After the massive collapse of the real estate industry in California, many laws regulating real estate have considerably changed. The laws are intended to protect consumers from practices that have been causing a crisis in the industry. The new laws can be confusing to realtors, lenders, brokers, and notaries hence the reason for the numerous real estate fraud allegations. At Orange County Criminal Lawyer, we are here to defend you against these allegations.
Legal Definition of Real Estate Fraud
When you willingly misrepresent or conceal facts to induce another person to act in a manner that harms the person’s interest, you are deemed to have committed fraud. Real estate fraud, also known as mortgage fraud, therefore, occurs when one party commits fraud in connection with a purchase, sale, rental or financing of a real estate property. This form of fraud occurs in various stages, like during property appraisal, closing, or foreclosure.
Note that real estate fraud involves more than one crime. It consists of different crimes in California. The prosecutor may use PC 487 grand theft to charge you with real estate fraud because there is pretense involved. However, the amount you defraud a person must be $950 or more to face charges per PC 487.
Real estate fraud cases that are not charged under PC 487 can be prosecuted under the following statutes:
- Rent skimming under Civil Code 890
- Foreclosure fraud - Civil Code 2945.4
- Forged deeds or documents under PC 115
Laws and Legal Theories that Prosecute Real Estate Offenders
California uses various laws and theories to sue offenders of real estate fraud. Some of these laws and theories include:
Theft by False Pretense
California PC 532 is the statute that outlines false pretenses. The statute prohibits individuals from deliberately deceiving victims through misrepresentation or false pretenses to receive money or property.
One of the elements that the prosecutor must prove is that you, as the defendant, intentionally deceived a real estate owner or mortgage lender. You must have been aware that what you were saying is false, but you intended to convince the mortgage lender or owner of the property that it is true.
False pretense also occurs when you make a reckless statement without confirming the facts, concealing critical information, or making promises that you don’t intend to keep.
The other element the prosecutor must prove is that you had a fraudulent motive, which was to convince the mortgage lender or property owner to give up the property. If you deceived the victim for different reasons other than wanting them to give up their property, that would not qualify as an element for this crime.
The prosecutor must also show that the victim gave up or surrendered the property because he or she trusted the false information you deliberately gave. But if the real estate owner knew you were lying and decided to give up the property, it will be difficult to prove the real estate fraud occurred through false pretenses.
Note that the prosecutor will prove you are guilty of mortgage fraud if you used specific means to convince the victim you are telling the truth. California law only recognizes the following ways to earn a victim’s trust in a false pretense case fraudulently:
- Counterfeit money or an item supporting false pretenses
- Any false pretenses through handwritten or signed documents by you
- Testimonies from two witnesses supporting the false pretenses
- Testimony by one witness coupled with supporting evidence to back up false pretenses
If you use any of the above ways to make the victim of real estate fraud trust you, you will likely face sentencing for the fraud.
For many Californians, owning a home and paying the mortgage is not easy, especially when the real estate market is nosediving. When the industry is facing a crisis like in 2008, foreclosures increase opening doors for foreclosure fraud.
During the time of massive foreclosures, the names of those facing foreclosures are published in public records. Making the list of foreclosures public means every foreclosure consultant in the state, including the fraudulent ones, can access this information and call homeowners to give them false hopes.
Many people believe these consultants because they are desperate to get out of the financial crisis. Unfortunately, they end up losing their property to these fraudsters who pose as foreclosure consultants.
Civil Code 2945.1(a) defines a foreclosure consultant as anyone who can provide the following services:
- Stop or delay a foreclosure sale
- Gain any restraint from a mortgage holder or beneficially
- Help the owner of the real estate property exercise the right to reinstatement
- Get the reinstatement duration extended
- Assist a property owner in acquiring a loan or advance funds
- Save a real estate owner’s residence from foreclosure
- Help the owner obtain from the beneficiary, mortgage holder, or trustee the remaining proceeds after the foreclosure sale.
When foreclosure consultants fail to follow the set guidelines and procedures when giving foreclosure advisory, they end up committing foreclosure fraud. As a foreclosure consultant, you are guilty of this form of fraud if you engage in the following acts:
- Charging or collecting payment from the homeowner before the work provided in the contract is completed.
- Overcharging for foreclosure advisory services
- Acquiring or taking any interest in the property facing foreclosure
- Collecting or receiving money or property from a third party for advisory services without full disclosure to the property owner
- Acquiring any power of attorney from the property owner
- You defraud the property owner by luring or attempting to lure him or her into signing an illegal contract that doesn’t comply with Civil Code Sections 2945.2 and 2954.3.
- Taking an interest in other property against the wages of the homeowner
When proving foreclosure fraud, the prosecution has to prove the following elements:
- You intentionally and willfully deceived a real estate owner through fraudulent or false representation.
- You did so with the intent of making the homeowner transfer possession or ownership of the property.
- The homeowner allowed you to take possession because he or she relied on your representation.
California CC 890 defines rent skimming as renting out your residential rental property any time after the first year of acquiring it and failing to apply the proceeds of the mortgage. The Civil Code also defines rent skimming as pretending to own a property that you don’t own or renting out a property with no authority to rent and keep the rent proceeds.
You should understand that engaging in the act of rent skimming once is not enough to subject you to criminal proceedings. However, you will be subject to a civil lawsuit. Participating in rent skimming multiple times will subject you to both civil and criminal proceedings.
For instance, Peter, who poses as a foreclosure consultant, persuades five homeowners using different names to transfer their properties that were facing foreclosure to him. Peter made the property owners believe that by conveying their properties, he would take up their debts, and their credit would remain intact. Peter used a different name for each of these homeowners. Some of them moved out of their residential homes allowing Peter to rent out the property. Others remained in their homes but continued to pay rent to Peter.
Eventually, Peter would declare bankruptcy under the fake names, thus delaying foreclosure. He would then continue receiving rent and fail to use the rent payment to service the mortgage. In such a case, Peter has engaged in multiple rent skimming acts.
Real estate fraud cases are also charged under forged documents law. PC 115 is the statute that prohibits individuals from intentionally filing, registering, or recording a forged deed or document with a government office in California. Most real estate fraud cases in California involve the filing of forged real estate deeds or deeds of trust.
You will be convicted as per this statute if the prosecutor can prove you offered a forged deed for filing or registration or caused a fraudulent document to be filed. Offering, in this case, means presenting the document to a government office for registering. Also, even if you didn’t file the documents on your own, you could still be prosecuted if you caused another person to do the filing.
The other element the prosecutor needs to establish is that the deeds filed with the government office were falsified or forged. You will be guilty if the prosecution can demonstrate that you forged the deed and made the government rely on it per the law.
Besides, the prosecution must demonstrate that the information contained in the documents immensely affects the rights of a third party, in a manner anticipated by the statute providing for the document to be filed in a government office.
Further, the prosecution must demonstrate that you were aware that the document or deed you were filing was falsified or forged. Proving this aspect is usually an uphill task for the prosecution because failure to demonstrate the defendant had knowledge the deed was forged will result in dismissal of the case.
Forms of Real Estate Fraud
Just like other white-collar crimes, mortgage fraud is a complex process that requires a lot of creativity. Sometimes, due to the law’s complexity, you could not be aware that you are engaging in illegal activity. For this reason, it is difficult to name all the actions that amount to real estate fraud. However, the most common forms of real estate fraud are:
Like mentioned earlier, multiple schemes are used by fraudsters who pose as foreclosure consultants to take advantage of homeowners facing foreclosure. The fraudsters take advantage of the fact that the names of those pending foreclosure are put in public records where everyone can access information. In most foreclosure fraud cases, the person posing as a consultant requests a fee to prevent the foreclosure, but no services are rendered.
Foreclosure fraud happens in different categories. These are:
- Title transfer - This is where you, as a foreclosure consultant, persuade the homeowner who is subject to foreclosure to sign over the title of their home to you. You do this by promising the owner that they could continue living in the home by renting it, and after some time, they could repurchase the home. Once you purchase the property, you evict the homeowner and assume the existing equity of the property.
- Bait and switch - This fraud is very similar to the title transfer one, but in this type of foreclosure fraud, the real estate owner isn’t aware that he or she is transferring property ownership. You are guilty of this type of bait and switch if you make the homeowner believe transferring property ownership by signing over the documents will result in lower mortgage payment or a new loan.
- Phantom help scams where a foreclosure consulting firm promises to help a homeowner avoid foreclosure in exchange for an upfront fee. After receiving payment, the firm fails to render services.
Straw Buyer Schemes
This form of real estate fraud happens when you ask another person to purchase a property on your behalf. You make use of a straw buyer if you have a bad credit score or when you cannot complete the transaction because of other reasons. Using a straw buyer becomes a crime if the transaction defrauds someone or is illegal for you, the real buyer, to make the purchase.
Illegal Property Flipping
Illegal flipping occurs when a fraudulent appraisal results in inflating the value of a real estate property’s value, and an unwary purchaser buys the property at the inflated price, or a lender or bank lends money based on the inflated property value. A person who buys the property fixes it up and resells it at a higher price doesn’t engage in this unlawful act. However, property appraisers, real estate agents, or mortgage brokers are the ones that face prosecution for these acts.
Predatory lending happens when a mortgage broker creates a refinance loan plan for a prospective buyer and loads it with unnecessary or excessive fees that do not benefit the borrower. As the broker, you could pad your commissions without considering the borrower's ability to repay off the loan. Predatory lending consists of:
- Using an aggressive sales technique to impose irrational and exploitive terms on the borrower.
- Exploiting the borrower’s ignorance of the complex process to take advantage
- Open and direct deceit
Rent skimming happens when a rent collector embezzles tenants’ rent payments, which may result in the tenants’ eviction for failure to pay rent. It also involves pretending to be a property owner and renting it out.
When you file a forged deed with the Orange County clerk’s office, you commit real estate fraud.
Possible Punishments for Real Estate Fraud
The consequences you receive for real estate fraud depend on the law or legal theory that applies in your case.
Consequences for Grand Theft Real Estate Fraud
PC 487 is a wobbler. If the prosecutor files misdemeanor charges, upon sentencing, you could face the following penalties:
- Summary probation
- A one thousand dollar fine
- Orange County jail term for twelve months
The possible penalties for a felony conviction are:
- Felony probation
- 16, 24, or 36 months in prison
- A fine no more than ten thousand dollars
Possible Repercussions for Foreclosure Fraud
In California, foreclosure fraud is also a wobbler. Your criminal history and the nature of your case are what determines the charge the prosecutor will prefer. If the preferred charge is a misdemeanor, the possible punishment upon conviction includes:
- Misdemeanor probation
- Court fines amounting to $1,000
- Incarceration for 12 months in jail
On the other hand, felony foreclosure fraud is punishable by:
- Felony probation
- Court fines of up to 10,000 dollars
- 16, 24, or 36 months in prison
Penalties for Rent Skimming
The punishment for this form of insurance fraud depends on the number of rent skims. If you have engaged in rent skimming once, the penalties will be less severe than those of a person who engages in criminal activity multiple times. If your case involves a single act, you will only be subject to a civil proceeding. If the victim sues for your fraudulent act, you will pay:
- Restitution equal the amount the victim lost
- The victim legal fees and attorney costs involved in the lawsuit
- Extra fees where possible
If your case involves multiple incidences of rent skimming, you are subject to a criminal proceeding. A misdemeanor charge can attract the following consequences:
- Summary probation
- A fine not exceeding 1,000 dollars
- Jail sentence for at most one year
Felony rent skimming attracts:
- 10,000 dollars or less in court fines
- 16 months, 2, or 3 years in prison
Forged Deed Consequences
PC 115 is always filed as a felony, and a conviction may attract the following penalties:
- Felony probation
- Ten thousand dollars or less in fine
- Prison incarceration for sixteen, twenty-four or thirty-six months
You will be subject to enhanced penalties if the prosecutor charges you with felony real estate fraud or where the victim suffers significant losses because of the fraud. These penalties are:
- An additional 12 months in jail if the victim suffers a loss exceeding 65,000 dollars
- An extra twenty-four months in prison if the victim suffers a financial loss of over 200,000 dollars
- An additional three-year prison sentence if the victim lost over 1,300,000 dollars
- Four years in prison on top of your sentence if the victim loses an amount exceeding $3,200,000
On top of these enhanced penalties, you could face a one to a five-year addition prison sentence if:
- You have not less than two felony real estate fraud convictions
- The victim suffered a loss of over 100,000 dollars
If you, a mortgage broker, are sentenced for real estate fraud, you might lose your professional license; hence, you should fight the charges by all means.
Legal Defenses for Real Estate Fraud
As seen above, a conviction for real estate fraud under any statute has severe repercussions. Fortunately, if you retain a criminal defense law firm like the Orange County Criminal Lawyer, you will have the following legal defenses to fight the charges.
Lack of Fraudulent Intent
As stated earlier, in all fraud cases, the prosecutor must prove intent to defraud to earn a conviction. Regardless of the financial losses you cause the victim, if you didn’t plan to defraud, you won’t face conviction. Your defense lawyer can argue that you had good intentions when you engaged in the act or misunderstood the action and its consequences. You can also assert that you didn’t realize that the information you presented was false or misleading, which means you acted without intent.
The Real Estate Owner Agreed to the Transaction
Most people facing real estate fraud allegations face the accusations in transactions that involve other people’s property. The complaints of fraud are more familiar with older people hence the source of elderly fraud in real estate.
Senior citizens are vulnerable, and criminals target them a lot, especially during property foreclosures. Although these cases are common, sometimes an older person might consent to a property transaction and later on forget to have given consent. In such a case, you might end up facing allegations, whereas you are innocent. If this is the case, your defense lawyer can argue that you had consent from the property owner to the transaction.
With the complexity of real estate laws, it is easy for the real culprits of the fraud to accuse you of fraud in a bid to cover up their crimes. Besides, a person can steal your identity and use it to engage in fraudulent real estate transactions. In such cases, you are falsely accused, and it’s up to your defense attorney to gather evidence to prove your innocence.
Find a Real Estate Fraud Lawyer Near Me
A charge for real estate fraud or any other fraud crime can have adverse consequences on your life. If you are facing these allegations, we invite you to contact the Orange County Criminal Lawyer at 714-262-4833 for legal help. Our lawyers understand the complexity of fraud laws and the judicial system, making us suitable to convince the court to lower or remove the charges.