How is Mortgage fraud investigated?

Mortgage fraud is something that has affected quite literally everyone in the world over the past couple of decades. At an institutional level, mortgage fraud was one of the main causes behind the financial crisis of 2008. The aftermath of this colossal market collapse event was the implementation of a range of laws to limit the chances that this would ever occur again.

Despite this, mortgage fraud remains prevalent, especially on an individual level. In this article, we outline how mortgage fraud is defined, how cases of mortgage fraud are investigated, and the potential ramifications of a guilty verdict. 

 

Mortgage fraud defined

Most of the banking reforms that were implemented in the aftermath of the 2008 crisis do not apply to individuals involved in cases of mortgage fraud. On an individual level, these cases are most often dealt with under the Fraud Act 2006. 

According to the Act, someone can be found guilty of mortgage fraud if they make a dishonest and operative misrepresentation to the lending institution that is going to give them the mortgage. 

What this means is that the offender must have been both dishonest in their representation and that it must have made a tangible difference to the mortgage that they then received. 

In the context of mortgages in particular, where predatory loans were common in the build-up to the subprime mortgage crisis, there is a significant burden in terms of due diligence that is placed on the bank itself, which we’ll explore in more detail below.

 

Investigating authorities

How cases of mortgage fraud are investigated can depend somewhat on the kind of fraud, and the scale of the fraud. 

Where it involves an individual who has, for example, inflated some historical earnings to get access to a bigger mortgage to buy a personal property, the investigation may be relatively simple. If it’s just an individual, it’s possible that it will be investigated primarily by the police, although banks, HMRC and other relevant institutions may also become involved. 

If the fraud is on a larger scale, involving mortgage brokers, surveyors, solicitors and multiple cases of mortgage fraud, then it’s likely that other authorities will also become involved. These could include the Financial Conduct Authority (FCA), where there is a possibility that lenders have also breached their regulatory duties, Action Fraud, and the Serious Fraud Office (SFO). 

Larger scale investigations can end up becoming incredibly complex, the more so the more investigating authorities become involved. These kinds of mortgage fraud investigations can end up taking multiple years to close, resulting in huge fines and multiple charges.

 

What will the investigation look for?

The investigation will typically collect evidence that proves the parties involved intentionally misled their lender in order to gain access to funds that they shouldn’t have otherwise been eligible for. 

These documents could include falsified statements, contradictory records that show multiple inconsistencies between actual accounts and submitted accounts, and any communications between involved parties that prove intent. 

Collecting these documents can be incredibly complex and time-consuming, and is often why these investigations end up taking so long to complete.

 

How will an investigation start?

Financial institutions, estate agents, accountants and solicitors have a legal duty to submit a Suspicious Activity Report (or SAR) to the National Crime Agency (NCA) if they suspect that something is not quite right.

These reports are designed to flag instances of money laundering or terrorist financing, but it is possible that they can also be flagged for larger-scale instances of mortgage fraud. 

If one of these reports is submitted, or a similar alert is made, then an investigating authority will decide whether or not it’s worth starting a full-blown investigation. Should sufficient indicators be present that an investigation is worthwhile, further evidence will continue to be gathered with the end goal of charging and prosecuting the potential offenders. 

 

Potential ramifications

There are a range of serious ramifications to be aware of should you be found guilty of mortgage fraud. 

Sentencing guidelines for mortgage fraud

If you’re found guilty of fraud by false representation, fraud by failure to disclose information, or fraud by abuse of position under the Fraud Act 2006, the sentencing guidelines state that you can face a maximum sentence of 10 years in prison. 

Only those who are involved in large-scale fraud operations, where they are a leader of a larger criminal conspiracy that is highly complex and involves multiple individual mortgage frauds, will receive a sentence towards the upper end of that range.

It’s possible that individuals who carry out a single act of opportunistic fraud might face a custodial sentence, but ultimately unlikely unless it was on a large scale. It’s most likely that community service orders or fines would be used.

Recovery of funds 

While the investigation is underway, and after it has been completed, there are a range of methods that can be used by the investigating authorities and courts to recover assets gained through mortgage fraud. 

Funds are primarily recovered through the use of the Proceeds of Crime Act 2002 (or POCA), allowing the law enforcement agencies to seize a range of different assets, such as cash, houses and cars, that they believe have been acquired through criminal activity.

It’s important to note that confiscation orders do not require a criminal conviction. They can occur through civil recovery mechanisms, where the burden of proof is on the owner of the assets to prove that they were legitimately earned, not on law enforcement to prove that they were acquired through illegal activity.

Mortgage fraud is clearly treated very seriously by the legal system in this country, and those found guilty can end up facing serious legal consequences. If you believe that you may be involved in a mortgage fraud investigation, it’s vital that you seek advice from a criminal defence solicitor as soon as you can. There will be certain actions that you can take to limit your criminal exposure going forward, and the sooner you can get expert guidance, the better.