Arizona Mortgage Fraud Bill Almost Set
State senators are preparing to give final approval this coming week to laws designed to imprison bankers, loan officers and even home buyers who engage in mortgage fraud.
The legislation would make it a crime to deliberately make misstatements on a Arizona mortgage application that is relied on by any party in agreeing to the loan. And those who knowingly use the lies of others would be equally culpable.
Violators could be sent away for up to 2 1/2 years — and twice that long if they are engaged in a “pattern of residential mortgage fraud.”
The legislation cleared the House this past week on a 51-5 vote. But not everyone is convinced it is needed — or even a good idea. Rep. Eddie Farnsworth, R-Gilbert, said it already is illegal to commit fraud. And he said the record shows that people are being charged and convicted under those laws.
And Farnsworth, a lawyer, said creating special fraud statutes “creates a foundation and a basis for attorneys to be involved in litigation” and will lead to more civil suits.
The measure is largely aimed at the “cash-back” schemes that some sellers have used to move their homes as the residential real estate market has cooled. That involves selling the home at a specified price and then rebating part of that price to the mortgage loan applicant.
There is nothing specifically illegal about cash-back sales.
What creates the problem is when banks and mortgage companies are not told, and they lend money based on what they believe is the perceived value of the property, according to Felecia Rotellini, director of the state Department of Financial Institutions.
Sen. Jay Tibshraeny, R-Chandler, who is sponsoring the legislation, said that could lead to a rash of bad Arizona home loans and foreclosures. And that, he said, could hurt the entire state.
“It could be like the savings- and-loan scandal of the late ’80s,” he said. “It could really put your economy into a major recession.”
Farnsworth said none of that justifies a new law.
“As I’ve done the research and talked to prosecutors, there is nothing in this bill that is going to add to fraud statutes,” he said.
Tibshraeny conceded that existing fraud laws probably cover the acts that HB 2040 seeks to criminalize. But he said prosecutors told him the changes will make it easier to get convictions.
“Right now you have to sift through the statutes and say, ‘This is maybe theft’ and ‘This is maybe fraud,’ ” he said. “But this makes it real clear this is the crime.”
And Tibshraeny said lawmakers often create specific statutes to cover specific crimes rather than rely on general Criminal Code provisions. He said that’s the case with new laws on illegal immigrants.
“It’s already a (federal) crime to be here illegally,” Tibshraeny aid.
The legislation was altered in a House-Senate conference committee to ensure that innocent home buyers who simply sign documents presented to them by mortgage brokers are not caught up by the new law.
SOURCE: The Arizona Daily Star