A644

An Act concerning residential mortgage fraud and supplementing chapter 21 of Title 2C of the New Jersey Statutes.

Be It Enacted by the Senate and General Assembly of the State of New Jersey:

1. This act shall be known and may be cited as the "Truth in Mortgaging Act."

2. The Legislature finds and declares that:

a. Residential mortgage fraud is rampant in the United States and in New Jersey, costing businesses and borrowers large financial losses. Among other things, homeowners witness the deterioration of their neighborhoods, fraudulently inflated property values substantially increase property taxes, struggling low-income families are lured into mortgages they cannot afford and legitimate lenders are saddled with over-inflated mortgages.

b. There is a need to protect the general public, particularly borrowers, homeowners, lending institutions and title insurance companies, as well as the integrity of the mortgage lending process generally.

3. As used in this act:

"Mortgage lending process" means the process through which a person seeks or obtains a residential mortgage loan including, but not limited to, solicitation, application or origination, negotiation of terms, third-party provider services, underwriting, signing and closing, and funding of the loan. Documents involved in the mortgage lending process include, but are not limited to, uniform residential loan applications or other loan applications, appraisal reports, HUD-1 settlement statements, supporting personal documentation for loan applications such as W-2 forms, verifications of income and employment, bank statements, tax returns, and payroll stubs, and any required disclosures.

"Pattern of residential mortgage fraud" means one or more knowing misstatements, misrepresentations, or omissions made during the mortgage lending process that involve two or more residential properties, if they involve either the same victim, or the same or similar actions on the part of the person charged with violating this act.

"Residential mortgage loan" means any loan, including the renewal or refinancing of any such loan, secured by a first mortgage on real property located in this State on a one to six family dwelling, which is or will be occupied by the borrower as the borrower's principal dwelling, a portion of which may be used for nonresidential purposes.

4. A person is guilty of the crime of residential mortgage fraud when, with the intent to defraud, that person:

a. 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. For the purposes of this subsection, 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;

b. Knowingly uses or facilitates the use of any misleading statement or omission described in subsection a. of this section, knowing the same to contain a misstatement, misrepresentation or omission, during the mortgage lending process with the intention that it be relied on by the mortgage lender, borrower or any other party to the mortgage lending process;

c. Receives any proceeds or any other funds in connection with the mortgage lending process knowing that the funds resulted from a violation of subsection a. or b. of this section;

d. Conspires to violate any of the provisions of subsections a., b., or c. of this section; or

e. Records or causes to be recorded with the county recording officer of deeds and mortgages of any county of this State any document which the person knows to contain a misleading statement of material fact or omission of a material fact described in subsection a. of this section.

The crime of residential mortgage fraud shall not be predicated solely upon information lawfully disclosed under federal disclosure laws, regulations and interpretations related to the mortgage lending process.

5. Nothing in this act shall preclude an indictment and conviction for any other crime or offense defined by the laws of this State; and nothing in this act shall preclude an assignment judge from dismissing a prosecution of residential mortgage fraud if the assignment judge determines, pursuant to N.J.S.2C:2-11, the conduct charged to be a de minimus infraction.

6. For the purpose of venue, any violation of this act shall be considered to have been committed:

a. In the county in which the residential property for which a mortgage loan is being sought is located;

b. In any county in which any act was performed in furtherance of the violation;

c. In any county in which any person alleged to have violated this act had control or possession of any proceeds of the violation;

d. If a closing occurred, in any county in which the closing occurred; or

e. In any county in which a document containing a misstatement, misrepresentation or omission is filed with the county recording officer of deeds and mortgages.

7. In order to promote the uniform enforcement of this act, the Attorney General shall develop residential mortgage fraud prosecution guidelines and disseminate them to each of the county prosecutors within 180 days of the effective date of this act.

8. a. A person who commits residential mortgage fraud in violation of this act is guilty of a crime of the third degree.

b. A person who violates any provision of this act in connection with a pattern of residential mortgage fraud or a conspiracy or endeavor to engage or participate in a pattern of residential mortgage fraud is guilty of a crime of the second degree.

Each residential property transaction subject to a violation of this act shall constitute a separate offense and shall not merge with any other crimes or offenses set forth in Title 2C of the New Jersey Statutes or any other law.

9. All real and personal property of every kind used or intended for use in the course of, derived from, or realized through a violation of P.L. , c. , (C. ) (pending before the Legislature as this bill) shall be subject to forfeiture pursuant to the provisions of N.J.S.2C:64-1 et seq.

10. This act shall take effect immediately.

STATEMENT

This bill, the “Truth in Mortgaging Act,” creates the crime of residential mortgage fraud. The Federal Bureau of Investigation, U.S. Department of Justice, and Internal Revenue Service report that in recent years, the booming real estate market has provided a climate for increased mortgage fraud. The perpetrators of these schemes range from mortgage brokers to drug dealers laundering their illegally obtained gains. Every year these fraudulent schemes victimize individuals and businesses from many walks of life, including poor families duped into home loans they cannot afford, legitimate lenders saddled with over-inflated mortgages based on fraudulently over-inflated appraisals, and honest real estate investors swindled out of their investment dollars.

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.