Mortgage fraud and real estate fraud are common legal issues following the financial and foreclosure crisis in 2008. Since many people claimed the economic collapse was due to dubious mortgage transactions, there has been pressure to fight the offense. Also, those accused of engaging in the crime are aggressively charged. If charged, you could find yourself facing severe penalties because the prosecutors are still looking for people to set examples. Therefore, you should do everything possible to protect your rights and freedom if you are charged. At The LA Criminal Defense Law Firm, we can assist you in understanding your charges as well as exploring your available defense options.
Understanding Real Estate Fraud
Real estate fraud isn’t one crime that could be defined easily. It represents several different conducts that are charged under various laws.
Fraud could be defined as:
- Knowingly concealing or misrepresenting specific facts
- Inducing another person to behave in a manner which is destructive to their interest
Therefore, real estate and mortgage fraud is a crime that involves real estate transactions.
Grand Theft (Penal Code Section 487)
Grand theft law under PC 487 is the primary statute that is used to charge several types of the type of fraud in question. It is a type of theft achieved through pretenses. It can be likened to fraud.
To be convicted of the crime in question under PC 487, the prosecutor should establish the facts of the offense below beyond reasonable doubt:
- The defendant intentionally and knowingly deceived a mortgage creditor or property owner by using a fraudulent or false representation
- The defendant acted with an intent to convince the property owner to allow the defendant to take possession as well as the loan proceeds or property's ownership
- The alleged victim allowed the defendant to take ownership and possession of the loan proceeds or property because they relied on false representation
It is worth noting that the above facts of the offense make up the legal meaning of real estate fraud.
Real estate fraud is different from petty theft (PC 488) because a defendant should defraud the mortgage creditor or property owner out of an asset whose worth exceeds $950. It is easy to get to this threshold with real estate.
Are there Other Statutes Related to Mortgage and Real Estate Fraud?
Usually, most mortgage and real estate fraud cases do not fit in the definition of Penal Code Section 487 PC. As a result, they are charged under various statutes. Sometimes they could be filed under both PC 487 and more specific laws.
Foreclosure Fraud (Civil Code Section 2945.4)
Foreclosure fraud is a common form of fraud bearing in mind the present housing crisis. It can also be attributed to the fact that a pending foreclosure is a public record; hence any person can use these details to target the homeowner.
In most cases, foreclose consultants and experts offering services to people facing foreclosure commit this offense. A prosecutor will sentence you for breaking Civil Code Section 2945.5 if you:
- Charge or collect compensation for services you claimed to do for the property owner before offering that service
- Collect or charge excessive charges for the service
- Take a lien on a property, need another asset as a guarantee for reimbursement, or take an interest in a home (for instance, purchasing the home from its owner in order the owner can rent the home back)
- Take power of attorney from the owner (power of attorney is used to authorize a person to function as somebody else in a business or legal matter)
- Take property or money from a third party regarding the services which you've agreed to do for the property owner without entirely revealing that info to the property's owner
- Induce or try inducing the property holder into authorizing an unlawful contract that does not adhere to statutory rules.
Foreclosure fraud actions are widespread, as we will discuss below.
Rent Skimming (Civil Code Section 890)
Per Civil Code Section 890, you violate the law by:
- Pretending to be a property owner, fraudulently renting the asset out with no entitlement to rent out, and keeping the proceeds to yourself, or
- Not applying your rent proceeds to your mortgage in the initial year after obtaining your residential rental home.
However, a defendant cannot be convicted if they used the proceeds within thirty days of getting them to:
- Pay a licensed contractor or material supplier to correct a violation of law linked to the rental property's habitability, if they do not have any other way of earning a living to sort the expenses
- Pay medical care professionals for unforeseen and fundamental medical bills for themselves or family members
Violating Civil Code Section 890 once subjects you to a civil claim. However, you could face criminal consequences if you violate this law more than once.
Forged Documents or Deeds
Under Penal Code Section 115 PC, it is illegal to present a fake property deed or other counterfeit documents in a public record like with the county clerk.
A deed is a legal document that transfers property ownership rights in real estate. It consists of a description of an asset involved, names of the parties, and the signature of the individual transferring the property.
Should you be prosecuted or investigated for PC 115, you could face charges under forgery law (PC 470).
What are the Different Types of Real Estate and Mortgage Fraud?
Just like most white-collar offenses, this fraud involves extremely complicated schemes developed by creative people who might not know that they are violating the law.
It's impossible to highlight all activities that are considered and charged as mortgage and real estate fraud. Consequently, each district attorney's office is always in search of money-generating schemes, which could be well-thought-out to be a fraud.
According to the California Bureau of Real Estate, the popular categories include:
It can take place when a person is not able to pay their mortgage payment on their asset, and as a result, might face foreclosure. Discussed below are the most common types of foreclosure fraud:
- Title transfer. Title transfer is a form of foreclosure fraud that happens when a foreclosure consultant convinces the owner of any asset to sign away their home's title. Usually, the consultant promises the property owner that they will be in a position to continue living in the property by renting the home and will finally repurchase it. Then the new homeowner gets existing equity, which is in the home, and finally throws out the tenant.
- Bait and Switch. This type of foreclosure fraud is similar to title transfer. However, in the former, the homeowner, in most cases, does not know that they are signing over their home's title. A victim thinks he/she is signing a document that will assist them in getting another lower loan payment. However, in reality, they are unknowingly signing away the home. Occasionally, the foreclosure consultants committing the fraud will present a blank document and tell their client that they will fill the document later along with the terms and conditions agreed upon. The document's writing could also be too tiny, confusing, or illegible that the homeowner fails to understand what they are signing.
- Phantom help scams. Here, a foreclosure assistance firm promises to help a homeowner stop a pending foreclosure in return for upfront charges but fails to do anything. Only for the homeowner to notice the savior has done little or nothing when it is too late to prevent the foreclosure.
This is a type of real estate fraud that happens when a mortgage agent generates a loan (usually a refinance loan) which has unnecessary or excessive charges that do not benefit the borrower. The broker does this as a way of padding their commission.
Illegal Property Flipping
Usually, realtors, property appraisers, and mortgage brokers commit this type of crime.
Flipping occurs when a home's value is wrongly exaggerated on the grounds of a deceitful appraisal as well as either:
- A bank loans fund on the asset for an amount that exceeds the real worth, or
- An unsuspecting person buys the home for an amount that exceeds its worth.
For instance, Max, a realtor, works with Andrew and Ruth, who is a mortgage agent and appraisal, respectively. Max buys a dilapidated house and renovates it. Then he places the house on the market at a cost that is twice the buying price.
Newton makes an offer on that asset. Ruth presents a duplicitous appraisal that estimates the home's value is equivalent to the asking cost. Andres assists Newton to get a mortgage, based on Ruth's dishonest appraisal.
Finally, Newton gets the mortgage and purchases the property. However, the transaction has defrauded both him and his creditor.
It is worth noting that most property flipping instances are not unlawful. It isn't a crime to purchase a home, renovate it, and then resell it at a higher cost, provided the selling price is lawful and isn't due to fraud.
Straw Buyer Schemes
A straw buyer scheme is one of the most common types of mortgage fraud. What occurs in this crime is that a real estate broker or agent gets a person with good credit (straw) to purchase a house for somebody else. The other person could be a family member, friend, or a stranger who the broker explains cannot obtain a loan due to their poor credit.
Typically, the broker pays the straw an amount that ranges from five thousand dollars to ten thousand dollars to sign the paperwork using their name as well as other personal information to get the mortgage. The straw does not plan to ever live in that house or make a payment on it. Some straw buyers think they are doing good by assisting a less fortunate individual. However, others know they are committing a conspiracy.
A straw buyer scheme could involve parties like:
- A real estate agent
- The person selling their home
- The buyer
- A straw buyer
- A mortgage agent
Penalties and Consequences Attracted by Real Estate and Mortgage Fraud
The consequences and sentencing you face for real estate and mortgage fraud in California hinge on the code section under which you're charged with:
Grand Theft (Penal Code Section 487)
The consequences of grand theft (PC 487) used to charge fraud cases are wobbler penalties. In other words, the offense can be charged either as a felony or a misdemeanor, depending on:
- Your criminal history, and
- The case's facts
If charged with a misdemeanor, you will face the following potential penalties:
- Summary or misdemeanor probation
- A maximum of a year in jail
- $1,000 in fine
On felony, on the other hand, carries:
- A formal or felony probation
- A sixteen month, two or three-year sentence
- $10,000 in fine
Violating California Civil Code Section 2945.4 is a California wobbler. The offense carries the same penalties as the grand theft. Also, the penalties you face hinges primarily on whether your offense is a felony or a misdemeanor.
Please note Civil Code Section 2945.4 has a provision that permits the penalties to be included in any punishment imposed regarding related charges.
Penalties for violating rent skimming law hinge on whether you're prosecuted with:
- One conduct of rent skimming
- Numerous rent skimming conducts
If accused of one rent skimming conduct, you will face civil penalties only. That means any person who was hurt by your behavior like your mortgage creditor or tenant can take legal action against you. You will be required to compensate:
- That individual's damages
- That individual's legal costs and attorney fees
- Sometimes, additional fines
If charged with several rent skimming acts, you will face criminal consequences. The offense is a wobbler. It carries similar penalties as foreclosure fraud.
Breaking PC 115 is a severe offense in Los Angeles. It's always charged as a California felony.
It is punishable by:
- A formal probation
- A sixteen month, two, or three-year county jail sentence
- Fines of maximum $10,000
Real estate fraud in California also carries enhanced penalties in case the charge is a felony, and the loss the alleged victim incurs is substantial. Precisely:
- If the alleged victim lost an amount that exceeds $65,000, your sentence would be increased with an additional year
- If the victim lost an amount that exceeds $200,000, your sentence is enhanced with two years
- If the victim's loss exceeds $1,300,000, your sentence is increased with three years
- If you deprived the victim of an amount that exceeds $3,200,000, your sentence is enhanced by four years
- A defendant is found guilty of at least two related crimes of mortgage and real estate fraud, where all are felonies, and
- The alleged victim lost an amount that exceeds $100,000,
The defendant risks facing an additional one to five years in state prison besides the added penalties highlighted above. You could also face more hefty fines.
If you have a real estate agent's license, a conviction may result in real estate agent discipline, which could entail losing your license.
How to Fight a Real Estate Fraud Charge
Despite the severe penalties attracted by real estate and mortgage fraud charges, there are several defenses that an experienced criminal defense attorney can use. They include:
You Did Not Have the Intent to Commit Fraud
The intent to engage in fraud is an element of the offense in question. That means you cannot be found guilty if you did not intend to engage in fraud.
A skilled attorney could argue that a defendant had a good intention in engaging in the conduct that caused the charge against them. Or the defendant could have been confused by the meaning as well as the outcome of their behavior.
A defendant Entered into Transactions with the Homeowner's Consent
This defense can be used if you are charged with fraud concerning a transaction with another person's home. Often, the homeowner is a senior citizen. Hence, the real estate and mortgage fraud are charged alongside an elder abuse charge.
However, the aged homeowner could have given the accused permission to represent them in the transactions and then got confused or forgot that they did so.
Your attorney could prevail in your case if you were lawfully assisting somebody else, with their consent. Remember, you cannot be sentenced for committing this type of fraud with no fraudulent intent.
Mistaken Identity or False Accusations
There are several reasons why a person can be wrongly accused of this type of fraud. For instance, the real perpetrators could be attempting to escape accountability by blaming the accused of the crime. Often, this crime happens in a complicated business transaction that involves many parties hence making it easy to take place in such scenarios.
Also, the defendant could be an identity theft victim, where another person used their name and personal information to obtain a fraudulent loan.
Plea Bargain Negotiations
Even if the attorney is unable to get the charge dismissed, they can try plea bargain negotiations for a lesser sentence or charge.
For instance, you can have your Penal Code Section 487 PC charges reduced to a California misdemeanor or enter a deal that involves alleged victim restitution instead of a jail sentence.
How to Fight for Real Estate License
Just like real estate transactions, negotiations, and strategy are crucial in your real estate license discipline case. You can choose to go to court or have an informal sit-down with the Department of Real Estate.
In both scenarios, it is essential to have a defense lawyer who can assist you keep your license and stay in the game.
How You Can Assist Your Competent Criminal Defense Lawyer with the Defense
Even if you have engaged a competent lawyer, you can't expect them to deliver the service successfully without your assistance and cooperation. Both of you are a team, and you should not do things that make their jobs hard by failing to follow their advice. If you want to realize a favorable outcome in the case, here are the guidelines you should follow:
Tell your Attorney Your Goals
As the lawyer investigates the case and informs you about the possible outcome in the case, you need to tell your attorney about your goal. For instance, if you're contemplating accepting a plea bargain, you should be sure they know about it.
Letting your attorney know of the goals helps the attorney develop defense strategies that suit your case. Moreover, it helps them work towards achieving your desired outcome.
Engaging private investigators and other experts, as well as taking depositions, requires time and money. Although you want the best possible outcome, you should be realistic about what you are willing to pay, and you should communicate it to your attorney.
Don't Speak to Law Enforcers
The law enforcement officers are in search of statements and information that can strengthen the prosecution's case. If you have information that should be disclosed to the prosecution team, talk to your defense attorney first. Finally, let the lawyer convey the information to the police if they determine it's in your best interest.
Keep Off Social Media
If you post anything about the case on a social media platform, the prosecution team will see it. It is recommended to keep off social media until the mortgage fraud case is closed.
Be Respectful and Dress Appropriately
When you show up in your court hearing, make sure you make a good impression. You can achieve this by being respectful to all court personnel and dressing appropriately. Also, ensure you get to the court hearings on time.
Present Information Promptly
Give your criminal defense attorney the contact details for all witnesses and other essential details about your case in time. The lawyer requires this info to build the case and be prepared for the court hearings.
Find a Fraud Defense Attorney Near Me
A few years back, the Los Angeles housing market was hit hard. Home values inflated to high records before crashing, leaving most homeowners in substantial financial trouble. This caught not only the attention of the media but also lawmakers. Since then, prosecutors take aggressive action against individuals who have been accused of white-collar offenses like real estate fraud. Regardless of whether you have already been charged or under investigation with real estate fraud, early intervention with an experienced defense attorney is essential in protecting your interests, rights, and freedom. Don't incriminate yourself. Before speaking to the prosecutor or investigators, call our Los Angeles criminal attorney at 310-935-1675 to schedule your initial consultation. We can assist you in realizing the best possible outcome.