The Cash Back Mortgage Fraud Scheme
Mortgage fraud is extremely common in the US. Mortgage fraud can come in many different forms and the severity of the sentencing usually depends on the intent of the defendant, and how much money they ended up making off of the scheme.
Mortgage fraud can be charged as either a state crime or a federal one. There are a variety of federal punishments for the crime, and they tend to carry very long prison sentences should someone be convicted. In most of the states, it will be classified as a class 2 felony. These sorts of crimes will carry either probation with 0 days to 1 year in jail, or anywhere from 3 to 12.5 years of prison time. This is an extremely lengthy first offense prison sentence.
On a second conviction, the prison term can range from between 4.5 years and 23.25 years behind bars. If someone is convicted for a third time, they will have to be in prison somewhere between 10.5 years and 35 years. Additionally, the severity of crime’s punishment is partially dependent on how much money was made off of the scheme. Should someone profit over $100,000, they will be required to spend time in prison and the judge cannot choose to sentence them to probation instead.
Unlike other crimes that tend to only require a criminal lawyer, someone can also face civil lawsuits from those that were victims of the fraud. On top of a lengthy sentence, the defendant might end up having to pay massive sums of money back to their victims.
Kickback or Cash Back Scheme
The kickback or cash back scheme is among the most common types of mortgage fraud across the country. The scheme begins when someone pretends to be a homebuyer. While explaining it, we will refer to this person (who is committing the fraud) as an “investor.” While posing as a homebuyer, they will offer above the asking price for the home.
At this point, they will show this offer to a mortgage lender, who will give them a loan that makes sense for the value of the offer. Ultimately though, the investor will negotiate back down to the original list price of the home with the person selling it, while keeping the loan they received at the same rate. So, the investor can pocket the difference between the first offer and the one that they ended up settling on.
These schemes can be very complex and involve many unknowing individuals that end up catching criminal charges for their involvement, even if they were completely duped into being involved with the crime itself. For example, the person selling the home might have simply agreed to sell their house, without having any idea that they might have become involved with fraud.
The aspect of cash back schemes that makes it harder to detect for investigators is the use of a straw buyer. The investor will either manipulate someone unknowingly, or involve an accomplice, that will take out the mortgage under their own name while the investor puts up the money. Straw buyers that know they are operating a fraudulent scheme are usually given some sort of compensation by the investor, and will not even have to live there or make any payments.
An investor involves a straw buyer when by having them apply for the loan. This helps obscure the fraud because the investor will be separate from the loan itself, as the lender will think that the straw buyer is the one actually putting up the money for the home and trying to get a legitimate loan. At this point though, the investor ends up putting down fake information such as saying that the straw buyer means to live there, and will usually completely make up all of the information about how they intend to pay for the mortgage. The investor will likely lie about where the money for the down payment on the house is supposed to come from. At the end of this process, the straw buyer will sign off on it. By signing off on it, the straw buyer makes themself criminally liable in the case, assuming a court can prove that they were knowingly involved instead of somehow manipulated into it.
Next, the investor will get a title company involved. That company will hold. the property until the straw buyer meets the “pending contractual obligation” involved with buying the home. The escrow or title company will then do a “Pre-Audit” or HUD-1, which delineates all of the payments that are made with the loan that the straw buyer has secured. After this is approved, the lender gives the lent money to the title company and then to the straw buyer. So, the escrow company acts legally as a middle man. That said, the title or escrow agent sometimes will be accused of a crime, as they have to record exactly how the funds were disbursed. If this “settlement statement” shows that they might have known that the funds were involved in a form of fraud, then they will be charged for mortgage fraud like the straw buyer or investor might be too.
If you end up being arrested for involvement in any kind of mortgage fraud scheme, you should speak to a knowledgeable lawyer who can help you build your case.