MI Senate Bill 43

Legislation

State: Michigan
Signed: October 20, 2011

Effective: January 01, 2012
Chapter: Public Act No. 205

Summary

Senate Bill 43 sets in statute a robust definition of residential mortgage fraud for the first time in Michigan, a state hit hard by such fraud in the last five years.

Affects

Adds Michigan Compiled Statutes Section 750.291d.

Changes

Defines the offense of residential mortgage fraud as knowingly, with the intent to defraud: (a) making a false statement or misrepresentation concerning a material fact or deliberately concealing or failing to disclose a material fact during the mortgage lending process; (b) during the mortgage lending process, making or using a false pretense, or using or facilitating the use of another person’s false pretense, concerning the person’s intent to perform a future event or to have a future event performed; (c) using or facilitating the use of a false statement or misrepresentation made by another person concerning a material fact or deliberately using or facilitating the use of another person’s concealment or failure to disclose a material fact during the mortgage lending process; (d) receiving or attempting to receive any proceeds or any other money in connection with the mortgage lending process; (e) filing or causing to be filed with the register of deeds of any county any document involved in the mortgage lending process that the person knows to contain a deliberate material misstatement, misrepresentation, or omission; (f) failing to disburse funds in accordance with the settlement or closing statement for the mortgage loan; conspiring to perform any of the above; and (g) soliciting, encouraging, or coercing another person to violate any of the above.
Defines “mortgage lending process” as the process through which a person seeks or obtains a residential mortgage loan, including solicitation, application, or origination, negotiation of terms, third-party provider services, underwriting, signing and closing, and funding of the loan. (Note: Signing Agents should be forewarned of the penalties for committing the criminal acts prohibited by this bill.)
Defines “documents involved in the mortgage lending process” to include mortgages; deeds; surveys; inspection reports; 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 written disclosures required by law. (Note: mortgages and deeds are typically notarized.) 4. Regards as a “person” who may be guilty of violating the act any “individual, corporation, limited liability company, partnership; trustee, association, or other legal entity.”
Allows forfeiture of property used in connection with a violation.
Allows a victim of residential mortgage fraud to request a court order invalidating the mortgage and other documents, if a person were convicted of residential mortgage fraud or a lesser included offense and other criteria were met.
Prescribes that each violation constitutes a separate offense punishable by up to 15 years’ imprisonment and/or a maximum fine of $100,000 if the loan value were $100,000 or less; or imprisonment for up to 20 years and/or a maximum fine of $500,000 if the loan value exceeded $100,000.
States it would be an affirmative defense to a prosecution for residential mortgage fraud by an employee or agent of the defendant if the defendant demonstrated, by a preponderance of the evidence, that the defendant had in force at the time of the violation and continued to have in force a written policy that included at least all of the following: (a) a prohibition against conduct that violated the bill by employees and agents of the defendant; (b) penalties or discipline for violation of the policy; and (c) a process for educating employees and agents about the policy and consequences of a violation; (d) a criminal history check before an employee was hired or an agent was engaged, as part of the policy; and (e) a requirement that the defendant would not employ or engage an individual whose criminal history check revealed a previous conviction of a crime involving fraud. In addition, the defendant would have to demonstrate, by a preponderance of the evidence, that it enforced the policy and, before the residential mortgage fraud violation, communicated the policy and the consequences for violating it to the employee or agent who committed the violation.

Analysis

Senate Bill 43 sets in statute a robust definition of residential mortgage fraud for the first time in Michigan, a state hit hard by such fraud in the last five years. It is interesting that that the bill touches upon at least one part of the mortgage lending process where Notaries and Notary Signing Agents are involved: at the “signing” of the loan. The bill also includes within its scope at least two documents that a Michigan Notary Public must notarize: mortgages and deeds. One of the most interesting parts of the bill outlines what constitutes an “affirmative defense” an employer may make with respect to an employee or agent who has committed an act of residential mortgage fraud. An employer who has a written policy in place, including a “process for educating employees and agents concerning the policy and consequences of a violation”, can mount an affirmative defense to protect itself against the acts of its employees and agents. Also of importance is that under the Act, an individual, corporation, limited liability company, partnership, trustee, association, or other legal entity is considered a “person” who can commit residential mortgage fraud. Certainly, this bill does not apply to the thousands of upright and honest Michigan Notaries who do their jobs admirably, but to the unscrupulous few who are complicit in committing the acts forbidden in SB 43. They will pay a huge price for their criminal behavior.

Read Senate Bill 43.