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Mortgage Bankers Association • Mortgage Fraud

[INSERT STATE CHARTERED AND STATE LICENSED FINANCIAL INSTITUTIONS]

Loan and Credit Applications. [Based on § 1014] Whoever knowingly makes any false statement or report, or willfully overvalues any land, property or security, for the purpose of influencing in any way the action of a financial institution, officer, or employee thereof, 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, in connection with a loan to an individual secured by residential real estate, shall be fined not more than $1 million or imprisoned not more than 30 years, or both.

Lender fraud. [Based on § 1344] Whoever knowingly executes, or attempts to execute, a scheme or artifice —

  • (1)

    to defraud a financial institution; or

  • (2)

    to obtain any of the moneys, funds, credits, assets, securities, or other property owned by, or under the custody or control of, a financial institution, by means of false or fraudulent pretenses, representations, or promises; shall be fined not more than $1million or imprisoned not more than 30 years, or both.

Additionally, comments to any such legislation should indicate that the statutes are patterned on 1014 and 1344, and that precedent interpreting those sections also should apply to the state law. By thus patterning state law on existing federal law, state prosecutors can benefit from the long history of interpretation and application of federal law it incorporates.

georgias morTgage fraud law MBA notes that one state — Georgia — has enacted a mortgage fraud statute and that bills patterned on that statute have been introduced in other states. While Georgia’s statute may contain some beneficial provisions for law enforcement, it is less beneficial than a state law closely patterned on federal law. Federal law, especially sections 1014 and 1344, have

been applied numerous times, resulting in a body of judicial precedent applying and interpreting the statute and giving law enforcement a comfort level with the statute.

In contrast, there are no reported judicial decisions applying or interpreting the Georgia act. In fact, two recent cases of mortgage fraud involving Georgia mortgages were each prosecuted under federal law, rather than Georgia law. One, involving Phillip Hill, has attracted a great deal of attention nationally because a former professional athlete was among the victims.57 In the other, the so-called “poster child” of mortgage fraud pled guilty to several violations of federal law.58 While both cases involved significant numbers of Georgia properties, neither case was prosecuted under the Georgia act.

Because there is no judicial precedent regarding the Georgia act, there is greater uncertainty regarding the meaning and scope of its provisions. For example, the term “mortgage lending process” is untested and could be interpreted in such a way that it may not apply to all cases of mortgage fraud.

Finally, for the same reasons discussed above, a private right of action under a state mortgage fraud law could be harmful to mortgage lenders. Private litigants already have the right to bring private actions addressing mortgage fraud under state fraud and UDAP laws. Because a new private right of action could harm mortgage lenders and is unnecessary, MBA urges state law and policy makers to reject any calls for such provisions.

Any new state legislation should target mortgage fraud, not so-called predatory lending.

Whether a state opts to pattern any mortgage fraud law on existing federal law, as MBA recommends, or to follow another pattern, states should recognize that there are important differences between mortgage fraud and activities by mortgage industry participants that are characterized as predatory. As

57

See, e.g., R. Robin McDonald, Athletes Caught Up In Mortgage Fraud Case, FULTON COUNTY DAILY REP., Jan. 23, 2007, at 1; R. Robin McDonald, Phil Hill, 18 Others Charged With Fraud, FULTON COUNTY DAILY REP. June 9, 2005, at 3.

58

See, e.g., Bill Torpy, Mortgage Fraud “Poster Child” Pleads Guilty, ATL. J.-CONST., Apr. 10, 2007.

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Mortgage Bankers Association

© Mortgage Bankers Association 2007. All Right Reserved.

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