Assigned to JUD & CED                                                                                     FOR CAUCUS & FLOOR ACTION

ARIZONA STATE SENATE

Forty-eighth Legislature, First Regular Session

AMENDED

FACT SHEET FOR S.B. 1221

residential mortgage fraud

Purpose

            Establishes the crime of residential mortgage fraud.

Background

            According to the Federal Bureau of Investigation (FBI), mortgage fraud is one of the fastest growing white collar crimes in the United States and, as of 2004, Arizona was one of the top ten “hot spots” in the U.S. for mortgage fraud incidents per capita.  The FBI investigates two types of mortgage fraud: fraud for profit and fraud for housing.  Fraud for profit is often perpetrated by industry insiders to revolve equity, falsely inflate the value of property or issue loans on fictitious properties.  Fraud for housing represents illegal actions perpetrated solely by the borrower to acquire and maintain ownership of a house under false pretenses.  The FBI reports that a significant portion of the mortgage industry is not required to report fraud, so the true level of mortgage fraud is unknown.  In recent years, Colorado and Georgia have established the crime of residential mortgage fraud.

            Arizona statute contains several provisions relating to fraud.  For example, forgery, a class  4 felony, occurs when a person, with the intent to defraud, commits any of the following: a) falsely makes, completes or alters a written instrument; b) knowingly possesses a forged instrument; or c) offers or presents a forged instrument that contains false information.  The possession of five or more forged instruments may give rise to an inference that the instruments are possessed with an intent to defraud (A.R.S. § 13-2002).  Additionally, any person who, pursuant to a scheme or artifice to defraud, knowingly obtains any benefit by means of false or fraudulent pretenses, representations, promises or material omissions is guilty of a class 2 felony.  A scheme or artifice to defraud includes a scheme or artifice to deprive a person of the intangible right of honest services (A.R.S. § 13-2310).

            There may be a fiscal impact associated with this legislation due to an increased number of persons prosecuted and incarcerated in the Arizona Department of Corrections.

Provisions

1. Designates the commission of any of the following acts, with the intent to defraud, as residential mortgage fraud:

a) knowingly making, using or facilitating the use of any deliberate misstatement, misrepresentation or material omission during the mortgage lending process that is relied on by a mortgage lender, borrower or other party to the mortgage lending process.

b) receiving any proceeds or other monies in connection with a residential mortgage that the person knows resulted from the knowing use of or facilitation of the use of a deliberate misstatement, misrepresentation or material omission.

c) filing or causing the filing with the office of the county recorder of any residential mortgage loan document that the person knows to contain a deliberate misstatement, misrepresentation or material omission.

2. Classifies mortgage fraud as:

a) a class 4 felony.

b) a class 2 felony, if a person engages or participates in a pattern of residential mortgage fraud or conspires to engage or participate in a pattern of residential mortgage fraud.  

3. Prohibits an offense involving residential mortgage fraud from being based solely on information that is lawfully disclosed under federal disclosure laws, regulations and interpretations related to the mortgage lending process.

4. Defines:

a)   mortgage lending process.

b)   pattern residential.

c)   residential mortgage loan.

5. Becomes effective on the general effective date.

Amendments Adopted by the CED Committee

1. Specifies that an omission must be material.

2. Modifies the definition of pattern of residential mortgage fraud.

Senate Action

JUD                 2/5/07     DP     6-0-1

CED                1/31/07   DPA  6-1-1

Prepared by Senate Research

February 12, 2007

LB/ac