HB2040 - 481R - House Bill Summary

House of Representatives

HB 2040

residential mortgage fraud

Sponsor: Representative Mark Anderson

DP	Committee on Education
W/D	Committee on Appropriations
DP	Caucus and COW
X	As Transmitted to the Governor

HB 2040 establishes the crime of mortgage fraud and assesses a Class 2 or Class 4 felony for a violation, depending on severity.

History

According to the Federal Bureau of Investigation (FBI), Mortgage Fraud is one of the fastest growing white collar crimes in the United States. Further, the top ten hot spots for Mortgage Fraud in 2004 (per capita) include: California, Nevada, Utah, Arizona, Colorado, Missouri, Illinois, Maryland, Georgia, and Florida.

Mortgage Fraud is defined as “a material misstatement, misrepresentation, or omission relied upon by an underwriter or lender to fund, purchase, or insure a loan.” There are two types of Mortgage Fraud: fraud for property and fraud for profit. Fraud for Property (Fraud for Housing) involves the borrower making false or misleading statements with regard to income, debt or property value in order to secure a single loan on property. In such cases, the borrower intends to repay the loan, and industry professionals sometimes coach the borrower to ensure the borrower qualifies for the loan. Fraud for Property accounts for 20 percent of all fraud. Fraud for Profit pertains to industry professionals, usually involving multiple loans with several different financial institutions. These frauds include numerous gross misrepresentations that include: overstated income, assets and collateral; false or misleading credit history; misstated length of employment; false employment supported by co-conspirators; misstated use of property and down payment; false appraisal that inflates value.

Provisions

· Establishes the crime of residential mortgage fraud if a person intends to defraud as follows:

Knowingly making any deliberate misstatement, misrepresentation or material omission during the mortgage lending process.
Knowingly using any deliberate misstatement, misrepresentation or material omission during the mortgage lending process.
Receiving any proceeds/monies in connection with a residential mortgage that the person knows is a result of one of the aforementioned violations.
Filing or causing to be filed with a pertinent County Recorder, any residential mortgage loan document that the person knows to contain a deliberate misstatement, misrepresentation or material omission.

· Stipulates that a fraud offense shall not be based solely on information that is lawfully disclosed pursuant to the federal disclosure laws and regulations.

· Prescribes a Class 4 felony (2.5 yr/$150,000) for a violation of residential mortgage fraud.

· Assesses a Class 2 felony (5 yr/$150,000) for a pattern of residential mortgage fraud or conspiring to engage or participate in that pattern.

· Adds that the crime of mortgage fraud does not apply to a person who is not aware that the information that is relied on by the mortgage lender, borrower or other party to the mortgage lending process is a deliberate misstatement, misrepresentation or material omission.

· Defines the following terms:

· Mortgage lending process – the process through which a person seeks or obtains a residential mortgage loan, including soliciting, applying, originating, negotiating terms, third party provider services, underwriting, signing, closing and funding the loan.

· Pattern of residential mortgage fraud – one or more violations of mortgage fraud that involve two or more residential properties as outlined.

· Residential mortgage loan – a loan or agreement to extend credit to a person that is secured by a deed to secure debt, security deed, mortgage, security interest, deed of trust or other document that represents a security interest or lien on any interest in one to four family residential property and includes the renewal or refinancing of a loan.

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Forty-eighth Legislature