The Foreclosure Crisis: Don’t Believe Everything You Read

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Legal pressure is mounting against the firms involved in the nationwide foreclosure crisis. In the wake of reports that possibly fraudulent court documents were used to fast-track home foreclosures, a federal Financial Fraud Enforcement Task Force is investigating possible criminal violations committed by banks and mortgage companies.

We need to ask: What laws are available to prosecutors? After all, people can do plenty of things that are unethical, slipshod, or sleazy — but not criminal. After reviewing the deluge of news reports on this issue in the last few weeks, we strongly caution against rushing to judgment based solely on news accounts.

It turns out that prosecutors have a few options. First, federal prosecutors may pursue fraud charges if there is evidence of systematic action designed to improperly speed up the foreclosure process at the expense of the defaulting homeowners. Since there is no federal criminal law against mortgage fraud as such, federal prosecutors will probably look at the mail fraud, wire fraud, and bank fraud statutes. These laws prohibit schemes to defraud or obtain money or property by false or fraudulent representations and carry up to a 30-year prison term.

In cases of this sort, prosecutors must show that the companies intended to defraud someone and that the representation was material. They don’t have to show that the fraud was successful and actually harmed someone. It seems to us that some companies will be hard-pressed to argue that procedures like foreclosure mills and robo-signers weren’t designed to improperly speed up the foreclosure process. But it’s not clear that criminal acts were involved.

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