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January 23, 2007

Arizona State Senator Proposes Mortgage Fraud Legislation

On the heels of The Arizona Republic’s ground-breaking article on cash back at closing schemes, an Arizona State Senator is attempting to revise a state statute to make it a crime to misrepresent financial information when attempting to purchase a home or obtain a home mortgage. AZ State Senator Jay Tibshraeny (R, 21st Dist.) yesterday introduced Senate Bill 1221, which states:

A. A person commits residential mortgage fraud if, with the intent to defraud, the person does any of the following:

  1. Knowingly makes any deliberate misstatement, misrepresentation or omission during the mortgage lending process that is relied on by a mortgage lender, borrower or other party to the mortgage lending process.
  2. Knowingly uses or facilitates the use of any deliberate misstatement, misrepresentation or omission during the mortgage lending process that is relied on by a mortgage lender, borrower or other party to the mortgage lending process.
  3. Receives any proceeds or other monies in connection with a residential mortgage that the person knows resulted from a violation of paragraph 1 or 2 of this subsection.
  4. Files or causes to be filed with the office of the county recorder of any county of this state any residential mortgage loan document that the person knows to contain a deliberate misstatement, misrepresentation or omission.

B. An offense involving residential mortgage fraud shall not be based solely on information that is lawfully disclosed under federal disclosure laws, regulations and interpretations related to the mortgage lending process.

C. A person who violates this section is guilty of a class 4 felony, except that a person who engages or participates in a pattern of residential mortgage fraud or who conspires to engage or participate in a pattern of residential mortgage fraud is guilty of a class 2 felony.

D. For the purposes of this section:

  1. “Mortgage lending process” means the process through which a person seeks or obtains a residential mortgage loan including solicitation, application, origination, negotiation of terms, third-party provider services, underwriting, signing, closing and funding of the loan.
  2. “Pattern of residential mortgage fraud” means one or more misstatements, misrepresentations or omissions that are made during the mortgage lending process, that involve two or more residential properties and that have the same or similar intents, results, accomplices, victims or methods of commission or are otherwise interrelated by distinguishing characteristics.
  3. “Residential mortgage loan” means 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 representing a security interest or lien on any interest in one-to-four family residential property and includes the renewal or refinancing of any loan.

So, what does all of this mean? According to the Arizona Daily Star:

Just a single offense could result in a 2 1/2 year prison term. And those who are involved in multiple schemes potentially face five years behind bars.

Felecia Rotellini, superintendent of the state Department of Financial Institutions, acknowledged there already are both criminal and civil laws designed to go after those who commit fraud. And she said her agency already has managed to convict people involved in such schemes. But Rotellini said SB 1221 likely would make prosecutions easier. Potentially more significant, Rotellini said this law spells out that homebuyers involved in these kinds of frauds are equally culpable — and can be equally punished. “It will help to cover the gamut of players,” she said.

Rotellini goes on to tell the Daily Star that while her agency has broad powers over both mortgage bankers and mortgage brokers, she has no authority over home buyers, who in many cases may be the primary perpetrators of real estate fraud:

“In fact the buyer in these cash-back schemes is the primary perpetrator,” Rotellini said. “They’re the one that’s getting the loan that’s been misrepresenting the value of the property or other aspects of it.” If nothing else, Rotellini said she believes having a specific law on the books making mortgage fraud a crime will act as a deterrent. “Maybe that’s wishful thinking,” she said. But Rotellini said a new statute — and the stiff penalties — might convince would-be schemers to reconsider.

Posted By: Ralph Roberts @ 12:41 am | | Comments Off | Trackback |
Filed under: Arizona,Legislation,Mortgage Fraud