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Mortgage Fraud in Florida: We’re Number 1 (Unfortunately)!!

Mortgage fraud has been a hot button issue for the federal government ever since the wave of major bank failures that began in 2008. The 16th Annual LexisNexis Mortgage Fraud Report was recently released, finding that as the economy improves and the housing industry rebounds, mortgage fraud (particularly application fraud) continues to be on the rise. Florida has had more loans investigated for fraud or misrepresentation than any other state, making it number one in this dubious ranking for the past five years.

In South Florida, we were recently reminded of the pervasiveness of the issue. Karl Oreste, the former fiancé and business partner of former North Miami mayor Lucie Tondreau, was recently sentenced to eight years in federal prison for his role in an $11 million scam that ultimately led to the mayor’s conviction on numerous fraud-related charges. (Ms. Tondreau herself is set for sentencing in March.)

What is Mortgage Fraud?

Generally speaking, mortgage fraud occurs when a consumer (or lender) misrepresents key information on the mortgage application (e.g., income, assets, liabilities, or intent to live in the property), so the applicant can acquire a better or bigger loan than he or she would otherwise qualify for. (This is different from predatory mortgage lending, where the lender actively misleads the borrower, resulting in the imposition of unfair or abusive loan terms.)

Under Florida law, mortgage fraud is defined and designated as a separate offense under Sec. 817.545(2). It is punishable as a third-degree felony (punishable by up to 5 years in prison), unless the loan value stated in the fraudulent documents exceeds $100,000. If that happens, the charge is a second-degree felony (up to 15 years in prison).

In the federal criminal code, mortgage fraud is not designated as a separate, discrete offense. Rather, such crimes are generally prosecuted as “mail fraud” (18 U.S.C. Sec. 1341), “wire fraud” (18 U.S.C. Sec. 1343), “bank fraud” (18 U.S.C. Sec. 1344), or conspiracy to commit any of those crimes (18 U.S.C. Sec. 371 et seq.). While wire fraud and mail fraud are punishable by up to 20 years in prison (or 30 years in certain specific situations), bank fraud is punishable by up to 30 years. Also, it is worth noting that under 18 U.S.C. Sec. 3293, the statute of limitations for violations of any of these crimes is 10 years—much longer than most offenses carry. As it stands now, in February 2015, we’re less than 10 years from the height of the crash. More fresh prosecutions may well be on the way.

Massive Rate of Mortgage Fraud in Florida

Florida’s rate of fraudulent mortgage activity is twice that of any other state in the country. According to the LexisNexis report, the state’s Mortgage Fraud Index in 2013 was 529, whereas Nevada (the number 2 state) had an index number of 221. The Miami-Fort Lauderdale region ranks in the top five regions for all types of mortgage fraud. Part of this can be attributed to the real estate bubble that once existed in Florida. Now, those applications from the 2000s–many of which were fraudulent-–are working their way through the foreclosure process. This has kept Florida’s fraud index high and the eager eyes of federal investigators fixed on the Sunshine State.

Mortgage fraud is on the rise in part because, despite the rebounding market, mortgage originations have been declining. This tempts both borrowers and loan officers to bend the rules (the latter, to compensate for low loan approval numbers). Owner occupancy fraud is another type of fraud that is being heavily investigated. This type of fraud involves a borrower who lists his or her second property (typically an investment property) as the primary residence on the loan documents, in order to qualify for a better down payment or rate. This is extremely popular in Florida, and often hard to detect.

Much of the attention of the Feds is directed to systematic mortgage fraud scams such as the one in which Ms. Tondreau, Mr. Oreste, and others were implicated. I’ll discuss that case in more detail in my next post.

Let Me Defend You Today

Have you been implicated in a mortgage fraud case? Are you looking for a skilled attorney who can help defend you against such serious allegations, in federal or Florida state court? Please contact Attorney Tony Moss at the Tony Moss Firm, L.L.C. to discuss any pending defense matters. He has locations in Miami and Fort Lauderdale, and he is prepared to put his skill and expertise to work for you.

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