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Florida court reverses a conviction for mortgage fraud.

The case of Barrios v. State, 36 Fla. L. Weekly D2614a (Fla. 4th DCA November 30, 2011) is an appeal from convictions of three counts relating to mortgage fraud.

The defendant was convicted of attempting to obtain a mortgage loan by false representation, grand theft in the first degree and providing false information to defraud a financial institution. During the trial, the defense moved for judgment of acquittal. The court reduced one of the counts from obtaining a mortgage by false representation to an attempt to obtain said mortgage.

The appellate court found that the trial court committed error in not granting the motion for judgment of acquittal as to the grand theft charge and failing to grant the motion for judgment of acquittal as to the obtaining a mortgage by false representations.

At the trial, the state established that Barrios had obtained a $315,000 mortgage to purchase land and build a home. In the loan application, Barrios represented that his monthly income was $8,900. Throughout the course of the application for the loan, this false information was provided on three separate occasions. Twice on loan applications and once at the closing. The state was able to prove that the defendant earned significantly less than the $8,900 per month represented to the lender.

The court examined Fla. Stat. § 817.54 (2009). That statute provides that a person who, with intent to defraud, obtains a mortgage, promissory note or other instrument evidencing a debt by aid of fraudulent or false representations or pretenses, violates the statute.

The appellate court noted that to prove the crime there must be evidence of the victim's reliance on the defendant's misrepresentations. Citing to Adams v. State, 650 So. 2d 1039, 1041 (Fla. 3d DCA 1995). That case noted that Fla. Stat. § 817.54 criminalizes a specific form of false pretenses. It further held that the victim's reliance on the false or misrepresented information is an essential element of the offense.

In Barrios, the state could not establish that the lender relied upon the false statements concerning monthly income.

The appellate court held that the trial judge committed reversible error by failing to grant a judgment of acquittal on that account and by allowing that count to go to the jury under the charge of attempting to obtain the mortgage fraud by false representation. The court noted that because there was no proof of reliance and the loan was completed, the judgment of acquittal should have been entered without reducing the original charge to attempt.

Other district courts have ruled that reliance on misrepresentation by the victim is an essential element of mortgage fraud. See. Grant v. State, 43 So. 3d 864, 868-69 (Fla. 5th DCA 2010); Pizzo v. State, 910 So. 2d 287, 293 (Fla. 2d DCA 2005).

In analyzing the criminal attempt, the court noted that an attempt to commit a crime requires three elements. The first, the intent to commit a crime, second, an overt act towards its commission and third, failure to successfully complete the crime. Citing to, Bist v. State, 35 So. 3d 936, 941 (Fla. 5th DCA 2010). The court then noted that there was no evidence that the crime was not completed. The evidence established that the crime was completed because the mortgage was obtained. The problem confronted by the prosecution was that there was a lack of proof of reliance by the lender.

The grand theft conviction was also reversed because the state did not provide evidence that the appellant intended to deprive the victim of its property at the time of taking. The appellate court rejected the state's contention that by overstating his monthly income the defendant never intended to pay back the mortgage.

This case is significant due to the revelations of misconduct by many in the lending business during the real estate boom leading up to the recession. Many lenders were not interested in anything other than making the loans and took no action to review or even consider the amount of the stated income. This conduct resulted in certain lenders being subject to regulatory scrutiny and adverse actions. In a mortgage fraud case, the requirement of proving reliance by the lender on information in the application as to income, may be a viable defense.