Real Estate Fraud

Fraud refers to deliberately misrepresenting or withholding facts to induce someone else’s action that will be detrimental to their interest. Real estate fraud happens when you misrepresent or withhold facts that could influence someone to act in a manner that is detrimental to their interest when the action is linked to the sale, rental, purchase, or financing of real property. California and federal laws severely punish those guilty of unethical practices to safeguard honest real estate agents and lenders.

You must take your charges seriously because even if the court does not find you guilty, your reputation could be damaged, destroying your business or career. So, when accused of the crime, you should retain the services of a competent criminal defense attorney.

At Pasadena Criminal Attorney, we have successfully handled fraud cases linked to real property, making us the right legal representatives to guide you and represent you in court for a fair verdict.

California Legal Definition of Real Estate Fraud

California, unlike other states that depend on a single law, uses an intricate criminal framework to address real estate fraud. This means that fraud is not a stand-alone crime. Different statutes outline various behaviors that amount to real estate fraud, meaning it has no straightforward definition. It can be broadly defined as theft committed through unethical practices in the real estate industry. California statutes address the offense at various stages of a real property transaction, including:

• In the initial transaction

• When acquiring the mortgage loan

• In the foreclosure proceeding

• During property appraisal

• The closing proceeding

The phrase “real estate fraud” is an umbrella term encompassing several unlawful or unethical practices directly associated with residential or business mortgages, rental contracts, predatory lending, property flipping, and straw buyer schemes. With the substantial amount of money victims of the fraud lose, the offense is classified as a white-collar crime.

Different Legal Theories or Statutes Real Estate Fraud is Prosecuted

California has different statutes and legal concepts under which prosecutors charge real estate fraud. These statutes are:

Grand Theft By False Pretenses

One statute under which prosecutors charge real estate fraud is PEN 487, the statute criminalizing grand theft through false pretenses. Prosecutors prefer charging real property fraud under this statute because it has a broad applicability due to the unique features of real estate fraud, which involves defrauding others of their hard-earned funds or property or making false promises or representations to induce a person to act against their interest.

In real estate, your illegal act will be charged and prosecuted under PEN 487 if you acquire funds or real property whose worth is at least $950. With the high valuation of real property in the state, most transactions exceed this amount, meaning most illegal activities satisfy the requirements to be prosecuted under this statute. For instance, you will face charges under this statute when you hide or withhold property defaults or misrepresent facts in various stages of a real estate transaction.

The elements the prosecutor must prove under the statute are:

• You deliberately deceived a mortgage lender or the owner of real property

• You did so by making a false promise

• The false promise was used to induce the victim to transfer their property, or the victim relied on the promise for the transfer.

Filing Forged Documents

Per PEN 115, it is unlawful to submit forged paperwork to the county recorder’s office or any other government records office. The law is applicable in real estate fraud when you submit forged property deeds for filing, registration, or recording with a government record office about the real ownership of real property. Another that could be prosecuted under this statute is falsifying critical real property transaction paperwork, like a property sale contract, mortgage loan agreement, or forms disclosing defects on a property in consideration. A breach of this statute is a felony, and a guilty verdict attracts significant penalties.

Additionally, the prosecutor could file a PEN 115 violation alongside or in place of forgery charges under PC 470.

Mortgage Fraud

PEN 532f defines mortgage fraud as unethical practices in a mortgage transaction. All participants in the loan transactions, including the lender and borrower, face charges for the crime. The illegal behaviors that the statute prohibits are equity skimming and illegal mortgage loan acquisition through forging identification or presenting false information. Mortgage fraud can happen during rental contracts, mortgage loans, foreclosures, or when enacting penalties for intentional false representation in any phase of a property transaction.

Foreclosure Fraud

Distressed property owners fall victim to professionals or entities that claim to provide foreclosure consultation services. Pending foreclosures are in public records, making it easy for individuals or entities to identify distressed homeowners, promising to help with the process, only to transfer the property ownership to themselves. Civil Code 2945 and 2945.4 were enacted to safeguard homeowners with unsettled foreclosures from criminals posing as foreclosure consultants.

The prosecutor will prosecute you under this legal theory for the following acts:

• Imposing or receiving payment in advance before offering services to a homeowner

• Charging excessive fees for the services

• Asking for additional collateral for payment

• Taking a lien or interest in a real property, for instance, by purchasing the property from the owner and then leasing or renting it back.

• Obtain a power of attorney from the client, giving you the power to act on behalf of the homeowner in legal or commercial issues.

• Coercing or trying to coerce a homeowner into entering an unlawful contract that does not meet the legal threshold or to transfer a property deed.

Rent Skimming

CC 890 criminalizes the renting of residential property during the first twelve months of acquiring it and failing to use the revenue generated from the property through rent to repay your mortgage on the property.

The second way you can be prosecuted under CC 890 is when you falsely claim to own a property that does not belong to you, you fraudulently rent out the property, and you collect rent from tenants when you have no legal authorization to do so.

Therefore, for the prosecutor to charge you under this legal theory, you must accomplish any of these acts. When you did not fraudulently collect rent for property belonging to someone else or refuse to apply revenue from the first year of rent payment to mortgage repayment, the prosecutor cannot file criminal charges. However, the property owner can file a lawsuit in a civil court seeking reimbursement for the financial losses incurred due to your unlawful acts.

Real Estate Fraud Types

Real estate fraud encompasses different unethical or illegal conducts that change based on technological advancements or market changes. The typical schemes that fall under the fraud are:

1. Illegal Property Flipping

One common scheme under real estate fraud is the unlawful property flipping. You commit this scam when you, a real estate agent, mortgage broker, or certified appraiser, wrongfully increase the value of a property you purchased during appraisal and use the property as collateral against a bank loan, enabling you to borrow money exceeding the property’s value, or you sell it to an innocent buyer at the inflated price.

A lot of flipping that people engage in is legal, as they purchase it, then improve it, and sell it at a reasonably higher price. However, when the property is sold to an innocent buyer at an unreasonably inflated price or sold severally using different appraisals before a foreclosure, you will face charges for property flipping.

2. Straw Buyer Scams

Another form of fraud common in the real estate sector is the straw buyer scheme. It happens when you request someone else to purchase real property on your behalf because of their good credit rating. The person making the purchase or loan application is the “straw.” What happens is that you, the perpetrator, identify someone with a good credit rating and promise to pay them a given amount of money if they apply for a mortgage loan for you, as you, the real buyer, do not have the good credit rating required to complete the transaction. The straw signs the mortgage loan paperwork, purchases the property, and later transfers it to you.

Nevertheless, because you are not the mortgage applicant, you do not make payments. It is a buyer or straw that deals with the lender on your behalf. Under these circumstances, you are the straw buyer, and you can face charges if someone is defrauded in the process or the law prohibits you, the straw buyer, from purchasing property.

The common characteristics of these schemes are:

• A different party or organization services the loan

• Early payment default

The existence of a non-arm’s-length transaction where the relationship between the buyer and seller is undisclosed could also point to a straw buyer scheme.

3. Predatory Lending

Predatory lending is perpetrated by mortgage lenders. The fraud occurs when you, the lender, create a refinance mortgage loan for the potential property buyer and impose unreasonable, unnecessary, or excessive fees and terms on the loan so that the borrower does not gain from it. You prioritize your interest by focusing on increasing your commission instead of taking care of the borrower’s interests, like the ability to repay the refinance. Predatory lending is used as an aggressive strategy to increase sales or take advantage of the borrower's ignorance of the nuanced financial transaction. Also, it could be a straightforward, deceptive strategy.

4. Foreclosure Fraud

The standard categories of foreclosure fraud are title transfer, phantom help, and bait-and-switch schemes. A title transfer happens when you, a foreclosure consultant, coerce a homeowner with an unsettled foreclosure to sign a property deed, transferring the property to you. You assure the victim that they will maintain ownership if they rent the property and ultimately repurchase it in the future. However, when you purchase the property, you evict the victim and obtain the property’s current equity.

Another foreclosure fraud type is bait-and-switch, which is almost the same as title transfer, except that in this fraud, the property owner is unaware that they are signing a property transfer. You trick the owner into transferring the property by convincing them to sign paperwork that will enable them to obtain a mortgage loan with lower payments. However, by signing the documents, they transfer property ownership to you. Besides, you can commit fraud by compelling the homeowner to sign blank forms, promising to fill them out later based on the agreed-upon terms, only to write terms that transfer the property to you. Alternatively, you can include confusing, hard-to-read, or minor details of the property in the paperwork so that the victim does not understand what they are signing.

Lastly, there is the phantom help scheme, where you promise the property owner who faces an imminent foreclosure that you can prevent it if they pay a given fee in advance. Nevertheless, after receiving the advance payment, you fail to offer the promised services, and the property is foreclosed.

Elements of California Real Estate Fraud

During the prosecution of your real estate fraud charges in court, the prosecutor must establish the following elements beyond a reasonable doubt:

You Had Criminal Intent to Defraud

A critical aspect of the crime that the prosecutor should establish is that your actions were intended to deceive. You must have engaged in the deception with a specific motive to coerce the lender or real property owner to transfer property possession or ownership or a mortgage loan on a false representation. If the prosecutor fails to demonstrate the fact beyond a reasonable doubt, you can contest the charges by asserting that you lacked criminal intent to deceive.

You Concealed Known Property Defaults or Made a False Representation

Another factor the prosecutor should demonstrate is that you made a false representation, statement, or claim, like lying outright about the property’s ownership, withholding information regarding defaults on the property, or making false promises to a buyer or seller in a real estate transaction. When non-disclosure of material facts is involved, the prosecutor should show that you, the defendant, deliberately withheld from the other party relevant or essential facts known to you about the property to deny the party rights or ownership of the property. A material fact is any verifiable information that is critical in decision-making. For instance, when a property has a known defect, the buyer could change their mind about buying it or negotiate a lower price. Nevertheless, when you conceal this critical information to convince the buyer to act against their interest, you are guilty of real estate fraud.

The Victim Relied on the False Representation to Make a Decision

The victim must have relied on the false facts you provided to decide on the property or a loan. The prosecutor should show that the victim justifiably or reliably used the statement for the decision and that an ordinary person in the same situation would have relied on the false representation.

The Fraudulent Conduct Led to Losses or Damages

Lastly, the prosecutor should prove that the victim of your fraudulent actions incurred losses directly or as a proximate cause of the fraud.

The evidentiary standard for fraud in the real estate sector in a criminal proceeding is higher than that of a civil claim. The prosecutor must prove to the court beyond a reasonable doubt that you committed the alleged crime. The standard is not easy to prove, meaning you have a chance as a defendant to successfully challenge the evidence and prevent a conviction or reduce the penalties with the help of a competent fraud crimes defense attorney.

Real Estate Fraud Penalties

Prosecutors charge real estate fraud under four major legal concepts or laws, and the sentencing upon conviction hinges on the statute you are accused of violating. The penalties are:

1. A PEN 487 Violation Penalties

Grand theft real estate fraud is a wobbler. So, prosecutors have the discretion to file felony or misdemeanor charges based on various factors:

• The value of the fraudulent scheme

• The case’s facts

• The number of victims

• The criminal sophistication involved in the fraudulent conduct

• Your criminal record

The penalties for a misdemeanor PEN 487 violation are:

• Misdemeanor probation

• A monetary court fine of no more than $1,000

• No more than 12 months of jail confinement

• Both incarceration and monetary court fines

A felony guilty verdict for grand theft real estate fraud is:

• Felony probation

• 16, 24, or 36 months of jail confinement

• Monetary court fines of at most $10,000

• Both confinement and court fines

Depending on the case’s facts, you could face sentence enhancement.

2. Foreclosure Fraud Penalties

The prosecutor can file your fraud charges under Civil Code 2945.4. Charges based on this legal concept are also wobbler offenses. The misdemeanor penalties include:

• Misdemeanor probation

• No more than 12 months of incarceration

• Monetary court fines of at most $1,000

• Both fines and jail confinement

The penalties for a felony foreclosure fraud sentence are:

• Felony probation

• Financial court fines of at most $10,000

• 16, 24, or 36 months of confinement in county jail

• Both incarceration and court fines

The statute also provides for additional penalties by the court for other punishments received for other fraud-related charges.

3. Rent Skimming Penalties

CC 890 is the statute that forbids rent skimming. The prosecutor will charge you with a criminal offense under this law if you have committed multiple rent-skimming acts. However, if it is a single offense, it is the victim who files a civil lawsuit against you to recover damages or losses incurred from the fraud. If the civil court rules against you in the claim, you will face the following civil penalties:

• Victim restitution for an amount equal to the loss incurred

• Reimbursement of the victim’s attorney charges and legal fees

• Additional fees, if applicable

When filed as a criminal offense in a criminal court, rent skimming is a wobbler. A misdemeanor rent-skimming conviction attracts:

• Misdemeanor probation

• Court fines not exceeding $1,000

• Confinement for no more than 12 months in jail

When convicted of a felony, the penalties you will face are:

• Formal probation

• At most $10,000 in financial court fines

• 16, 24, or 36 months of jail confinement

• Both fine and jail confinement

Whether rent skimming is filed as a civil lawsuit in a civil court by the victim or a criminal charge in a criminal court by the prosecutor, you should take the charges seriously and hire a competent fraud crimes attorney to defend you for a fair verdict.

4. A PEN 115 Violation

PEN 115 makes it a felony to file a forged title deed or document with a government’s records office. When convicted for the offense, the penalties you will face include:

• Felony probation

• Monetary court fine of $10,000

• 16, 24, or 36 months of county jail confinement

Sentencing Enhancement

You risk sentence enhancement if the prosecutor files your real estate fraud offense as a felony and the victim suffers substantial loss. The penalty enhancements are as follows:

• An additional twelve months of confinement if the fraudulent activity caused $65,000 or more in losses

• Further 24 months of incarceration for fraud leading to losses exceeding $200,000

• An additional 36 months of confinement for fraud causing losses of upwards of $1,300,000 to the victim

• An extra 48 months of confinement when your victim loses at least $3,200,000 in the fraudulent scheme

Similarly, you will face sentence enhancement of 12 to 60 months for receiving two or more felony sentences for real estate fraud-related charges, and the victim loses at most $100,000.

Lastly, a conviction could result in the loss of your license if you are a licensed real estate broker. Therefore, on top of the legal penalties, your career is on the line; hence, you should fight the charges aggressively.

Common Defenses for Real Estate Fraud

You need a competent fraud crimes attorney to contest the fraud charges against you. With the right attorney in your corner, you can use various defense strategies for a favorable verdict.

Your attorney can challenge the accusations by arguing that you lacked intent or that you are falsely accused. Several defense strategies can be applied to challenge the prosecutor’s argument, depending on your case. Therefore, hire a defense attorney early in the case to analyze it and craft solid defenses.

Find a Competent Fraud Crimes Attorney Near Me

Real estate fraud is a severe violation under state and federal laws. The consequences of a conviction are life-changing, including lengthy incarceration, hefty fines, and victim restitution. The penalties seek to deter fraud and address victim compensation. With authorities aggressively prosecuting this type of fraud, you need a passionate and dedicated attorney to defend you and provide legal guidance.

At Pasadena Criminal Attorney, we understand the complex legal challenges and pervasiveness of real estate fraud. This, coupled with our knowledge of the local criminal court system, makes us the most suitable to defend you for a charge reduction or case dismissal. Call us at 626-689-2277 to arrange a meeting or discuss your case.