Senate Bill 250 (S-1)
Currently, false pretenses involving $20,000 or more, or $1,000 to $20,000 with prior convictions, is a Class D felony against property with a 10-year statutory maximum. Under the bill, false pretenses involving $20,000 or more but less than $50,000, or $1,000 or more but less than $20,000 with prior convictions, would be a Class C felony against property with a statutory maximum of 15 years.
False pretenses involving $50,000 or more but less than $100,000, or $20,000 or more but less than $50,000 with prior convictions, also would be a Class C felony against property with a 15-year statutory maximum.
False pretenses involving $100,000 or more, or $50,000 or more but less than $100,000 with prior convictions, would be a Class B felony against property with a 20-year statutory maximum.
Senate Bill 251
Under the Code of Criminal Procedure, except as provided for specific offenses, the statute of limitations for a crime is six years after the offense is committed.
The bill would provide for a 10-year statute of limitations for false pretenses involving real property, mortgage fraud, or forgery or uttering and publishing of an instrument affecting an interest in real property.
Specifically, an indictment for one of those offenses could be found and filed within 10 years after the offense was committed or within 10 years after the instrument affecting real property was recorded, whichever occurred later.
Senate Bill 252 (S-3)
Currently, except as provided for a person who performs a notarial act after his or her commission has been revoked, or as otherwise provided by law, a violation of the Michigan Notary Public Act is a misdemeanor punishable by a maximum fine of $5,000 and/or imprisonment for up to one year. A person who performs a notarial act after his or her commission has been revoked is guilty of a felony punishable by a maximum fine of $3,000, imprisonment for up to five years, or both.
Under the bill, if a person knowingly violated the Act when notarizing any document relating to an interest in real property or a mortgage transaction, he or she would be guilty of a felony punishable by a maximum fine of $5,000, imprisonment for up to four years, or both.
Senate Bill 253 (S-1)
Under the bill, a violation of the Michigan Notary Public Act involving conveyance of an interest in real property would be a Class F felony against the public trust with a four-year statutory maximum. Performing notarial acts while a notary public commission was revoked would be a Class E felony against the public trust with a statutory maximum of five years.
Proposed MCL 750.219d (S.B. 43)
MCL 777.16l (S.B. 44 & 250)
750.218 (S.B. 249)
767.24 (S.B. 251)
55.309 (S.B. 252)
777.11c (S.B. 253)
The FBI's Financial Crimes Report 2009 contains the following descriptions of mortgage fraud schemes.
Illegal Property Flipping - Property is purchased, falsely appraised at a higher value, and then quickly sold. What makes property flipping illegal is the fraudulent information, such as fraudulent appraisals, falsified loan documentation, or inflated buyer income. Kickbacks to buyers, investors, property/loan brokers, appraisers, and title company employees are common in this type of scheme.
Loan Modification Programs - Scammers purport to assist homeowners who are delinquent in their mortgage payments and are on the verge of losing their home, by offering to renegotiate the terms of the loans with the mortgage lender. The scammers demand large up-front fees and often negotiate unfavorable terms for the clients, or do not negotiate at all. Usually, the homeowners ultimately lose their home.
Equity Skimming - An investor may use a straw buyer, false income documents, and false credit reports to obtain a mortgage loan in the straw buyer's name. After closing, the straw buyer signs the property over to the investor in a quit claim deed, which relinquishes all rights to the property and provides no guaranty of title. The investor does not make any mortgage payments and rents the property until foreclosure takes place several months later.
Silent Second - The buyer of property borrows the down payment from the seller through the issuance of a nondisclosed second mortgage. The primary lender believes the borrower has invested his or her own money in the down payment. The scammers might not record the second mortgage in order to conceal its status from the primary lender.
Air Loans - This is a nonexistent property loan in which there usually is no collateral. For example, a broker invents borrowers and properties, establishes accounts for payments, and maintains custodial accounts for escrows. The broker may set up an office with a bank of phones used as the fake employer, appraiser, credit agency, etc., to deceive creditors who attempt to verify information on loan applications.
The FBI report also describes builder bailout/condo conversion schemes; schemes involving commercial real estate loans; schemes that involve a Home Equity Conversion Mortgage (a reverse mortgage loan product insured by the Federal Housing Administration for borrowers who are 62 years old or older); and schemes in which scammers obtain a grant through the Neighborhood Stabilization Program (a Federal program in which block grants are paid to states, local governments, and nonprofit organizations to encourage the purchase and redevelopment of foreclosed and abandoned property).
(Please note: The arguments contained in this analysis originate from sources outside the Senate Fiscal Agency. The Senate Fiscal Agency neither supports nor opposes legislation.)
Michigan needs a statute tailored to the crime being committed by those who engage in mortgage fraud activities, with different levels of penalties based on the loan value involved. At the same time, since false pretenses violations often go hand-in-hand with mortgage fraud, the false pretenses statute should prescribe harsher penalties for violations that involve higher amounts. Also, because mortgage fraud can go undiscovered for years, and because these cases are highly complex, the statute of limitations for false pretenses involving real property should be lengthened. In addition, because mortgage fraud commonly involves the notarization of fraudulent documents, the criminal penalty in the Michigan Notary Public Act needs to be updated.
This package of legislation would give prosecutors the tools they need to fight mortgage fraud, and would help ensure that the punishment fits the crime. Senate Bill 43 (S-1) would create a new statute to criminalize residential mortgage fraud, settling different penalties for violations involving $100,000 or less and those involving higher amounts. Senate Bill 249 would update the false pretenses section of the Michigan Penal Code, establishing a range of increased penalties that would be consistent with the current penalties for embezzlement. Senate Bill 251 would give prosecutors up to 10 years, rather than six, to bring charges for false pretenses involving real property or a mortgage. Under Senate Bill 252 (S-3), a notary public who knowingly signed a fraudulent document involving real property or a mortgage would be guilty of a felony. The remaining bills would include the proposed felonies in the sentencing guidelines.
These measures would protect the legitimate mortgage loan industry, and help prevent innocent homeowners from losing their homes. Fighting mortgage fraud also would benefit other victims, including those who live in neighborhoods containing abandoned homes, and local units of government that rely on property tax revenue.
Response: Legislation also is needed to address mortgage rescue fraud, which does not involve the mortgage lending process. In this type of scheme, perpetrators identify homeowners who are in foreclosure or at risk of defaulting on their mortgage loan, and then mislead the homeowners into believing they can save their homes. Typically, the homeowners transfer their deed to a third party or put it in the name of an investor. They are told that they can rent their home and then repurchase it when their credit has improved. The scammers fail to make the mortgage payments, however, and the property usually goes into foreclosure.
It also has been recommended that the definition of "residential mortgage loan" in Senate Bill 43 (S-1) should specifically include a modification, as well as a renewal, extension, or refinancing, of a loan.
In addition, it has been suggested that even a 10-year statute of limitations on false pretenses involving real property would not be adequate. Reportedly, in some cases, fraudulent documents filed with a register of deeds office might not be discovered for decades but can still have negative consequences for the lawful property owner.
According to the Office of Financial and Insurance Regulation (OFIR), establishing the crime of residential mortgage fraud could simplify the process for OFIR to obtain a prohibition under the State's consumer finance laws against a person who knowingly made or used another's false statements or misrepresentations during the mortgage lending process.
The bills would fail to hold banks and other financial institutions accountable for their role in making inadvisable mortgage loans or misleading consumers who are in default. Reportedly, some banks lead consumers to believe that their mortgages will be renegotiated and their homes will be saved, while the banks already have begun the foreclosure process, waiting until the last minute to serve the foreclosure papers in order to extract as much money as possible from the borrowers.
Legislative Analyst: Suzanne Lowe
Senate Bills 43 (S-1) & 44 (S-1)
The bills would have an indeterminate fiscal impact on State and local government. There are no data to indicate how many offenders would be convicted of the proposed offense. An offender convicted of the Class C offense under the bills would receive a sentencing guidelines minimum sentence range of 0-11 months to 62-114 months. An offender convicted of the Class B offense under the bills would receive a sentencing guidelines minimum sentence range of 0-18 months to 117-160 months. Local governments would incur the costs of incarceration in local facilities, which vary by county. The State would incur the cost of felony probation at an average annual cost of $2,500, as well as the cost of incarceration in a State facility at an average annual cost of $35,000. Additional penal fine revenue would benefit public libraries.
Senate Bills 249 & 250 (S-1)
The bills would have an indeterminate fiscal impact on State and local government. There are no data to indicate how many offenders would be convicted of false pretenses involving the specified amounts. An offender convicted of one of the Class C offenses under the bills would receive a sentencing guidelines minimum sentence range of 0-11 months to 62-114 months. An offender convicted of the Class B offense under the bills would receive a sentencing guidelines minimum sentence range of 0-18 months to 117-160 months.
Senate Bill 251
The bill would have an indeterminate fiscal impact on State and local government. There are no data to indicate how many additional indictments would be filed as a result of expanding the statute of limitations from six years to 10 years. Any increase in felony convictions that resulted from the extension of the statute of limitations could increase State and local costs by increasing incarceration and community supervision costs.
Senate Bills 252 (S-3) & 253 (S-1)
The bills would have an indeterminate fiscal impact on State and local government. There are no data to indicate how many offenders would be convicted of the proposed offense. An offender convicted of the Class E offense under the bills would receive a sentencing guidelines minimum sentence range of 0-3 months to 24-38 months. An offender convicted of the Class F offense under the bills would receive a sentencing guidelines minimum sentence range of 0-3 months to 17-30 months.
Fiscal Analyst: Matthew Grabowski
Analysis was prepared by nonpartisan Senate staff for use by the Senate in its deliberations and does not constitute an official statement of legislative intent. sb43/1112