Buying real estate is one of the most important and significant transactions you will make in your lifetime. Since most buyers can’t afford to pay the full amount, most will purchase it through mortgage financing. This involves a third-party company providing you with the funds you need to buy real estate, which you pay back with interest over time.

The amounts necessary for real estate transactions are substantial, so the mortgage business is fraught with people who are looking to game the system via mortgage fraud. But this is a serious crime according to both state and federal law, and it comes with high fines and other severe penalties.

How does Mortgage Fraud Work in Arizona?

  • Mortgage fraud takes many forms including falsely reporting information, foreclosure rescue, and loan modification
  • This crime may come with time in prison, high fines, restitution, and other severe penalties
  • Misleading police reports or a lack of awareness that fraudulent activity was occurring are potential defenses
  • Speaking with a lawyer as soon as possible is essential if you’ve been accused of mortgage fraud

Mortgage fraud can happen when a borrower accepts an undisclosed payment or kickback from a seller or intentionally misrepresents the amount they earn. Mortgage fraud often involves multiple criminal acts and typically happens when several individuals collaborate to receive a mortgage. Mortgage fraud flipping is one example of this (not to be confused with buying a home and making repairs to sell it for a profit).

In fraudulent mortgage flipping, a buyer buys a home for a low rate and hires an appraiser to value the property at a significantly higher price. The owner of the property then sells it for a profit and shares the profits with the appraiser.

Intentional Misrepresentation

A mortgage fraud crime happens when a professional or borrower knowingly omits or misrepresents information. It must involve the intention to defraud, so a borrower who accidentally reports the wrong information about their income isn’t committing mortgage fraud. Whereas, an appraiser who misrepresents the value of a home intentionally, hoping to get a kickback from the buyer at a later date, is committing mortgage fraud. 

Even if the seller doesn’t agree to this or the appraiser doesn’t earn a profit, it still counts as mortgage fraud if the appraiser intentionally misstated facts during the application process. 

Other Examples of Mortgage Fraud

Some other types of mortgage fraud include foreclosure rescue, which involves charging homeowners fees during foreclosure under the guise of saving their home. The payments are then pocketed by the fraudster, who disappears later on. Another form of mortgage fraud involves loan modification in which homeowners who are facing a foreclosure are given false information about reduced payments on their mortgage. The fraudsters then keep the money.

Penalties for Committing Mortgage Fraud

Mortgage fraud may result in a felony charge and up to 12.5 years of prison time according to Arizona law, even for a first offense. For a second offense, you could face 24 years in prison, and up to 35 years for a third offense. Mortgage fraud fines tend to be extremely high, particularly when the crime involves professional fraud.

A criminal charge for a single instance of mortgage fraud on a federal level may come with a $1 million fee. For a state fine, you might be facing a fine of a few thousand dollars for misdemeanor mortgage fraud and as much as $100,000 for a felony charge.

Possible Defenses for Mortgage Fraud

Schemes involving mortgage fraud are an intricate and complex area of law, so a successful defense requires an experienced attorney. This type of scheme can involve a new purchaser of property, homeowners, and real estate agents, even if they’re unwittingly involved in the transaction. The main defense to this type of charge is a lack of awareness that any fraudulent or illegal activity was taking place. 

Another potential defense is exposing misleading or sloppy police reports that include inaccurate information or false statements. A skilled attorney with knowledge of this subject can help you decide which defense will work best for you.

FAQ on Mortgage Fraud in Arizona 

Here are some of the most frequently asked questions regarding mortgage fraud in Arizona: 

Q: What can I do to protect myself from mortgage fraud? 

If you’re buying a home, make sure you educate yourself on the topic and don’t sign a home appraisal or mortgage application form until you know the information on the form is accurate. Look especially closely at the personal financial data on the form.

Q: How can I identify potential mortgage fraud?

There are some specific red flags you can look for that might signal mortgage fraud. Keep an eye out for non-conforming loans, huge allowances for decorating or repairs, and an increased sale price that’s higher than comparable properties. If you notice that the contract price is increased to more than the listing price, it should be supported with legitimate comparable sales data from other homes.

Q: How should I report mortgage fraud-related identity theft? 

If you have reason to believe your mortgage account was compromised via identity theft, contact your financial institution or mortgage lender as soon as possible. Ask them to flag any potential identity theft or mortgage fraud and document the conversation, as you may need to reference it later during the recovery process.

Q: In addition to fines and prison time, what other penalties might result from mortgage fraud?

You might receive a probation sentence in addition to prison time and fines for mortgage fraud. This might involve reporting to a probation officer on a regular basis, submitting random drug tests, and other requirements. A probation sentence for this crime will last around 12 months on average, but it’s possible to get a longer term.

You may also face restitution payments for a mortgage fraud conviction. Restitution is meant to compensate the person who was harmed for your wrongdoing and will be imposed on top of your existing fines.

What to Do if You’re Facing Mortgage Fraud Charges in AZ

Charges for mortgage fraud are serious, with some convictions resulting in decades of prison time. If you’re facing these charges, you should talk to a criminal defense attorney as soon as you suspect you’re being investigated. An experienced lawyer can help guide you through the process and advise you based on their legal expertise and experience.

Call the JacksonWhite Criminal Law team at (480) 467-4370 to discuss your case today.

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