The real estate industry is one of the sectors of the U.S. economy that is most susceptible to fraud. The desire to own a home is a defining characteristic of the American public. Occasionally, that desire combined with vanity and fear of missing out lead potential homebuyers to seek to purchase homes that they really cannot afford. This is not a new phenomenon – the subprime mortgage crisis is considered one of the main causes of the great recession. Still, the incentive to get into a big, expensive house extends to homebuyers and many others in the real estate industry. Home builders are incentivized to sell homes for as much as possible. Real estate agents, representing both buyers and sellers, receive larger commissions with higher sales prices. Bigger is always better – at least until the buyers’ financial situation forces them into default and the mortgage is foreclosed. Then, everyone looks for someone to blame. Sometimes, it is just an unfortunate set of events. But other times, the resulting foreclosures are the result of fraud.
In a press release on March 19, the United States Attorney’s Office for the Northern District of Georgia announced that eleven individuals had pled guilty to conspiracy to defraud the United States in connection with a scheme to fraudulently obtain financing for the sale of over 100 homes. The alleged scheme was very complex and involved multiple levels of fraud. Listing agents from a major nationwide homebuilder allegedly aided unqualified homebuyers in obtaining mortgages by instructing the homebuyers as to the types of assets to claim to possess, the employment to list, and the income to represent in their mortgage applications. Those agents then allegedly instructed other defendants to fabricate records concerning direct deposits from a false employer and alter bank statements to reflect the direct deposits. At yet another level, a set of defendants are alleged to have acted as employment verifiers who would respond to phone calls or emails from lenders to falsely verify the homebuyers’ employment.
Although not included in the press release, the conspiracy charges are likely premised on mail and wire fraud. However, given that the subject mortgages were insured by the Federal Housing Administration (FHA), and many claims were paid for mortgages that went into default, the defendants and the major nationwide homebuilder could face liability under the False Claims Act. Consumer mortgages are often insured by the FHA or the Department of Veterans Affairs. When a mortgage insured by one of those two agencies goes into default, the agencies pay out to cover any shortfall between the sales price of the property at foreclosure and the outstanding principal on the loan. Because documents were allegedly falsified in order to induce the government to insure the mortgages, the defendants may be liable for causing false claims to be submitted to the government in the form of insurance payouts upon default. This is another reminder that fraud of any kind against the government could result in False Claims Act liability.
The attorneys at Chilivis Grubman, including a former white collar crime prosecutor, represent clients of all types and sizes in connection with white collar criminal investigations and prosecutions. If you need assistance with such a matter, please contact us today.