Residential Mortgage Fraud

Mortgage Fraud, what you need to know.

With the Arizona housing market making a recovery, potential home buyers need to be aware of pitfalls regarding mortgage fraud and real estate. Residential mortgage fraud is governed by Arizona Revised Statute § 13-2320. Although the purpose if this article is not to discuss criminal implications of mortgage fraud, a brief definition may be helpful. Generally, a person commits mortgage fraud if they make deliberate misstatements or material omissions during the mortgage lending process that is relied on by a mortgage lender, borrower or other party to the mortgage lending process. Again, this is only an overview and not intended to cover all aspects of what is or is not considered mortgage fraud.

In general, fraud must include at least one person committing an act and at least one other person relying on that act to complete the transaction. There could be more than two parties involved depending on the details. Fraud can either be prosecuted at the Federal level or State level depending on the circumstances of a case. Moreover, fraud can be perpetrated by different parties to a transaction including the buyer, seller or lender.

In addition to criminal penalties, there can also be civil liability for fraud. Arizona Revised Statute §33-420 allows a claim for damages for recording documents that are forged, groundless, contain a material misstatement or a false claim or are otherwise invalid. In addition to this statute there may also be liability for breach of contract, breach of fiduciary duties or breach of the implied duty of good faith and fair dealing among others. All of these claims provide for monetary relief to a victim of a fraudulent transaction. However, often times those perpetrating the fraud don’t have much to collect from, because of this it’s important to make sure the transaction is on the up and up before it’s completed. Taking steps ahead of time may be more costly and time consuming then skipping them, but it is very small relative to the time and expense it costs to fix them once the transaction is complete. This is especially true when dealing with larger transactions.

A recent example right here in Arizona is the case of Zavier Kay Hafiz. Hafiz was charged after an investigation revealed his companies made fraudulent transaction on nearly 40 valley properties. Hafiz preyed on “generally unsophisticated real estate buyers” selling property he fraudulently represented, had clear title or was otherwise unencumbered. However, Hafiz would not transfer title as required and make other encumbrances after the transaction. In other cases the borrower made payments on their mortgage to Hafiz while Hafiz himself failed to make payments to the mortgage holder on the property, causing the actual mortgage holder to institute foreclosure proceedings. On May 7, 2015 Hafiz plead guilty to fraudulent schemes and artifices. He was sentenced to six years in prison and ordered to pay over $3,000,000 in restitution.

Although it can be difficult to spot, there are means to protect yourself from fraud, including obtaining a condition of title report, conducting a background search of other parties or having a competent attorney assist with your transaction. While this article discusses some basic scenarios regarding fraud, it is not intended to be exhaustive. There are many different scenarios and issues that may arise, especially dealing with criminal or civil liability, and an ounce of prevention is worth a pound of cure. Because these issues can be complex, subtle and often times difficult to spot, it is best to speak with a knowledgeable attorney when contemplating engaging in a real estate transaction. Platt & Westby has offices in Phoenix, Arrowhead, Avondale, Scottsdale and Gilbert Arizona.  If you are interested in discussing a potential real estate transactions, contact our office by calling 602-277-4441 or for a free consultation with one of our experienced attorneys.