deciding whether or in what circumstances to agree is fraught with
peril. On the one hand, it may be the only chance to avoid indict-
ment. On the other, if the client is indicted, the “talk” may have
deprived the client of a viable trial defense. 27
Meanwhile, counsel should prepare for possible indictment and
trial by investigating the facts, gathering evidence and exploring
defenses.
Situation No. 3: Indictment—Defenses and Strategies
Although available defenses and strategies depend on the “pesky
details”—charges, facts and applicable law—the following should
be considered in any mortgage fraud case.
First, prosecutors typically charge a “scheme to defraud” under
the mail fraud statutes. Putting distance between the client and
scheme is important as a liability defense and as mitigation for sentencing if convicted. Indeed, the relevant inquiry “is not whether
the defendant acted knowingly in making any misstatement, but
whether she did so with respect to the overarching fraudulent
scheme … charged.” 28
Similarly, a conspiracy conviction may result from the acts of a
co-schemer if the scheme makes those acts reasonably foreseeable. 29 But “foreseeability must be evaluated according to the facts
that were known to the defendant”—not what was foreseeable to
the co-schemers. 30 One may have had “such a marginal role in the
conspiracy that [they] could not reasonably have foreseen the
details of [their] co-conspirator’s actions.” 31 Thus, someone’s
involvement in a single fraudulent loan application may not make
it reasonably foreseeable that the true instigator had bigger plans,
such as doing the same thing all over town or planning a fraudulent flip after the first loan came through.
Second, just as the government is allowed to rely on circum-
stantial evidence, the defense may introduce its own circumstantial
evidence tending to negate scheme or intent—including (if rele-
vant) other transactions or the honesty of the transaction from the
perspective of someone else along the mortgage chain. 32
Third, the government’s case often relies on expert testimony
regarding the features of mortgage fraud, including the partici-
pants, the market and the loan documents. The expert witness
may give the jury a mortgage fraud blueprint into which the
defendant neatly fits. 33 Counsel should explore Daubert/Kumho34
challenges to the reliability of that expert testimony, as well as dis-
covery and cross-examination on bias35 arising from the expert’s
relationship with the government.
Fourth, the cold, hard truth is that most federal criminal cases
“I’m making out the report now. We haven’t quite
decided whether he committed suicide or died
trying to escape. ”
—CAPTAIN LOUIS RENAULT, Casablanca
result in convictions, primarily by guilty pleas. In fraud cases, punishment under the now-advisory but still applicable Sentencing
Guidelines is based in large part on the loss to the victim, which in
a mortgage fraud case must be reduced by (a) the fair market value
of the lender–victim’s collateral real estate if not sold, or by the
amount recovered if sold; and (b) any claimed interest, late fees or
penalties. 36 This can reduce one’s sentence dramatically.
Finally, mortgage fraud defense should be front-loaded. It
requires significant investigation, discovery and motion work that
cannot be accomplished before trial without maximum early
effort. Useful strategies include:
• early theory development to support requests for exculpatory
Brady material37
• aggressive Rule 17 subpoenas for documents supporting
defenses and the impeachment of government witnesses that
one cannot necessarily rely on the prosecutor to provide38
• pinning down the government’s fraud theories, including by
Motion for Bill of Particulars regarding scheme, victim and
false statements, which should circumscribe what the government can offer
at trial39
Moving Foward
Federal mortgage
fraud investigations
and prosecutions
show no signs of
slowing down. Real
estate professionals
should understand
the low threshold
of criminal liability
under the applicable charging
statutes, particularly in light of the
government’s ability to prove conspiracy with circumstantial evidence. In
addition, even an
innocent client’s
imperfect response to federal investigators can itself lead to criminal charges for false statements or obstruction of justice.
© SUNSET BOULEVARD/CORBIS
Real estate professionals can significantly reduce their criminal
liability exposure by adhering to document retention and destruction policies, having written procedures in place when government
agents show up at the door, and avoiding business transactions with
dishonest people. They also should document their compliance with
“I stick my neck
out for nobody. ”
—RICK BLAINE, Casablanca
