest sentences ever imposed for mortgage fraud.
Lorraine Brown (2013)
Lorraine Brown, CEO of DocX, a subsidiary of Lender Processing Services, was sentenced to 5 years in prison for directing a massive robo-signing scheme that produced over 1 million fraudulently signed and notarized mortgage documents.
PPP Fraud Cases (2020-2024)
The Paycheck Protection Program generated thousands of fraud prosecutions, with defendants facing mortgage fraud charges under § 1014 for making false statements to obtain SBA-guaranteed loans.
Statistics
According to the United States Sentencing Commission (FY 2024):
- 38 federal mortgage fraud convictions nationwide
- Average sentence: 21 months (for those incarcerated)
- 85% of defendants received prison time
- Average restitution: Over $500,000
- Most common co-charged offenses: Wire fraud, bank fraud, money laundering
The FBI reports that mortgage fraud remains a significant threat, with Suspicious Activity Reports (SARs) related to mortgage fraud continuing to be filed at elevated levels.
Defenses
Lack of Intent
Because § 1014 requires that the defendant act "knowingly," a defendant may argue that any false statement was the result of mistake, misunderstanding, or reliance on information provided by others.
Immateriality
The defendant may argue that the alleged false statement was not material—that is, not capable of influencing the lending decision. Minor inaccuracies that would not affect loan approval may not satisfy the materiality element.
Good Faith
A defendant may argue they believed in good faith that the statements were true based on information available to them at the time, or that they reasonably relied on representations from other parties.
No Federal Nexus
If the financial institution was not federally insured or the transaction did not involve a federal agency, the statute may not apply. However, this defense is rarely successful given the broad reach of federal deposit insurance.
Statute of Limitations
The general statute of limitations for mortgage fraud is five years. However, under 18 U.S.C. § 3293, the limitations period is extended to ten years for offenses affecting financial institutions.
Relationship to Other Offenses
Bank Fraud (18 U.S.C. § 1344)
Bank fraud and mortgage fraud charges are often brought together. Bank fraud requires a scheme to defraud a financial institution, while § 1014 focuses specifically on false statements. Bank fraud carries a maximum 30-year sentence.
Wire Fraud (18 U.S.C. § 1343)
Most mortgage applications involve electronic transmissions, making wire fraud a common additional charge. Wire fraud carries a 20-year maximum sentence, or 30 years if affecting a financial institution.
Money Laundering (18 U.S.C. § 1956)
Proceeds from mortgage fraud schemes often result in money laundering charges when defendants attempt to conceal the fraudulent origins of funds.
Conspiracy (18 U.S.C. § 1349)
Most mortgage fraud schemes involve multiple participants—brokers, appraisers, buyers, and sellers—leading to conspiracy charges that carry the same penalties as the underlying offense.
Civil Liability
In addition to criminal prosecution, mortgage fraud may result in civil liability under:
- False Claims Act (31 U.S.C. § 3729) - For fraud involving government-insured loans
- FIRREA (12 U.S.C. § 1833a) - Civil penalties up to $1 million per violation affecting federally insured institutions
- State civil actions - Borrowers and investors may pursue civil remedies
See also
Frequently Asked Questions
References
- 18 U.S.C. § 1014 - Loan and credit applications generally
- U.S. Sentencing Commission - Mortgage Fraud Quick Facts
- United States Sentencing Commission Guidelines Manual
- FBI Mortgage Fraud Overview
- FinCEN Mortgage Fraud Advisories