Real Estate Fraud

Mortgage Fraud – Penal Code section 487

Mortgage fraud, and other forms of real estate fraud are often prosecuted under Penal Code section 487, California's grand theft statute. So long as the value of the property exceeded $950, which is nearly always the case, it can count as grand theft.

More specifically, it is theft by means of false pretenses, which in essence, is the same as saying theft by means of fraud.

Whenever you give out information you know to be false or misleading with the intention of deceiving a property owner or a mortgage lender into making decisions concerning a piece of real estate that defrauds the rightful owner out of all or part of the value of the property and enriches yourself, it is real estate fraud. When this fraudulent activity involves securing a mortgage or taking possession of a mortgage, it can be termed mortgage fraud.

Foreclosure Fraud

Civil Code 2945.4 covers foreclosure fraud, which is always a common form of real estate fraud, but especially during an economic downturn. In fact, there are many professional organizations and individuals who routinely engage in foreclosure fraud as their main means of income. And the fact that upcoming foreclosures are by law made public makes it easy for fraudsters to get the information they need to carry out their misdeeds.

Typically, foreclosure fraud is committed by consultants who appear and offer desperate homeowners their "services" as a means of saving their home or at least of not losing all of their equity in it. 

Examples of foreclosure fraud include:

• Collecting large fees for services that you have not yet, and may never, actually provide.
• Trying to get the homeowner to sign an illegal contract in order to take possession of his or her property.
• Illegally or by false pretenses taking away the power of attorney of the homeowner.
• Taking money from a third party in relation to services provided to the homeowner but not disclosing that fact to the homeowner.
• Buying the homeowner's property in order to turn around and rent it to him or her. This is called title transfer and normally involves the property owner losing all his equity and ultimately being evicted from his own home.
• Using a "bait and switch" tactic to get the homeowner to unknowingly sign over the title to his house. The consultant may falsely inform the homeowner that he is signing a document that will help him get a lower mortgage payment and not lose his home. Sometimes, this is accomplished by getting someone to sign a blank form and promising to later fill it in with what was agreed to verbally. Other times, it may be that the type is very small, the writing illegible, or the verbiage too confusing to understand.
• Phantom help schemes, where assistance in preventing a foreclosure is promised in return for an advance fee, but no work is really done to prevent the foreclosure, which occurs despite the homeowner thinking it will be averted.

Rent Skimming

Civil Code 890 deals with the illegal practice known as rent skimming. Rent skimming occurs when, during the first year after purchasing new rental property, the buyer does not use the rental income to pay on the mortgage. It can also happen when someone who is not even the property owner pretends to rent out the property and then keeps the rental income generated for himself.

However, if rental proceeds were used (30 days or less after receiving them) to pay for needed and unplanned medical expenses for one's self or one's family OR to pay for labor and materials needed to make improvements in the rental property that were legally required to make it officially habitable, this will not be considered rent skimming

While rent skimming is a civil offense, it can become a criminal offense if there are multiple incidents perpetrated by a single individual.

Recording Forged Deeds

Penal Code section 115 prohibits and assigns penalties to the forging of deeds and other official documents and recording them publicly, often in a county clerk’s office. As this form of real estate fraud also involves forgery, violators can be punished under Penal Code section 115 and Penal Code section 470 (California's forgery statute) simultaneously for the same illegal act.

Illegal Property Flipping

While property flipping, buying up houses to fix them up and quickly re-sell them for a profit, is legal in many forms, real estate professionals sometimes get involved in the practice in ways that are not.

Examples include:

• Fraudulent appraisals that cause buyers to pay more for the property than it is actually worth.
• For bankers, knowingly lending out money for properties to sell them at much higher prices than they are worth.

Possible Penalties for Real Estate Fraud

Real estate fraud can be punished in many different ways, depending on the specific nature of the fraud committed. Below, we look at the possible punishments for a variety of types of real estate fraud:

1. PC 487 (Mortgage Fraud/Grand Theft) can be charged as either a misdemeanor or a felony. When charged as a misdemeanor, it is punishable by:

• Up to 12 months in county jail.
• Summary probation.
• A fine of up to $1,000.

When PC 487 is charged as a felony, it can be punished by:

• 16 months to 3 years in county jail.
• Formal probation.
• A maximum fine of $10,000.
• An additional 1 to 5 years in state prison if the value of property defrauded was over $65,000.

2. Civil Code 2945.4 (Foreclosure Fraud) can also be punished as either a felony or a misdemeanor. Either way, it is also punished as grand theft and in the same way as mortgage fraud. However, there is a special rule that allows foreclosure fraud penalties to be added on to other real estate fraud charges (you can be convicted of both it and another real estate fraud charge), which can greatly enhance your overall sentence.
3. Civil Code 890 (Rent Skimming) is a civil offense if committed only once but a criminal offense if committed two or more times. If you face a civil suit for rent skimming, damages can include:

• Recovering of the actual funds taken.
• Additional fines of varying amounts.
• The plaintiff's legal expenses, if you lose the suit.

When rent skimming becomes a criminal offense, it can be either a misdemeanor or felony and is punished the same way as foreclosure fraud and mortgage fraud.

4. PC 115 (Forging Deeds) is always a felony in California. It can be punished as follows:

• 16 months to 3 years in county jail.
• Formal probation.
• A $10,000 maximum fine.

Also note that the incarceration terms in felony real estate fraud convictions will be enhanced if the value of the property defrauded was especially high, according to the following standards:

• An extra year behind bars for defrauding someone of over $65,000.
• Two extra years if the amount was over $200,000.
• Three extra years for amounts over $1.3 million.
• Four extra years for amounts over $3.2 million.

And, if you receive two felony-level (and closely related) real estate fraud convictions AND the amount defrauded was over $100,000, you can face 1 to 5 extra years in state prison plus very large fines.

Finally, as real estate fraud is often charged against realtors, brokers, and others whose livelihood depends on real estate transactions, it is highly significant that professional real estate licenses can be lost and professional discipline imposed on such professionals for a real estate fraud conviction.

Common Defense Strategies

As real estate fraud is considered a white collar crime, it is vigorously hunted for and prosecuted by law enforcement agencies, district attorneys, and other prosecutors. And the California Bureau of Real Estate is constantly looking for red flags on pending real estate sales and is always ready to listen to complaints it receives.

Yet, at the same time, the complexity of real estate law makes it very easy for someone to accidentally make an illegal move. And it is not uncommon for someone to be falsely charged with real estate fraud on purpose by someone with an axe to grind.

At the Criminal Law Office of Leah Legal, we have been defending people accused of real estate fraud in Los Angeles and throughout Southern California for many years and have seen all manner of real estate fraud cases. We understand how to form a solid defense and how to challenge the evidence of the prosecution. Some of our most commonly used defense strategies in real estate fraud cases include:

1. Lack of Intent

No matter what specific act you may have done in relation to a real estate transaction, the fact is that without an accompanying intention to defraud others and secure undeserved gain for yourself, no real estate fraud took place. It may have been a mistake that will have negative consequences for you, but it is not a criminal offense.

2. Possession of Consent

Depending on the specific type of real estate fraud being charged, having the consent of the property owner may be a viable defense. Sometimes, an elderly person actually forgets that they gave consent to make a real estate transaction, and someone is falsely accused of both real estate fraud and elder abuse. While genuine elder abuse does occur, and some of it involves property scams, it is possible that someone intending to follow through on a good faith, 100% legal transaction could be accused of misconduct. At Leah Legal, we understand how and when to use owner's consent as a defense strategy.

3. False Accusations

Sometimes, a person is accused of real estate fraud because someone who legitimately sold a property wants to get it back. Other times, it may be a matter of being framed or of mistaken identity (especially when the true fraudsters have kept themselves behind the scenes. In some cases, someone may even have stolen your identity and then proceeded to take out a fraud mortgage loan in your name.

Contact Us Today For Help

At Leah Legal Criminal Defense, we have seen nearly every type of real estate fraud case imaginable and have learned to successfully employ the most appropriate defense strategy in each case we take on. We have an intricate knowledge of the California Penal Code, of the local L.A. court system, and of the real-world situations that are typically involved in real estate fraud cases.

For a free legal consultation on the details of your case, contact our Los Angeles criminal attorney anytime 24/7/365 at 818-484-1100.