Schiff mortgage fraud probe could end in stiff fines, penalties for senator

The type of mortgage fraud case in which Sen. Adam B. Schiff is entangled is usually clear-cut and hard to escape, said financial crimes experts, who added that the senator could likely end up paying heavy fines and penalties.

Mr. Schiff has been referred to the Justice Department for prosecution regarding mortgage documents, in which he claimed “primary” residences in two states and gained financial advantages from doing so.

The California Democrat is alleged to have falsified bank documents and property records by designating a home he owns with his wife in Potomac, Maryland, as their primary residence. This designation reduced their mortgage payments from 2013 to 2019.

Because Mr. Schiff represents California in the U.S. Senate and, before that, a California district in the U.S. House, his primary residence must be in that state.

Indeed, during the same period, Mr. Schiff took a tax exemption on a condo in Burbank, California, by claiming it was his primary residence, saving himself roughly $7,000.

Borrowers can get lower mortgage rates by designating a home as a primary residence, instead of a secondary home or investment property, because primary homes are considered less risky to lenders.

It’s a sharp reversal of fortune for Mr. Schiff, an outspoken critic of President Trump who championed his prosecution on business fraud charges.

Last year, Mr. Schiff accused Republicans of sacrificing their integrity to support Mr. Trump, who was convicted on 34 counts of business fraud in New York.

“The party, formally of the moral majority, is now, I suppose, trying to fashion some kind of immoral majority to reinstate Donald Trump as president,” he said.

Mr. Schiff has denied the accusations. He said lenders for the homes in California and Maryland were “well aware” of his intent to use both year-round and that neither of the properties was a vacation home.

However, Mr. Schiff has also tried to accuse Mr. Trump of business fraud.

“He’s accused me of treason, he’s also accused me of leaking classified information, he’s accused me of fraud, it’s been basically one thing after another — all baseless, all without merit,” Mr. Schiff said of the president. “It’s nothing new. But his attacks on the rule of law are more dangerous than ever.”

Mortgage fraud cases are prosecuted regularly by the Justice Department but rarely go to trial, said Keith Gross, a Florida defense lawyer who handles criminal cases.

These cases are usually resolved in plea deals because mortgage fraud usually hinges on black-and-white financial documents.

If charges are filed against Mr. Schiff, they will hinge on whether he signed the documents himself and lived in the Maryland home full time.

“If the answers to those questions are undisputed, there is nothing to have a trial about,” Mr. Gross said. “Often, you just see some sort of payment included as part of a plea deal, so there would probably be a fine, there would be restitution, there may be some other sanctions.”

James Mohs, a University of New Haven professor who has researched mortgage fraud, said the penalties would be calculated by the interest lost by the banks that provided the loan.

When Mr. Schiff and his wife purchased the Maryland home in 2003 for $870,000, they entered into a Fannie Mae-backed mortgage agreement for $610,000 at a rate of 5.625% over 30 years, according to a letter that the U.S. Federal Housing Finance Agency sent the Justice Department referring Mr. Schiff for prosecution.

That rate was based on the Schiffs’ assertion that the property would be their primary and principal residence, the letter said.

Mr. Mohs said defendants in mortgage fraud cases usually plead ignorance, claim they made a mistake and just pay restitution and fines.

However, he doesn’t expect the Trump Justice Department to cut a break for a political adversary and look for possible additional charges to add if they pursue a case. Mr. Schiff led the first House impeachment inquiry into Mr. Trump in 2019.

“Schiff has a good enough lawyer to argue that he screwed up, but the Trump Justice Department will be unwilling to cut him a break,” he said. “It seems to me they would try to overprosecute, if anything, because it’s the Trump Justice Department.”

The Justice Department received the prosecution referral in May when William Pulte, the director of the U.S. Federal Housing Finance Agency, sent a letter to Attorney General Pam Bondi and Deputy Attorney General Todd Blanche alleging misconduct by Mr. Schiff related to the mortgages.

“Based on media reports, Mr. Adam B. Schiff has, in multiple instances, falsified bank documents and property records to acquire more favorable loan terms, impacting payments from 2013-2019 for a Potomac, Maryland-based property,” Mr. Pulte wrote.

“As regulator of Fannie Mae, Freddie Mac and the Federal Home Loan Banks, we take very seriously the allegations of mortgage fraud or other criminal activity. Such misconduct jeopardizes the safety and soundness of FHFA’s regulated entities and the security and stability of the U.S. mortgage market,” he wrote.

The letter said Mr. Schiff and his wife claimed the Maryland home as their primary residence in 2009, 2011, 2012 and 2013, all of which were years he represented a California district in the House of Representatives.

It said the Schiffs did not list Maryland as a secondary residence until 2020.

Mr. Pulte said Mr. Schiff’s alleged misconduct could include wire fraud, mail fraud, bank fraud and false statements to financial institutions.

The letter states that Mr. Schiff “appears to have falsified records in order to receive favorable loan terms and also appears to have been aware of the financial benefits of a primary residence mortgage when compared to a secondary residence mortgage.”

On Tuesday, Mr. Trump demanded that Mr. Schiff be held accountable.

“I have always suspected Shifty Adam Schiff was a scam artist. And now I learn that Fannie Mae’s Financial Crimes Division have concluded that Adam Schiff has engaged in a sustained pattern of possible Mortgage Fraud,” Mr. Trump wrote on Truth Social. “Mortgage fraud is very serious and crooked Adam Schiff (now a senator) needs to be brought to justice.”

Mr. Trump was convicted in New York last year of 34 felony charges of falsifying records. However, he did not face any financial penalties or jail time because of his victory in the November election.

A Manhattan jury found Mr. Trump guilty of falsifying business records to disguise hush money payments to two women who alleged affairs with him before the 2016 election. Mr. Trump has maintained that he did not engage in wrongdoing.

Mr. Schiff celebrated Mr. Trump’s conviction by repeating the word “guilty” 34 times in a speech before Congress.

Mr. Gross said the support for Mr. Schiff among his fellow Democrats amounts to hypocrisy given their push to have Mr. Trump prosecuted.

“They wanted to go full steam ahead after Donald Trump for some relatively minor alleged technical violation, but they don’t think it’s appropriate to go after Adam Schiff for what appears to be a pattern of personal actions,” he said.

“Donald Trump didn’t personally record his accounting entries related to those payments, whereas Adam Schiff did personally sign those mortgage documents,” he said.