Arizona Mortgage Fraud Attacked by New State Bill

A panel agreed Wednesday to enact laws to attack Arizona mortgage fraud, though several members questioned whether the changes will do anything at all.

According to the Arizona Daily Star, Senate Bill 1221 would spell out that it is a crime to knowingly make or use false statements that end up being used by someone in the process of getting a mortgage.

Felecia Rotellini, superintendent of the Arizona Department of Financial Institutions, said the new laws are necessary to curb some increasingly frequent patterns of mortgage fraud.

She particularly cited situations in which a buyer gives a seller more than a home is worth, with the proviso — not reported to the mortgage company — that some of that money be given back to the buyer. She said that defrauds the bank that loaned money based on the property’s perceived value.

The measure passed the Senate Commerce Committee on a 6-1 vote.

But the whole proposal did not sit well with Sen. Pamela Gorman (R-Anthem), who said that “getting cash back as a buyer doesn’t make you a criminal.”

Gorman was particularly unhappy with the penalties. A violation of the law is a class 4 felony, with a potential 2 1/2 year prison term. That is the same as the penalty for negligent homicide.

Those who engage in a pattern of fraud involving home mortgage loans could potentially be charged with class 2 felonies, the same as someone who commits manslaughter, with the possibility of five years in prison.

“We’re not going to say it’s illegal, because it already is,” she said. “We’re going to say it’s really, really illegal, which I don’t think is a useful exercise for this body.”

Rotellini conceded as much but said the new statutes would make it simpler to prosecute those who break the laws. And Rotellini, who has worked at the Attorney General’s Office, said overworked prosecutors are more likely to pursue the cases in which they are most likely to get convictions.

But Sen. Robert Blendu (R-Litchfield Park), said it appears the real reason so few people are charged is that neither Rotellini’s agency nor the Attorney General’s Office has the funds to investigate and prosecute.

“So we’re going to have another law with no resources on it,” said Blendu, who voted against the measure. “All the laws in the world mean nothing unless there’s enforcement.”

If nothing else, Blendu said, there needs to be better regulation of home appraisals, as they are generally the key to all types of fraud.

For example, one type of fraud involves a series of transactions in which the value of a home is artificially pumped up, at least as reflected in the home price.

But Rotellini said other types of fraud occur because a borrower provides incorrect information about income or a lending officer purposely inflates that income to help secure a larger home loan than the person would otherwise be eligible to get.

Rotellini said these scams have victims other than mortgage lenders. People who buy legitimately in areas filled with homes with artificially jacked-up prices not only pay more than they should but could find values plummeting when others default and lenders find out more is owed on the property than it’s worth.