Fraud is the act of intentionally concealing or misrepresenting particular facts to influence another person to take action that is damaging to their affairs. Real estate fraud refers to theft through unethical activities relating to a real estate business. California’s justice system includes laws that prevent real estate fraud. Authorities are keen on enacting these laws to protect innocent real estate clients from cunning agents and lenders.
An accusation of real estate fraud can impact your life severely. Even if it does not end in a conviction or no criminal charges are preferred against you, such accusations can ruin your business and professional reputation. Therefore, if you are facing criminal charges for real estate fraud, you need to contact a Los Angeles Criminal Lawyer immediately. We have the requisite experience to handle your case and preserve your rights. Whether your accusations are valid or not, we understand and will defend you vigorously in any court within Los Angeles, CA. We will work passionately to navigate the legal system, protect your business and your image, and ensure you receive the kind of justice you deserve.
California’s Legal Definition of Real Estate Fraud
Real estate fraud is more than a single crime with a straightforward definition. It encompasses a variety of behaviors that different California laws prohibit. The primary statute that prosecutors use in cases involving various types of real estate fraud is Section 487 of the Penal Code, the state law against grand theft. This rule applies because real estate fraud involves theft through pretenses. For real estate fraud to qualify as grand theft, you must defraud another person of property valued at more than $950. This threshold is easy to attain in the real estate business.
Most real estate fraud cases do not fit perfectly within the legal parameters of grand theft through pretenses. Therefore, the prosecution uses other statutes or combines PC 487 with another specialized code. These statutes include:
- Civil Code 890: The statute that outlaws rent skimming
- Civil code 2945.4: The law prohibiting foreclosure fraud
- Penal Code 115 PC: The code that prohibits the recording of any forged documents in public records.
Types of Real Estate Fraud
Similar to other white-collar crimes, real estate fraud is often a complicated scheme where you often become creative. Sometimes, you are not even aware that your activities are illegal. Therefore, it is impossible to outline all the types of practices that could be considered real estate fraud. Authorities are always alert to catch money-making ventures that might constitute this form of fraud. They also get assistance from the California Bureau of Real Estate. The bureau receives complaints from the public and also files petitions if they notice red flags in any pending real estate transaction.
The most common types of real estate fraud include:
- Foreclosure Fraud
This type of fraud often occurs when someone is facing foreclosure because they are unable to pay the mortgage on their property or home. Although it is illegal under Civil Code 2945.4, it is common due to the numerous borrowers who cannot keep up with their mortgage payments. The fact that unsettled foreclosures are public records makes it easy for distressed homeowners to fall victim.
You are likely to commit Civil Code 2945.4 foreclosure fraud if you are a foreclosure consultant or other professional who offers services to property owners facing foreclosure. There is a wide range of activities that could result in criminal proceedings for foreclosure fraud against you. You will face prosecution if you:
- Charge or collect compensation for services you undertook to perform on a homeowner’s behalf before providing the service
- Collect or charge exorbitant rates for offering services
- Require other collateral for repayment, take a lien, or take an interest in that property. For example, if you buy the property from its owner, then rent it back to them.
- Take property or money from third parties for services that you undertake to offer the property owner without informing the owner about it.
- Obtain power of attorney from a property owner. A power of attorney authorizes you to act in business or legal matters on behalf of another person.
- Persuade or attempt to persuade a property owner to sign an illegal agreement, one that does not meet all the legal requirements
Categories of foreclosure fraud are:
- Title transfer: This form of fraud occurs when you, being a foreclosure consultant, persuade a property owner to sign the title to their house over to you. You assure the property owner that they will ultimately repurchase the property if they rent it. Once you purchase the property, you acquire the property’s existing equity.
- Bait and switch: This type of foreclosure is similar to a title transfer. However, the property owner is not aware that they are signing their property’s title over to you. You are guilty of bait and switch if you:
- Make a property owner sign over their property to you in the pretext that the documents will help them secure a lower mortgage payment
- Present blank documents for the homeowner to sign and assure them that you will fill in the papers later according to your agreed terms
- Bring paperwork with writings that are confusing, too small or illegible that the property owner cannot understand what they are consenting to.
- Phantom help scams: It is illegal to promise a property owner that you will help prevent an imminent foreclosure at a fee that they must pay upfront. After they pay, you do not render the services you promised, and the person loses their property.
- Forged documents or deeds
Forgery of property documents involves altering a property deed or attempting to misrepresent a fake title deed. Under Penal Code 115 PC, it is unlawful to record a forged document, including a real estate deed in a public records office such as the office of the county clerk. You will also be guilty of real estate fraud if you attempt to acquire a loan or offer a property for sale using a fraudulent property deed. For such actions, you could face prosecution under PC 115 as well as PC 470, the state’s forgery law.
- Rent skimming
You violate Civil Code 890, the statute that explicitly outlaws rent skimming, when:
- In the first year following your acquisition of a residential property for rent, you fail to apply proceeds from rent to the property’s mortgage
- Pretend to own a particular property, fraudulently rent out that property without permission, and keep the profits for yourself.
However, this law has some exceptions. You cannot face rent skimming charges if within 30 days after collecting the proceeds you either:
- Pay a healthcare provider for necessary and unexpected medical costs for your family or yourself, or
- Make payments to suppliers of materials or to licensed contractors to correct issues in relation to the living conditions on that property. You can only do this if you do not have alternative sources of income to cover those expenses.
If you engage in rent skimming on only one occasion, you will be subject to a civil lawsuit. However, multiple acts of rent skimming will result in criminal proceedings and penalties.
- Straw Buyer Schemes
This type of fraud occurs when you ask another person to buy property for you typically because they have a good credit score. In such a transaction, the term “straw” refers to the buyer. For example, you ask another person to apply for a mortgage on your behalf because they have a good credit rating, and yours is insufficient. In exchange, you offer the person some money. They signed the mortgage papers, buy the property, and transfer it to you. However, you do not remit the agreed mortgage payments, leaving the buyer to deal with the lender. In that transaction, you are a straw buyer, and you could face criminal proceedings for real estate fraud.
- Illegal Property Flipping
You are likely to face prosecution for flipping property illegally if you are a realtor, a mortgage broker, or a property appraiser. Illegal flipping occurs when you wrongly inflate the property’s value by appraising it fraudulently and either:
- A bank uses the property as collateral to lend more money than the property’s real value
- An innocent client purchases the property at a price higher than the actual value
Most property flipping that people do is not unlawful. It is legal to buy property, refurbish it, then sell it off at a profit, provided that the new price is reasonable and does not result from fraud.
- Predatory Lending
Predatory lending is where, as a mortgage broker, you create a refinance loan plan and load it with exorbitant fees that do not benefit the borrower. Instead, you intend to maximize your commission with no consideration for the borrower’s capacity to pay off the loan. Activities that constitute predatory lending include:
- Imposing unreasonable and exploitative terms on borrowers, usually by the use of aggressive sales strategies
- Taking advantage of borrowers’ ignorance of complex transactions
- Open and direct deception
Penalties for Real Estate Fraud
The penalties and sentencing you will receive for real estate fraud will depend on the particular statute that prosecutors use to charge you.
Penalties for Grand Theft Real Estate Fraud
Charges for real estate fraud under Section 487 PC grand theft are wobblers. The crime can be either a California felony or misdemeanor depending on:
- Your criminal history
- The facts of your case
The potential penalties for a PC 487 misdemeanor are:
- Summary (misdemeanor) probation
- A fine not exceeding $1,000
- A county jail sentence for up to one year
- Both a jail sentence and a fine
The possible penalties for felony real estate fraud PC 487 grand theft are:
- Formal (felony) probation
- A jail term of 16 months, or two or three years
- A maximum fine of $10,000
- Both a fine and a jail term
Penalties for Foreclosure Fraud
Under Section 2945.4 of the Civil Code, foreclosure fraud is a wobbler. Penalties for misdemeanor charges are:
- Summary probation
- A maximum of one year in county jail
- Up to $1,000 in fines
- Both a fine and imprisonment
Felony foreclosure fraud is punishable by:
- Formal probation
- A fine not exceeding $10,000
- A county jail sentence of 16 months, or two or three years
- Both time in jail and a fine
Additionally, the foreclosure fraud statute contains a special provision allowing the court to add penalties to any other punishment you receive for related charges.
Penalties for Rent Skimming
The punishment you receive for rent skimming in violation of Civil Code 890 will depend on whether it was a single act or multiple instances of rent skimming. If your charges are for a single act of rent skimming, you will only face civil penalties. A civil suit means that anyone that suffered harm due to your real estate fraud could sue you. If they sue you, you could pay:
- Restitution equal to the actual amount the person lost
- The person’s reasonable legal costs and attorney’s fees
- Additional fees, where applicable
For multiple rent skimming occurrences, you will face criminal prosecution and penalties. Rent skimming is a wobbler. Misdemeanor charges attract:
- A fine of $1,000 or less
- Incarceration for less than a year in a county jail
- Both a fine and jail time
A conviction for felony rent skimming attracts:
- A fine of $10,000 or less
- Time in the county jail for 16 months, or two or three years
- Both a jail term and a fine
Penalties for Forged Deeds
Under Section 115 of California’s Penal Code, forging a deed is always a felony. The penalties are:
- Felony probation
- A fine of not more than $10,000
- A jail term of 16 months, two or three years
- You will face additional penalties if prosecutors charge you with felony real estate fraud and if the victim suffered a significant loss. The penalty enhancements are:
- An extra year if your fraudulent activities cost the victim a loss greater than $65,000
- A further two years if your victim’s loss exceeded $200,000
- An added three years if you caused your victim to lose over $1,300,000
- An additional four years if your victim lost more than $3,200,000
- Over and above these additional penalties, you could face a further one to five years imprisonment and a higher fine if:
- You receive at least two felony convictions for charges related to real estate fraud, and
- The victim lost more than $100,000
- A conviction for real estate fraud could result in the loss of your real estate broker’s permit.
What the Prosecutor Must Prove
To demonstrate that you are guilty of any form of real estate fraud, prosecutors must prove the elements of the offense, which also constitute the crime’s legal definition. These are:
- You intentionally and knowingly deceived a mortgage lender or real estate owner through fraudulent or false representation;
- You had the intention to coerce the person to allow you to take control and ownership of their property or the loan proceeds, and
- The victim handed over control and ownership of loan proceeds or property because they relied on your misrepresentation.
Common Defenses Against Real Estate Fraud Charges
Your defense lawyer can use some or all of the following defense strategies to fight your real estate fraud charges.
- You did not have fraudulent intent
One of the essential elements of real estate fraud is the intent to defraud. Regardless of what you did, the court cannot convict you without intent. You may have acted with good intentions, or you misinterpreted the meaning of your actions and their effects. If either of these happened, stating a lack of intent as your defense may be beneficial. Even if you made a mistake that is likely to affect you or your business, you did not commit an offense if you acted without the intent to defraud.
- The property owner consented to the transaction
Often, your accusations of fraudulent real estate transactions will be in connection with your dealings with another person’s property. It is even more common for the complainant to be elderly. In many such cases, the elder gives you their consent to represent them, then they forget or get confused about it. Helping somebody in good faith and with their consent can be a valid defense. Also, it links closely to a lack of intent, without which you cannot get a conviction. Your criminal lawyer will know when and how an owner’s consent will be an appropriate defense strategy.
- False accusations
The real estate business is complex, and it often involves multiple people. With so many players, the real culprits could easily accuse you of fraud in a bid to cover up their illegal actions. Yours might also be a case of identity theft, where another person uses your name in unlawful transactions. Sometimes, a person may lawfully sell their property to you and want it back. Your defense lawyer can help you collect evidence to prove your innocence.
Consult a Los Angeles Criminal Lawyer Specializing in Real Estate Fraud Near Me
A charge of real estate fraud can be devastating, especially with the possibility of jail time and significant fines. If you are facing these charges in Los Angeles, CA, and its surrounding areas, you can call a passionate, dedicated lawyer at 310-502-1314 to seek legal advice. We understand the intricate details of fraud law and the justice system. With our extensive experience, we will fight aggressively to convince the court to possibly reduce or dismiss your charges.