The US Department of Justice (DoJ) says James has been charged with bank fraud and making false statements to a financial institution.
The charges relate to James’s three-bedroom property in Norfolk, Virginia.
Prosecutors allege she secured a mortgage claiming the property as her secondary residence, while her primary residence was in Brooklyn, New York. Instead, she rented out the property to a family of three, according to court documents.
The prosecution alleges that James was required to occupy and use the property as her secondary residence, not as a rental investment property, in order to secure a favourable loan.
Prosecutors allege she saved $18,933 (£14,229) through this “misrepresentation”, including by securing a lower interest rate.
“No one is above the law,” US Department of Justice attorney Lindsey Halligan said in a statement.
James has previously said she made an error while filling out paperwork for the property, which was then corrected. She has called the charges “baseless” and has taken aim directly at Trump.
“He is forcing federal law enforcement agencies to do his bidding, all because I did my job as the New York State attorney general,” she said.
James’s attorney Abbe Lowell later said she would “fight these charges in every process allowed in the law”. Lowell added: “We are deeply concerned that this case is driven by President Trump’s desire for revenge.”