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2008 Mortgage Fraud Legislation

Last Updated: June 11, 2008

Enactments are noted in italics

NCSL Staff Contact: Heather Morton, (303) 364-7700, Denver

State:	Bill Summary:
Alabama	H.B. 643 Indefinitely postponed 5/6/08 Establishes the Alabama Mortgage Act; provides for the licensing of mortgage lenders, mortgage brokers, mortgage servicers, mortgage processors, loan originators, and loan processors by the state Banking Department; provides for bonding requirements and fees; provides for certain exemptions; requires annual reporting and license displays; prohibits certain acts by licensees; requires certain records and a loan register to be maintained by a licensee; requires that licensees establish escrow accounts; establishes procedures for the revocation, suspension, or denial of a license and provides for due process; provides for a cease and desist order and the assessment of civil penalties by the department; creates the offense of residential mortgage fraud; and provides for criminal penalties for willful violations.
	S.B. 644 Establishes the Alabama Mortgage Act; provides for the licensing of mortgage lenders, mortgage brokers, mortgage servicers, mortgage processors, loan originators, and loan processors by the state Banking Department; provides for bonding requirements and fees; provides for certain exemptions; requires annual reporting and license displays; prohibits certain acts by licensees; requires certain records and a loan register to be maintained by a licensee; requires that licensees establish escrow accounts; establishes procedures for the revocation, suspension, or denial of a license and provides for due process; provides for a cease and desist order and the assessment of civil penalties by the department; and provides for criminal penalties for willful violations.
Arizona	H.B. 2347 Creates a mortgage loan fraud prosecution fund.
	S.B. 1296 Creates a mortgage loan fraud prosecution fund.
Florida	H.B. 743 Signed by governor 5/28/08, Chapter 80 Requires law enforcement agencies to notify property appraisers of incidents of mortgage fraud; authorizes property appraisers to adjust property assessments; requires property appraisers to reassess specified properties; provides increased penalty for specified types of mortgage fraud.
	S.B. 1116 Substituted 4/28/08 Requires law enforcement agencies to notify property appraisers of incidents of mortgage fraud. Authorizes property appraisers to reconsider property assessments under certain circumstances. Increases penalties for certain types of mortgage fraud.
Georgia	H.B. 1413 Relates to residential mortgage fraud, so as to modify certain provisions relating to the offense of residential mortgage fraud; provides for legislative intent; provides for definitions; includes in the criminal offense of residential mortgage fraud an act of fraud committed upon homeowners during or threatened with foreclosure.
Indiana	H.B. 1211 Requires various state agencies to form the mortgage lending and fraud prevention task force to coordinate the state's efforts to: (1) regulate the various participants involved in originating, issuing, and closing home loans; (2) enforce state laws and rules concerning mortgage lending practices and mortgage fraud; and (3) prevent fraudulent practices in the home loan industry and investigate and prosecute cases involving mortgage fraud.
	H.B. 1359 Signed by governor 3/24/08, Public Law 145 Requires the homeowner protection unit (unit) in the attorney general's office to: (1) establish a new toll free telephone number; or (2) designate an existing toll free telephone number; to receive calls from persons having information about suspected fraudulent residential real estate transactions. Unless otherwise prohibited by law, requires the unit to share information reported by callers with appropriate law enforcement and regulatory agencies not later than 15 business days after the unit determines the appropriate entity to which the information should be referred. Requires various state agencies to form the mortgage lending and fraud prevention task force to coordinate the state's efforts to: (1) regulate the various participants involved in originating, issuing, and closing home loans; (2) enforce state laws and rules concerning mortgage lending practices and mortgage fraud; and (3) prevent fraudulent practices in the home loan industry.
	H.B. 1360 Passed House 1/30/08 Requires the homeowner protection unit (unit) within the attorney general's office to establish a toll free telephone number to receive calls from persons having information about suspected fraudulent transactions and practices concerning residential real estate transactions. Requires the unit to share information reported by callers to the telephone number with appropriate law enforcement and regulatory agencies. Requires various state agencies to form the mortgage lending and fraud prevention task force to coordinate the state's efforts to: (1) regulate the various participants involved in originating, issuing, and closing home loans; (2) enforce state laws and rules concerning mortgage lending practices and mortgage fraud; and (3) prevent fraudulent practices in the home loan industry and investigate and prosecute cases involving mortgage fraud.
	S.B. 89 Passed Senate 1/24/08 Requires the homeowner protection unit (unit) within the attorney general's office to establish a toll free telephone number to receive calls from persons having information about suspected fraudulent transactions and practices concerning residential real estate transactions. Requires the unit to share information reported by callers to the telephone number with appropriate law enforcement and regulatory agencies. Requires various state agencies to form the mortgage lending and fraud prevention task force to coordinate the state's efforts to: (1) regulate the various participants involved in originating, issuing, and closing home loans; (2) enforce state laws and rules concerning mortgage lending practices and mortgage fraud; and (3) prevent fraudulent practices in the home loan industry and investigate and prosecute cases involving mortgage fraud.
Iowa	H.S.B. 594 Creates the homeowners' consumer protection fund, provides for the assessment of a surcharge, and makes an appropriation. The bill provides that a surcharge of $5 shall be collected by the county recorder at the time of recording a mortgage or deed of trust in addition to any other fees required by law. Moneys collected shall be transferred monthly to the treasurer of state for deposit in the homeowners' consumer protection fund created in the bill except that the county recorder may retain up to one percent of the funds collected as necessary to administer collection of the surcharge. The surcharge shall not apply to an assignment or substitution of a previously recorded mortgage or deed of trust. The bill creates the homeowners' consumer protection fund as a separate fund in the state treasury to be administered by the attorney general for purposes of the investigation and prosecution of, and consumer education about, frauds relating to mortgage lending. The fund shall consist of moneys collected by the county recorder from the surcharge imposed pursuant to the bill except to the extent that such moneys are permitted to be used for administration of the fund. Notwithstanding Code §8.33, moneys credited to the fund from any source shall not revert to any other fund. Notwithstanding Code §12C.7, interest or earnings on the moneys in the fund shall be credited to the fund. Moneys available in the fund for a fiscal year are appropriated to the department of justice to be used for the purposes of the fund.
	S.S.B. 3107 Creates the homeowners' consumer protection fund, provides for the assessment of a surcharge, and makes an appropriation. The bill provides that a surcharge of $5 shall be collected by the county recorder at the time of recording a mortgage or deed of trust in addition to any other fees required by law. Moneys collected shall be transferred monthly to the treasurer of state for deposit in the homeowners' consumer protection fund created in the bill except that the county recorder may retain up to one percent of the funds collected as necessary to administer collection of the surcharge. The surcharge shall not apply to an assignment or substitution of a previously recorded mortgage or deed of trust. The bill creates the homeowners' consumer protection fund as a separate fund in the state treasury to be administered by the attorney general for purposes of the investigation and prosecution of, and consumer education about, frauds relating to mortgage lending. The fund shall consist of moneys collected by the county recorder from the surcharge imposed pursuant to the bill except to the extent that such moneys are permitted to be used for administration of the fund. Notwithstanding Code §8.33, moneys credited to the fund from any source shall not revert to any other fund. Notwithstanding Code §12C.7, interest or earnings on the moneys in the fund shall be credited to the fund. Moneys available in the fund for a fiscal year are appropriated to the department of justice to be used for the purposes of the fund.
Kentucky	H.B. 552 Signed by governor 4/24/08, Chapter 175 Amends KRS 286.8-990 to create the Kentucky Residential Mortgage Fraud Act; increases fines that may be imposed by courts for violations of this subtitle; amends KRS 286.8-060 to require surety bonds to be payable to the executive director and provides that bonds shall be available for recovery of expenses, fines, and fees levied by the executive director and for losses and damages; creates new sections of Subtitle 8 of KRS Chapter 286 to create the mortgage lending fraud prosecution account; allows expenditures from the fund for criminal prosecution of fraudulent activities within the residential mortgage lending process.
Louisiana	S.B. 191 Provides for the crime of residential mortgage fraud; provides for the elements of such crime; provides for definitions; provides for penalties.
Maryland	H.B. 360 Signed by governor 4/3/08, Chapter 4 S.B. 217 Signed by governor 4/3/08, Chapter 3 Prohibits a person from committing mortgage fraud; authorizes the attorney general or the commissioner of Financial Regulation to seek an injunction to prohibit a violation of the Act; authorizes the attorney general and the state's attorney to conduct the criminal investigation and prosecution of mortgage fraud under the Act; authorizes a private right of action for a violation of the Act; imposes specified penalties for a violation of the Act.
Massachusetts	S.B. 2299 Passed Senate 7/26/07 Provides that no mortgagee shall make a subprime loan at a variable or adjustable rate of interest unless the mortgagor opts in writing for the variable or adjustable rate subprime loan and receives certification of loan counseling with a qualified third party; creates a centralized statewide foreclosure database of foreclosure activity to monitor and analyze foreclosures and foreclosure patterns at the Division of Banks; regulates licensing of mortgage loan originators and background investigation fees; criminalizes mortgage fraud in the Commonwealth.
Michigan	H.B. 4409 Prohibits residential mortgage fraud.
	H.B. 4410 Enacts sentencing guidelines for the crime of residential mortgage fraud.
	H.B. 4411 Prohibits residential mortgage fraud.
Missouri	H.B. 1667 Establishes the Missouri Homeowners' Protection Act relating to residential mortgage brokers. In its main provisions, the bill: (1) Defines "creditor," "flipping a home loan," "fully indexed rate," "points and fees," "subprime loan," and "total loan amount"; (2) Prohibits a mortgage broker from: (a) Engaging in the unfair act of flipping a home loan; (b) Issuing a home loan without verifying the borrower's reasonable ability to pay; (c) Charging a fee when a subprime loan is prepaid in whole or part; (d) Making false, deceptive, or misleading statements, advertisements, or marketing materials; (e) Issuing a residential mortgage loan to be used for paying all or part of a special mortgage unless the borrower has obtained written certification from an authorized independent loan counselor on the advisability of the loan transaction; (f) Charging points or fees exceeding five percent of the total loan amount; and (g) Financing credit life, disability, unemployment, property insurance, or any other life or health insurance premiums through a home loan; (3) Requires the mortgage broker to inform the borrower when the periodic payment amount for a loan does not include property taxes or hazard insurance; (4) Requires mortgage brokers to act in the borrower's best interest, to carry out lawful instructions of the borrower, and to disclose material facts that could adversely affect the borrower; (5) Allows a borrower to a private right of action for damages caused by a mortgage broker; and (6) Specifies that the crime of residential mortgage fraud will be a class D felony.
	H.B. 2188 Sent to governor 5/29/08 Creates civil and criminal penalties for mortgage fraud and imposes sanctions upon certain licensed professionals and unlicensed individuals who commit the crime.
	S.B. 727 Criminalizes the act of committing residential mortgage fraud with the intent to defraud. An individual commits the crime by engaging in the following practices: (i) Knowingly making a misrepresentation or omission during the mortgage lending process. (ii) Knowingly using or facilitating the use of a misrepresentation or omission during the mortgage lending process. (iii) Reaping any benefit from the making, using, or facilitating the use of such misrepresentation or omission. (iv) Filing or causing to be filed any document in connection with a mortgage containing a deliberate misstatement, misrepresentation, or omission. Those in violation are guilty of a class D felony. Those who engage in a pattern of this type of fraud are guilty of a class B felony.
	S.B. 1059 Passed Senate 3/13/08 This act creates civil and criminal penalties for mortgage fraud and imposes sanctions upon certain licensed professionals and unlicensed individuals who commit the crime. Under the act, it is unlawful for a person, in connection with the application for or procurement of a loan secured by real estate to willfully: (i) Employ a device, scheme, or artifice to defraud; (ii) Make an untrue statement of a material fact or to omit to state a material fact necessary in order to make the statement made, in the light of the circumstances under which it is made, not misleading; or (iii) Receive any portion of the purchase, sale, or loan proceeds, or any other consideration paid or generated in connection with a real estate closing that such person knew involved a violation of this section. (iv) Influence appraisals in certain circumstances. Such acts constitute a Class C felony. Licensed real estate brokers and salespersons may be brought before the Administrative Hearing Commission and lose their license for committing mortgage fraud. Licensees who are criminally convicted of mortgage fraud will automatically have their license revoked. The Missouri Real Estate Commission may maintain an action in circuit court for anyone engaging in mortgage fraud and violators shall be subject to a civil penalty of $2,500 per violation. Licensed real estate appraisers may also be brought before the Administrative Hearing Commission and lose their license for committing mortgage fraud. Licensees who are criminally convicted of mortgage fraud will automatically have their license revoked. These licensees may appeal the decision to the Administrative Hearing Commission. The Missouri Real Estate Appraisers Commission may maintain an action in circuit court for anyone engaging in mortgage fraud and violators shall be subject to a civil penalty of $2,500 per violation. The director of the Division of Finance shall have the authority to investigate the records of any licensed residential mortgage broker. The director or the Residential Mortgage Board may also assess a civil penalty of up to $5,000 for any violation of the law under the jurisdiction of the commission in a contested case. The director is allowed to issue a notice of charges in support of an order to remove persons from participating in loan brokering, mortgage brokering, or mortgage brokerage service for any loan secured by real estate under the laws pertaining to residential mortgage brokers or otherwise under the jurisdiction of the director of the Division of Finance. The director may require restitution and impose a civil penalty not to exceed $5,000 per occurrence.
New Jersey	A.B. 2679 This bill, the “Truth in Mortgaging Act,” creates the crime of residential mortgage fraud. Under the terms of the bill, a person is guilty of the crime of residential mortgage fraud when, with the intent to defraud, that person knowingly makes, or causes to be made, any false, fictitious, fraudulent or misleading statement of material fact in, or omits a material fact from, or causes a material fact to be omitted from, any record or other document, in writing, electronically, orally or in any other form, during the mortgage lending process, with the intention that it be relied on by a mortgage lender, borrower or any other party to the mortgage lending process, or knowingly uses or facilitates the use of any such misleading statement or omission. A "material fact" includes but is not limited to: (1) any fact relating to the value of the real property that provides the collateral to secure the repayment of a residential mortgage loan; and (2) any fact relating to the current or expected income, financial obligations, or employment of a person who seeks or obtains a residential mortgage loan, relevant to the person’s ability to repay the loan. This bill provides that a person who commits the offense of residential mortgage fraud is guilty of a crime of the third degree and subject to imprisonment for a term of three to five years and to a fine not to exceed $15,000, or both. The bill also provides that a person who engages in a pattern of residential mortgage fraud is guilty of a crime of the second degree and subject to imprisonment for a term of five to 10 years and to a fine not to exceed $150,000, or both. Each residential property transaction subject to the act shall constitute a separate offense and shall not merge with other crimes. In addition, where an assignment judge determines that the infraction is de minimus, the assignment judge may dismiss the prosecution of residential mortgage fraud. In order to facilitate uniform enforcement, the bill directs the attorney general to develop prosecution guidelines for dissemination to each of the county prosecutors within 180 days of the effective date of the act.
	S.B. 57 Creates the crime of residential mortgage fraud. This bill provides that a person who commits the offense of residential mortgage fraud is guilty of a crime of the third degree and subject to imprisonment for a term of three to five years and to a fine not to exceed $15,000, or both. The bill also provides that a person who engages in a pattern of mortgage fraud is guilty of a crime of the second degree and subject to imprisonment for a term of five to 10 years and to a fine not to exceed $150,000, or both. Each residential property transaction subject to the act shall constitute a separate offense and shall not merge with other crimes. In addition, where an assignment judge determines that the infraction is de minimus, the assignment judge may dismiss the prosecution of mortgage fraud. In order to facilitate uniform enforcement, the bill directs the attorney general to develop prosecution guidelines for dissemination to each of the county prosecutors within 180 days of the effective date of the act.
New York	A.B. 10817 S.B. 8143 Requires lender and mortgage loan servicers to give borrowers with high-cost home loans or higher-priced home loans notice before certain actions are taken; establishes all home loans shall be subject to certain standards and limitations; creates the crimes of residential mortgage fraud in the first, second, third, fourth and fifth degrees; relates to distressed property consulting contracts.
	S.B. 2746 Relates to unauthorized entities, unregistered mortgage brokers and mortgage fraud; establishes additional penalties against unlicensed or unregistered persons or entities engaging in activities after receiving a cease and desist notice; further establishes the crime of mortgage fraud in the first and second degree.
Pennsylvania	H.B. 2037 Provides for damages for misrepresentation of home loan principal, outstanding balance or interest.
South Carolina	S.B. 924 Enacts the "South Carolina mortgage lending act", by adding chapter 22 to title 37 so as to require the licensing of a mortgage lender, loan officer, limited loan officer, or someone acting as a mortgage lender; provides definitions; establishes qualifications for licensure and grounds for revocation, suspension, renewal, and termination; describes prohibited activities; provides for record-keeping, trust and escrow accounts, and annual reports; provides for the felony offense of mortgage fraud and penalties; provides for enforcement otherwise through the department of consumer affairs and through criminal penalties; amends chapter 58 of title 40, relating to the registration of mortgage loan brokers, so as to change the registration requirements to licensing requirements, to redefine "mortgage broker", "exempt organization", "residential real property", inter alia, and to add new definitions, including "branch office", "pattern of residential mortgage fraud", "tablefunding", and others; requires certain professional courses, an additional year of experience, and a fingerprint check for mortgage brokers and mortgage originators; requires certain records be kept and made accessible; adds certain prohibitions in connection with a real estate appraisal; requires and prescribes mortgage broker agreements; authorizes enforcement by the department of consumer affairs, and prescribes administrative penalties including fines and injunctions and criminal penalties; requires certain reports and filings; and provide for the felony offense of mortgage fraud and penalties; amends §§37-1-301, 37-3-501, and 37-23-20, all relating to definitions in connection with mortgage lending and brokering and high-cost and consumer home loans, so as to conform definitions, and to add a definition for "adjustable rate mortgage"; amends §37-23-45 and §37-23-75, both relating to disclosure to the borrower, so as to require certain disclosures in connection with an adjustable rate mortgage.
	S.B. 1090 Passed Senate 4/29/08 Enacts "the South Carolina mortgage lending act", by adding chapter 22 to title 37 so as to require the licensing of a mortgage lender, loan officer, limited loan officer, or someone acting as a mortgage lender; provide definitions; establishes qualifications for licensure and grounds for revocation, suspension, renewal, and termination; describes prohibited activities; provides for record-keeping, trust and escrow accounts, and annual reports; provides for the felony offense of mortgage fraud and penalties; provides for enforcement otherwise through the department of consumer affairs and through criminal penalties; amends §§37-1-301, 37-3-501, and  37-23-20, all relating to definitions in connection with mortgage lending and brokering and high-cost and consumer home loans, so as to conform definitions, and to add a definition for "adjustable rate mortgage"; amends §§37-23-40, 37-23-45, and 37-23-75, all relating to protections for the borrower in a high-cost or consumer home loan transaction, so as to require certain disclosures in connection with an adjustable rate mortgage; and amends chapter 58 of title 40, relating to the registration of mortgage loan brokers, so as to change the registration requirements to licensing requirements, to redefine "mortgage broker", "exempt organization", "residential real property", inter alia, and to add new definitions, including "branch office", "pattern of residential mortgage fraud", "tablefunding", and others; requires certain professional courses, an additional year of experience, and a fingerprint check for mortgage brokers and mortgage originators; requires certain records be kept and made accessible; adds certain prohibitions in connection with a real estate appraisal; requires and prescribes mortgage broker agreements; authorizes enforcement by the department of consumer affairs, and prescribes administrative penalties including fines and injunctions and criminal penalties; requires certain reports and filings; and provides for the felony offense of mortgage fraud and penalties.
Utah	H.B. 233 Enacting clause struck 3/5/08 Directs the attorney general to employ a real estate fraud prosecutor and two investigators; enacts the Real Estate Fraud Act, including: creating the crime of real estate fraud; and establishing penalties; and includes real estate fraud as an illegal activity under the Pattern of Illegal Activity Act.
	S.B. 134 Signed by governor 3/19/08, Chapter 370 Establishes penalties for certain conduct governed by the Real Estate Appraiser Licensing and Certification Act and the Utah Residential Mortgage Practices Act; requires the attorney general to hire a mortgage fraud prosecutor; enacts the Mortgage Fraud Act, including: creating the crime of mortgage fraud; establishing penalties; and providing definitions; and includes mortgage fraud as an illegal activity under the Pattern of Illegal Activity Act.
Virginia	S.B. 258 Prohibits any (i) mortgage lender or broker, (ii) person required to be licensed under the Mortgage Lender and Broker Act, and (iii) person exempt from the licensing requirements of the Mortgage Lender and Broker Act, other than a state or federally chartered bank, savings institution, or chartered credit union, or person making, providing, or arranging a mortgage loan originated or purchased by an agency of the Commonwealth or a locality, from arranging special mortgages unless the borrower has obtained a written certification from an authorized independent loan counselor on the advisability of the loan transaction. A special mortgage is a residential mortgage loan originated, subsidized, or guaranteed by or through an agency of the Commonwealth, a locality, or a nonprofit organization that has one or more nonstandard payment terms which substantially benefit the borrower. Such persons are also prohibited from (a) entering into subprime loans containing a provision requiring or permitting the imposition of a prepayment penalty or charge in the event the loan is prepaid and (b) making, providing, or arranging for a residential mortgage loan, other than a reverse mortgage, if the borrower's compliance with any repayment option will result in negative amortization during any six-month period. The measure expressly gives borrowers a private cause of action, in which they may seek recovery of damages, statutory damages equal to the amount of all lender fees included in the amount of the principal of the mortgage loan, punitive damages, costs, and reasonable attorney fees. Finally, the measure makes it unlawful to knowingly make or cause to be made any deliberate and material misstatement, misrepresentation, or omission during the mortgage lending process with the intention that it be relied on by a mortgage lender, borrower, or any other party to the mortgage lending process; to knowingly use or facilitate the use of any deliberate and material misstatement, misrepresentation, or omission, knowing the same to contain a material misstatement, misrepresentation, or omission, during the mortgage lending process with the intention that it be relied on by a mortgage lender, borrower, or any other party to the mortgage lending process. Violations are to be punishable as a Class 1 misdemeanor or, if a financial loss of greater than $200 results, a Class 6 felony. Second or subsequent convictions are punishable as a Class 6 felony. Violators shall also be required to pay restitution.
Washington	H.B. 2770 Signed by governor 3/21/08, Chapter 108 Provides that a residential mortgage loan may not be made unless a disclosure summary of all material terms is placed on a separate sheet of paper and has been provided by a financial institution to the borrower. Declares that a financial institution may not make or facilitate the origination of a residential mortgage loan that includes a prepayment penalty or that imposes negative amortization under certain circumstances. Provides that certain acts and omissions by any person in connection with making, brokering, or obtaining a residential mortgage loan are unlawful.
	S.B. 6728 Passed Senate 2/6/08 Finds that this act is necessary to encourage responsible lending, protect borrowers, and preserve access to credit in the residential real estate lending market. Requires that a residential mortgage loan may not be made unless a disclosure summary of all material terms is placed on a separate sheet of paper and has been provided by a financial institution to the borrower within three business days following receipt of a loan application. Requires that the department of financial institutions shall apply the interagency guidance on nontraditional mortgage product risks and the statement on subprime mortgage lending to financial institutions. Declares that a financial institution may not make or facilitate a residential mortgage loan that includes certain provisions. Prescribes penalties for unlawful activities related to making, brokering, or obtaining a residential mortgage loan.

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