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Can I be prosecuted for making a mortgage application mistake?

Many Maryland consumers know that an enormous amount of paperwork is involved in buying and selling a home. Borrowers sign paper after paper, often guided by a realtor, without actually reading the contents of the documents. The process can be tiresome and, in some cases, consumers can be vulnerable to fraud.

Mortgage fraud is a white collar crime generally committed by people within or attached to the real estate industry. Every form of fraud involves deception, usually for monetary gain.

In 2014, a Maryland real estate agent was sentenced to a 57-month prison term for tricking lenders into approving mortgages higher than the market value of properties. The man was ordered to pay nearly $2.5 million in restitution equivalent to the amount lenders, including the U.S. government, lost on those deals.

The realtor profited by keeping the difference between the selling price and loan amounts, using straw buyers and manipulating documents and appraisals. The mortgages payments were never made and the home loans fell into default. All conspiracy defendants entered guilty pleas, were sentenced to lengthy prison terms and were ordered to pay back hundreds of thousands of dollars.

When a borrower lies on a home loan application, the goal is often to obtain approval for a mortgage the applicant isn't qualified to get. This typically includes fabricating income, assets or down payment sources and hiding debts. According to Realtor.com, lenders reject suspicious applications but may take action if fraud is uncovered following loan approval.

If fraud is found during a forensic mortgage audit, the lender rightfully may demand full payment of the loan. The borrower also may face criminal charges, particularly if the fraud causes the lender to lose money.

However, a fraud charge can't stick unless the borrower's intent is to deceive. In other words, an applicant who made an honest mistake shouldn't be found guilty. A criminal defense attorney can help defendants prove a lack of intent to commit a crime.

Source: The Federal Bureau of Investigation, "Mortgage Fraud Overview," accessed July 09, 2015

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