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Join Date: Dec 2007
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Nominated 0 Times in 0 Posts TOTW/F/M Award(s): 0 | Re: Overstated income
Here is some lite reading;
Fraud is defined as a "knowing misrepresentation of the truth or concealment of a material fact to induce another to act to his or her detriment." Black's Law Dictionary 685 (8th ed. 2005). While fraud is usually a tort, and therefore a civil cause of action, when the conduct is willful, there may be criminal prosecution. Id. Mortgage fraud, therefore, while it has no official definition in Black's, can be defined as committing some sort fraudulent activity in conjunction with the mortgage process
Mortgage Fraud Prosecuted Under 18 U.S.C. § 1014 (2005) (False Statements on Loan Applications)
18 U.S.C. § 1014 (2005).
The Crime
Under section 1014, it is a crime for a person to
knowingly make any false statement or report, or
willfully overvalue any land, property or security,
for the purpose of influencing in any way the action of the
Farm Credit Administration,
Federal Crop Insurance Corporation or a company the Corporation reinsures,
the Secretary of Agriculture acting through the Farmers Home Administration or successor agency,
the Rural Development Administration or successor agency,
any Farm Credit Bank, production credit association, agricultural credit association, bank for cooperatives, or any division, officer, or employee thereof, or
of any regional agricultural credit corporation established pursuant to law, or
a Federal land bank, a Federal land bank association,
a Federal Reserve bank,
a small business investment company, as defined in section 103 of the Small Business Investment Act of 1958 (15 U.S.C. 662), or
the Small Business Administration in connection with any provision of that Act,
a Federal credit union,
an insured State-chartered credit union,
any institution the accounts of which are insured by the Federal Deposit Insurance Corporation,
the Office of Thrift Supervision,
any Federal home loan bank,
the Federal Housing Finance Board,
the Federal Deposit Insurance Corporation,
the Resolution Trust Corporation,
the Farm Credit System Insurance Corporation, or
the National Credit Union Administration Board,
a branch or agency of a foreign bank (as such terms are defined in paragraphs (1) and (3) of section 1(b) of the International Banking Act of 1978 [12 USCS § 3101(1) and (3)]), or
an organization operating under section 25 or section 25(a) of the Federal Reserve Act,
upon any application, advance, discount, purchase, purchase agreement, repurchase agreement, commitment, or loan, or any change or extension of any of the same, by renewal, deferment of action or otherwise, or the acceptance, release, or substitution of security therefor.
The Punishment
The punishment for a violation of section 1014 is
a fine of not more than $ 1,000,000, imprisonment not more than 30 years, both.
Case Law Interpreting Section 1014
United States v. Dominguez, 226 F.3d 1235 (11th Cir. 2000).
In Dominguez, the defendant was charged and convicted on multiple accounts involving participation in a cocaine distribution organization and mortgage fraud. Dominguez at 1236. The appeal centered around the defendant's assertion that the drug-related charges and the mortgage fraud-related charges were improperly joined in the district court. Id. The court ultimately rejected the defendant's argument because "[c]oncealing money from the drug activity was the motive for the mortgage fraud." Id. at 1242. The court relied on the government's closing argument, which centered around the defendant making false statements on a loan application, which brings it under section 1014. Id. at n.9.
The evidence on those [false statement] counts shows that he made false statements to these banks in an effort to influence the banks to give [him] loans. … This is the 1990 return. Here is the 1989 return that he submitted to the banks. … And you heard testimony that these are forgeries. The IRS has never seen them. … It is very simple why he does this. If he goes into this bank showing the kind of money he has made from cocaine trafficking, four years out of law school, worth $3 and a half million, you show that kind of money and those kind of assets that he has got, with his true legitimate income of 20 grand or 30 grand, he is in trouble. … He creates plausible tax returns … that will pass the laugh test. You look at them, you go, oh, okay, he makes 75 or 85, okay. That's, you know, that makes sense with this income. And that is really the problem with cocaine, folks. You make so much money that it is impossible to justify what you have. … This is proof beyond any reasonable doubt that he committed these mortgage frauds. Id.
Dominguez, then, shows that in some cases, the false statements on loan applications, which typically show inflated assets, see United States v. Nguyen, 1999 U.S. App. LEXIS 170 (9th Cir. 1999) immediately below, can sometimes involve making the assets appear smaller than they really are.
United States v. Nguyen, 1999 U.S. App. LEXIS 170 (9th Cir. 1999).
In Nguyen, the defendants were charged and convicted with mail fraud and making false statements to a federally insured financial institution in connection with a loan application, in violation of section 1014. Nguyen at 3. The defendants wanted to purchase a more expensive house than they already owned, but they wanted to sell their old house first. Id. at *5. So they convinced some friends to allow the defendants to use the friends' names on a loan application for the supposed purchase of the defendants' first house. Id. The defendants then submitted a residential loan application to a mortgage company for the purchase of the first house. Id. The defendants' made a number of misrepresentations in the application: "they created a fictitious position and salary for [one of the friends,] inflated [the other friend's] salary, and submitted numerous false documents in support of the application," such as "false W-2 statements, credit reports, tax returns and a forged Request for Verification of Employment." Id. at *5-*6. One of the defendants worked as a loan processor for a mortgage company owned by the other defendant, and she prepared the loan application using a fictitious name. Id. at *5 n.2. A mortgage company loaned $265,000 to the defendants' friends, who subsequently quitclaimed their interest in the residence to the defendant's brother; a few years later, a new mortgage company foreclosed on the property, recovering their investment. Id. at *6 & n.4. After the sale of the defendants' first property, the defendants sought to purchase a new $930,000 residence. The purported buyers of the residence were listed as one of the defendants, the other defendant's sister, and that person's brother, all as joint tenants. Id at *7. This defendant submitted a second loan application, again under the fictitious name, to the mortgage company, falsely representing the defendant's marital status, her employer and her monthly income; it also inflated the other defendant's sister's and brother-in-law's monthly incomes and included false credit reports verifying the entries. Id. Relying on the misrepresentations, the mortgage company loaned $600,000 to the three "joint tenants." Id.
United States v. Fraza, 106 F.3d 1050 (1st Cir. 1997).
In Fraza, the defendants, a father and a son, were convicted on various counts of fraud, including one under section 1014. Fraza at 1052. On appeal, the defendants claimed that being charged for both "knowingly making false statements to a federally insured lending institution, 18 U.S.C. § 1014, and ...bank fraud, 18 U.S.C. § 1344, are multiplicitous, thereby violating the Double Jeopardy Clause of the Fifth Amendment of the Constitution." Id. at 1053.
One of the defendants, the father, offered to purchase some land in Rhode Island from a seller at the agreed upon price of $120,000. Id. at 1052. The seller would maintain a $60,000 mortgage on the land. Id. The father signed a Purchase and Sale agreement, and gave the seller a $2,000 deposit check, but additional financing was required. Id. The father met with officers of a credit union, and during this meeting, he told the officers that the purchase price of the property was $205,000, and that he was seeking to finance $160,000. Id. However, due to his prior bankruptcy, the credit union would not grant him the loan, to which the father suggested that his son purchase the property and take the loan. Id. The officers agreed to consider the request but stated that the son might require a co-signer. Id. Later that year, the father and the seller attended an informal "closing" in the back seat of the car owned by an attorney whose firm had represented the credit union for over twenty years. Id. The father signed two closing statements, one reflecting the $120,000 purchase price and the other remaining blank, which the attorney claimed he needed to make a correction to a tax computation. Id. Simultaneously, the seller endorsed a deed conveying the property to the son's construction company, and at that "closing" no money or financial instruments changed hands. Eventually, the father found a co-signer and the credit union approved a $160,000 loan based on the inflated purchase price of $205,000; the credit union's appraisal of the fair market value of the property came in at $225,000.
The formal closing was held a month-and-a-half later, involving the father, his son, the son's co-signer, a credit union loan officer and the attorney who was acting as the credit union's attorney. Id. The attorney explained that the seller was unavailable and produced the blank closing form, which he then filled out with the purchase price being listed at $205,000. Id. After the son signed, the loan officer disbursed $160,000 to the attorney who then paid the closing costs, the existing $58,740 mortgage on the property and gave the remaining approximately $95,000 to the son, who in turn paid the attorney $5,000 for his work. Id. Shortly thereafter, the seller, who was not informed that the credit union held a $160,000 first mortgage on the property, received the son's signed promissory note and mortgage in the amount of $60,000 in the mail. Id.
Six months later, the son filed for bankruptcy, and as part of the bankruptcy proceedings, both the father and his son, represented by the attorney, gave deposition testimony that they gave the credit union an inflated price for the seller's property. Id. Roughly the same time, the attorney's firm mailed the seller a tax form indicating that the seller had received $205,000 from the son for the property; reacting to complaints from the seller, a corrected tax form was sent to the seller, but along with it, the seller received a copy of the closing statement stating the purchase price as $205,000. Id. Also at the same time, the loan to the son became delinquent and the credit union discovered that the actual purchase price of the property was $120,000 instead of $205,000, and discovered the existence of two different closing statements. Id. Desiring to keep the credit union as a client, the attorney arranged for its pension fund to pay the credit union $160,000 and to take over the mortgage. Id. Three years later, the father, the son, and the attorney, who died prior to trial, were indicted on several charges. Id. As noted above the father and son were convicted of the charges.
As noted above, the defendants challenged the sections 1014 and 1344 charges on multiplicity grounds, but the court determined that the Blockburger test was satisfied: "Section 1014 contains an element not contained in § 1344, that is, proof that the statements were 'materially false.' Likewise, § 1344 encompasses a 'scheme or artifice to defraud,' which is not an element of § 1014." Id. at 1053. The defendants pointed to United States v. Seda, 978 F.2d 779, 781 (2d Cir. 1992) which held that "§§ 1014 and 1344, when arising from the same offense, are multiplicitous." Fraza at 1054. The court disagreed because Seda relied on a different case than Blockburger, which the court felt did not really apply in this situation. The court affirmed the convictions, apparently agreeing that the defendants' acts constituted mortgage fraud. |
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