The term fraud can be defined as the act of knowingly concealing or misrepresenting certain crucial facts to induce another person to do something contrary to his/her personal interests. Real estate fraud is prosecuted as a form of criminal fraud in California, and mainly under Penal Code 487. You can be deemed guilty of real estate fraud if you committed fraudulent activity in a real estate or mortgage transaction.
Real estate fraud offenses attract life-changing penalties, including jail or state prison terms, as well as hefty fines. Realtors who have been charged with real estate fraud are also at a high risk of losing their professional licenses.
If you have been charged with an offense involving real estate fraud in Orange County, you can reach out to us to obtain professional legal advice. We at the Orange County Criminal Defense Attorney Law Firm have an excellent track record in defending individuals who have been charged with such offenses.
The Legal Definition of Real Estate Fraud
Real estate fraud is also referred to as mortgage fraud. The term 'real estate fraud' encompasses several different offenses, which have their own legal definitions and elements of a crime. Therefore, it isn’t easy to define what precisely real estate fraud is. Instead, the term 'real estate fraud' refers to various fraudulent behaviors that the California Department of Prosecution can prosecute under different laws.
The term ‘fraud’ is defined as the act of knowingly concealing or misrepresenting certain crucial facts to induce another person to do something contrary to his/her personal interests. From this basic definition, real estate fraud is any fraudulent activity that can be committed in a real estate or mortgage transaction.
Typically, in California, real estate fraud is charged under Penal Code 487. Laws that criminalize real estate fraud include Penal Code 115, Civil Code 2945.4, and Civil Code 890. Below, we will analyze how these laws enlist the criminal offense of real estate fraud:
Penal Code 487 Grand Theft
Penal Code 487 grand theft is California’s primary law that can be utilized to prosecute several forms of mortgage or real estate fraud. Generally, the California Law Enforcement considers a real estate fraudulent transaction as similar to ‘grand theft by false pretenses’ – what is actually enlisted under PC 487.
For you to be convicted of real estate fraud under PC 487, the prosecution must prove the following elements:
- You made a fraudulent or false representation to deceive a mortgage lender or real estate owner
- Your primary goal was to convince him/her to allow you to possess or own the mortgaged or real estate property
- The victim allowed you to possess or own the mortgaged or real estate property due to your fraudulent or false representation
Real estate or mortgaged property has a high-dollar value. This is why it can be prosecuted under PC 487 grand theft, but not PC 488 petty theft. According to PC 487, you must have defrauded a mortgage lender or real estate owner property whose value exceeds $950. This threshold is quite easy to reach in real estate or mortgage transactions.
Civil Code 2945.4 Foreclosure Fraud
Civil Code 2945.4 states that it is unlawful to engage in foreclosure fraud. Foreclosure fraud is one of the most common types of real estate fraud in California. This is because of the prevalent housing crisis, as well as the fact that foreclosure records are publicly available.
The offense of foreclosure fraud is mostly committed by professionals in the foreclosure industry, such as foreclosure consultants. Generally, this offense incorporates a wide array of fraudulent real estate activities. According to Civil Code 2945.4, you can be charged with foreclosure fraud if you:
- charge or collect a specific amount of money as payment for a particular service that you haven’t performed
- collect or charge excessive fees for the services you have rendered
- hold a lien on a piece of property or require collateral as security for payment of a service
- take an interest in the homeowner’s property
- take property or money from another person, group, or organization, which is linked to the services you were supposed to render to the homeowner without informing him/her
- take a ‘power of attorney’ from a homeowner
- coerce or attempt to coerce a homeowner so that he/she can sign an illegal agreement or contract
Civil Code 890 Rent Skimming
Civil Code 890 enlists the criminal offense of rent skimming. The law enforcement will hold you have violated this law if you fail to apply your rent proceeds to a mortgage loan within one year after you have acquired a residential property for rental purposes, or if you pretend to be an owner of a real estate property that you don't rightfully own to collect rent and keep the money for yourself. However, you will not be convicted of rent skimming if you had used the rental proceeds within 30 days after receiving them to pay for unforeseen and necessary medical care costs for yourself or that of your loved ones or to pay materials suppliers or license contractors to make the residential property habitable as per the standards set out in California's real estate laws.
Normally, you will face criminal charges of rent skimming if you were involved in two or more acts of it. Otherwise, the victim may institute a civil lawsuit against you to obtain compensation.
Penal Code 115 Forged Documents or Deeds
You may be prosecuted for real estate fraud under PC 115. According to Penal Code 115, it is unlawful for an individual to present a forged or fake real estate deed for public records, such as in the office of the county clerk. Additionally, you may be charged under PC 470 – California’s primary forgery law.
Common Examples of Real Estate Fraudulent Activities in California
Real estate fraud is a form of white-collar crime. Just like any other white-collar crime, real estate fraud involves extremely complicated schemes, which are hatched by individuals who are overly creative and who may not know that these schemes are unlawful.
It is impractical to give a comprehensive list of all types of fraudulent activities that the California law enforcement may consider as real estate fraud. Often, prosecutors and investigation officers are always on the lookout for real estate schemes that may be fraudulent.
The California Department of Real Estate assists law enforcement and prosecutors in identifying potential cases for real estate fraud. The primary goal of the California Department of Real Estate is to protect the public from fraudulent real estate transactions. This department regularly receives complaints from members of the public against realtors and may initiate its own investigation process when they notice suspicious activities.
However, there are various forms of real estate fraud that are quite prevalent in California. They include:
1. Foreclosure Fraud
Foreclosure fraud may occur when an individual becomes unable to pay for his/her mortgaged property and is facing foreclosure. The most common forms of foreclosure fraud in California include:
Title Transfer
A foreclosure consultant may persuade a homeowner to transfer his/her title to the property. This consultant will render wrong advice to the homeowner by telling him/her that he/she can avoid foreclosure and retain his/her home by transferring ownership rights, and repurchasing it later. When the homeowner implements this advice, he/she will live as a tenant at the mortgaged property, and a new owner will acquire title to the property. Then, the new homeowner will eventually evict the original homeowner.
Bait and Switch
This real estate fraud scheme is quite similar to the title transfer. However, in bait and switch, the homeowner does not realize that he/she is transferring the title to the property.
Victims of bait and switch schemes usually do not realize that they are transferring ownership rights to another person. In fact, they believe that they are being helped to secure much better and more flexible mortgage payment plans.
Sometimes, the consultant may present blank documents to the homeowner and assures him/her that they will be filled later as per the terms of the agreement. Others may present documents that have small, confusing, or illegible writings for the homeowners not to understand what they are signing.
Phantom Help Scams
Here, the foreclosure consultant may promise to assist the homeowner in preventing foreclosure upon the payment of a specified amount of money as fees – yet they do nothing. When the homeowner realizes that he/she has been conned, it will be too late for him/her to prevent the foreclosure from happening.
2. Straw Buyer Schemes
The term ‘straw buyer’ refers to a person who purchases real estate property for someone else, simply because he/she has a good credit score, and the person whom the property is bought on behalf of does not have. Then, the person with excellent credit will transfer the property title to the one with bad credit. The individual with a bad credit score will later find it difficult to pay for the mortgage. Eventually, law enforcement will discover both of them, and they may be charged with real estate fraud.
3. Property Flipping
This form of real estate fraud is normally perpetrated by property appraisers, realtors, and mortgage brokers. Property flipping occurs when a real estate professional wrongly inflates the value of a mortgage or real estate due to a fraudulent appraisal, and an unsuspecting purchaser buys it at the inflated price, or a bank lends a loan whose worth exceeds the actual value of the property.
Property flipping takes place frequently in California, but not of the illegal type. It isn’t unlawful to purchase real estate, fix it, and then sell it off at a much higher price – provided that the new price is set legitimately and not the product of fraud.
4. Predatory Lending
Here, a mortgage broker may create a loan (for instance, a home financing loan) and induce an aspiring homeowner to take it. The homeowner might believe that he/she has gotten the best deal, yet the loan carries with it unnecessary or excessive fees that will primarily benefit the mortgage broker.
5. Mortgage Elimination
A company may convince a borrower that he/she can complete paying his/her mortgage loan within a shorter time frame. This company may later charge the borrower excessive fees, making him/her spend more than what he/she could have spent when following the real mortgage plan.
6. Equity Fraud
Equity fraud is a form of theft. Equity fraud is committed when a person fraudulently obtains the personal information of someone else. Then, this person will use these personal details on loan origination and mortgage documents.
7. Fraudulent Loan Origination
A real estate professional may help an unqualified buyer access a loan to purchase a residential home. This professional may convince a potential homeowner that he/she can qualify for much larger mortgages, and may sometimes falsify documents to enable the homeowner to access such documents.
The Penalties for Real Estate Fraud
Because the criminal offense of real estate fraud can be charged under different statutes, its penalties depend on which statute you have been convicted of. Here is a detailed analysis of the penalties for each form of real estate fraud in California:
Penal Code 487 Grand Theft
Penal Code 487 grand theft is a wobbler, and the California Department of Prosecution may charge it as either a felony or a misdemeanor, depending on the facts and circumstances of your case and your criminal history. The penalties for misdemeanor grand theft include summary probation, a county jail term of up to one year, or a fine whose maximum value is $1,000. If you have been convicted of felony grand theft, you risk facing formal probation, a jail term of 16 months, two years, or three years, or a fine not exceeding $10,000.
Civil Code 2945.4 Foreclosure Fraud
Just like grand theft, Civil Code 2945.4 foreclosure fraud can be charged as either a misdemeanor or a felony. Moreover, its penalties are similar to those for Penal Code 487 grand theft. You may face various sentencing enhancements if you have multiple convictions of other charges related to real estate fraud.
Civil Code 890 Rent Skimming
You will not face any criminal penalties if you committed the offense of rent skimming in a single act. However, you may be forced to restitute the victim, should he/she institute a civil lawsuit against you. The victim can recover damages from you in such a lawsuit. The amount of damages will cover the actual amount of money lost and the costs of instituting the lawsuit, including attorney’s fees. In some cases, the court may award the victim punitive damages, whose value may be up to three times the total value of the actual loss.
On the other hand, you risk facing criminal penalties if you were engaged in two or more different and separate activities of rent skimming. As a criminal offense, rent skimming is a wobbler, and its penalties are similar to that for foreclosure fraud and grand theft.
Penal Code 115 Forged Documents or Deeds
This offense is taken very seriously by both the California law enforcement and the prosecution department. Penal Code 115 forged documents or deeds is categorized as a felony, and its potential punishments include formal probation, a county jail term of 16 months, two years, or three years, or a fine whose maximum value is $10,000.
Additional Penalties for Real Estate Fraud
Criminal cases involving real estate fraud may attract additional penalties if the prosecution has charged them as felonies, and the victims suffered significant losses. Specifically:
- If the victim lost more than $65,000, you will receive an additional jail term of one year
- If the victim suffered a loss of more than $200,000, you will be subjected to an additional state prison sentence of two years
- If the victim’s alleged loss was more than $1,300,000, you risk facing an additional imprisonment sentence of three years
- If you fraudulently caused the victim to lose more than $3,200,000, the judge will sentence you to an additional state prison sentence of four years
Furthermore, if you have multiple convictions of felony real estate fraud, and the alleged victim suffered a loss of more than $100,000, you may face an additional imprisonment sentence of 1 – 5 years, which will be added to the sentencing enhancements listed above. In such a situation, the judge may also order you to pay a higher fine, as well as subject you to stricter probation conditions.
How Criminal Convictions may Affect Real Estate Professional Licenses
If you are a realtor who has been convicted of real estate fraud, you risk facing a suspension or revocation of your professional license. When criminal charges for real estate fraud are filed against you, you should also expect disciplinary proceedings from the California Department of Real Estate. Moreover, take note that the Department of Real Estate bars individuals who have been convicted of criminal offenses involving broker fraud, serious felonies, financial felonies, or certain sex offenses within the past seven years from obtaining professional licenses.
Therefore, if you are a realtor or an aspiring realtor who is facing real estate fraud charges, you should quickly reach out to a criminal defense attorney. He/she will enable you to get a clear picture of what exactly you risk losing and how to obtain the most favorable outcome.
Legal Defenses to Real Estate Fraud
You can avoid the penalties for real estate fraud if you have a skilled and highly experienced criminal defense attorney by your side. Some of the most common legal defenses to offenses involving real estate fraud include:
1. No Fraudulent Intent
For you to be convicted of a criminal offense involving real estate fraud, the prosecution must prove that you had fraudulent intent. Note that the standard of proof in criminal cases is beyond a reasonable doubt. The prosecution usually fails to reach this high standard when proving fraudulent intent. This will enable you to receive an acquittal.
Your attorney can argue that your intentions were pure, and you only wanted to help the victim. He/she can also convince the court that you were not aware of the consequences of your actions.
2. Consent
A common situation in a real estate fraud case is where the defendant acted fraudulently in connection to the property of another person. Sometimes, the real estate owner may be an elderly individual – and this can make you receive additional charges of elder abuse.
In most of these fraud cases, the elderly individual may have given consent to the defendant to be involved in the real estate transaction, including representing him/her. Then, this elderly person may have gotten confused or forgotten that he/she had already given consent.
Your defense strategy may be based on the fact that you had a genuine intention to help another person, with his/her consent. This way, you will increase the chances of an acquittal or a dismissal.
3. False Accusations
An innocent person can face false accusations of mortgage or real estate fraud. For instance, maybe the actual culprits are attempting to escape criminal liability by lying to law enforcement. Your defense attorney can help you get out of this mess by hiring a private investigator. This investigator will unearth the actual culprits, and you may even receive compensation for wrongful and malicious prosecution!
4. Mistaken Identity
Fraudulent activities in real estate transactions usually occur in places where there are multiple people, such as in a company. Sometimes, the victim may have wrongly mistaken you to be the actual perpetrator of the crime, or someone else just used your name and other personal details to engage in a real estate fraudulent transaction.
Plea Bargaining in Real Estate Fraud Cases
Unfortunately, the prosecution may have overwhelming evidence against you, making most legal defenses to real estate fraud charges inapplicable or unsuitable. In such a situation, a skilled real estate fraud attorney may help you to obtain a charge reduction during plea bargaining.
For example, if you have been charged with felony grand theft, your attorney can negotiate for you to be charged with misdemeanor grand theft instead. This way, you will get a less harsh penalty. Sometimes, it may be possible to negotiate for a deal that will allow you to compensate the victim and avoid jail time.
Find a Orange County Criminal Lawyer Near Me
Don’t put your future at risk by attempting to speak out for yourself if you have been charged with real estate fraud in Orange County. We at the Orange County Criminal Defense Attorney Law Firm are here to help you. Give us a call at 714-740-7848 for a free case evaluation. We will help you build an excellent defense strategy.