The purchase of real estate is a significant transaction and the single largest financial transaction most people will ever make. Since there are few buyers who can afford to pay cash, most Arizona real estate is purchased through mortgage financing, where a third party provides the funding for the transaction and the buyer pays the debt over time with interest. Arizona law has a very broad definition of what a mortgage is. A.R.S. §33-702(A) states that every transfer of an interest in real property (other than in trust) is considered a mortgage.
Because the amounts involved in real estate transactions are large, the mortgage business attracts people interested in “gaming the system” by engaging in various types of mortgage fraud. Mortgage fraud in Arizona is a crime under both federal and state laws and can subject a person to severe penalties including jail time and substantial fines. Arizona civil law (A.R.S. §44-1522) also prohibits Consumer Fraud, so the Arizona Attorney General’s office may also bring civil charges against people accused of mortgage fraud in Arizona.
Punishment for Mortgage Fraud
A first conviction for mortgage fraud in Arizona can carry felony level penalties under state law. A first offense for mortgage fraud charges could result in a sentence of up to 12.5 years of incarceration. A second offense increases potential prison time to 4.5 to 23.25 years and the range for a third offense is 10.5 to 35 years of incarceration.
Common Mortgage Fraud Techniques:
- Cash Back/Kickback: In this scenario the buyer offers to purchase the property for a premium over the asking price, obtains financing, pays the seller the asking price and pockets the difference. The buyer does not use his own identity for the purchase, but employs third party “straw man” to qualify for the mortgage. This is a very dangerous technique as it puts several potentially innocent parties (real estate agent and title company) at risk for fraud charges.
- Reverse Mortgage: This scheme uses an unwitting senior citizen to receive the property deed from a straw buyer. After 60 days, the senior is induced to apply for a reverse mortgage with cash back, which is then stolen.
- Foreclosure rescue: This fraud scheme typically involves charging fees to homeowners in foreclosure, purportedly to “save” their home. The homeowners are directed to submit their mortgage payments to the fraudster, who pockets them. After a period of time, the homeowners are directed to file for bankruptcy and the fraudsters disappear. In another version of this technique, the homeowners transfer fractional interests to the fraudsters, delaying foreclosure for months and years.
- Loan modification/Foreclosure Rescue: In this fraud, homeowners facing foreclosure are falsely told that their mortgages will be modified and their payments reduced. The homeowners are directed to pay the reduced amounts directly to the fraudsters, who pocket the money directly.
- Short Sale: In this fraudulent transaction, the fraudster will purchase a home in foreclosure for less than its value, than immediately resell it for market value. The fraud lies in not disclosing the intention to resell to the bank or the homeowner.
- Equitable Mortgages: This technique is an attempt to circumvent the legal definition of mortgage by calling the transaction a “lease back” or other designation. It is used to create transactions that attempt to cheat the buyer out of the opportunity to purchase the property. It is also used by persons who cannot qualify to be mortgage brokers as required by A.R.S. §6-703, A.R.S. §6-909(B) and A.R.S. §6-943(A).
If you have been suspected of or charged with Mortgage Fraud in Arizona, contact DM Cantor for a free confidential consultation. Our offices are available 24 hours a day by calling (602) 307-0808 or by using our confidential web form.
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