Mortgage Fraud and Other Crimes Involving Security Interests
If you’re already familiar with the legal concept of fraud, it should come as no surprise that obtaining something like a mortgage fraudulently is a crime. This is because fraud is not something done by mistake, but is an act of intentional wrongful or criminal deception to enrich oneself, often at the expense of others.
“Security interests” fraud can be a bit confusing for a lot of people, as it is an area of the law that you would not get involved with unless you plan on getting a loan for a property. A “security interest” is a legal right granted by a debtor, such as a lending bank, to a creditor, such as a person taking a mortgage, over the debtor’s property. This right allows the creditor to have recourse to the property if the debtor defaults in making payment or otherwise performing the secured obligations. Essentially, a security interest is an agreement that if you take a loan like a mortgage and do not pay on it, the lender has some rights to take your property.
While there are many circumstances where people may fail to pay off their mortgage or other securities in a timely manner, failure you to do for honest reasons is not a crime, only fraud is. While fraud requires intent, defending yourself is not as easy as just saying you did not intend to defraud others. If you are facing charges for mortgage or security interests fraud, you will need an experienced white collar lawyer. The lawyers at Polk Law have many years of experience handling such cases on a state and federal level, and know the tactics prosecution uses against defendants in white collar cases.
What is a Security Agreement in North Carolina?
A security interest requires a legally binding agreement to be made in relation to the debtor, creditor, and property. If you apply for something like a mortgage from a lending institution, it’s essentially a guarantee that you will sign complex legal documents that create such agreement. The laws in North Carolina are not all that specific about what a security agreement looks like, defining one as:
an agreement that creates and provides for a security interest.
Security interests are specifically defined in North Carolina as:
an interest in personal property or fixtures which secures payment or performance of an obligation.
This law does not define “personal property”, but this can refer to money, goods, chattel, or any other thing capable of ownership but not descendable to heirs. This is somewhat of a departure from other ways of defining security interests, as “personal property” is different from “real property”, which refers to lands and buildings built on them. Ultimately all this distinction means is that mortgage fraud is treated as a somewhat separate crime from other security interests fraud.
Security Interests Crimes
With the exception of residential mortgage fraud, security interests fraud crimes are class 2 misdemeanors. There are four key ways to be guilty of such security interests fraud.
Fraudulent Disposal of a Security
A person is guilty of this crime when they:
- Enter into a security agreement on personal property for lawful purposes,
- Transfer control of the property while the agreement is in force,
- with the intent to defeat the rights of the secured (i.e. lending) party.
Essentially, if you try to give the property to somebody else or give it up in an effort to break out of the security agreement and interfere with the creditor’s rights to the property, you will be guilty of this crime.
Fraudulent Purchase of a Security
A person is guilty of this crime when they:
- buy personal property subject to a security agreement,
- knowing that the security agreement is in force,
- with the intent to defeat the rights of the secured party.
The law is not too specific about when this could happen, but it can refer to trying to enter into such an agreement on false pretenses with the intent to cheat your way out of the lender’s rights.
Fraudulent Filings
A person is guilty of this crime when they:
- present a record for filing under the Uniform Commercial Code (UCC),
- knowing that the record is not related to a valid security interest agreement, or with the intent that the record be filed for an improper purpose.
The UCC is a set of laws government commercial transactions in the United States, and is “uniform” because while it is not a federal law, the same law has been adopted in all states. The UCC allows creditors to notify other creditors about a debtor’s assets. Generally, this allows such groups to be protected from lending to a debtor who already carries too many other debts. Therefore, this crime punishes people for knowingly or intentionally making false filings under the UCC.
Secreting Property to Hinder Enforcement of Security Interests
A person is guilty of this crime if they:
- Remove, exchange or “secretes” personal property with a security interest, or refuses to surrender the property to law enforcement,
- after a judgement or order for possession has been issued for that personal property,
- with the intent to prevent or hinder the enforcement of the lien or security interest.
Essentially, if a person knows their property is being ordered for possession and attempts to transfer it in some way to dodge possession, they will be guilty of this crime.
Residential Mortgage Fraud
For most people, the issue of security interests will be most relevant when it comes to a mortgage for a residential property. Mortgages involve complicated documents with many components that secure the lender in the event that the borrower fails to pay their mortgage or attempts to thwart anything in the agreement, such as through fraud.
A person is guilty of residential mortgage fraud when they, with the intent to defraud and for financial gain:
- Knowingly make or attempt to make a misrepresentation on omission during the mortgage lending process, with the intent that the entity involved in facilitating the process will rely on such misinformation, or
- Receives or attempts to receive funds in connection with conduct described above.
A violation involving a single mortgage loan is a class H felony. If there is a pattern of violations, it is punished as a class E felony. Such “pattern” means that the fraud involves five or more mortgage loans with similar intents, results, accomplices, victims, or methods.