18 U.S.C. § 1348
Federal Real Estate Fraud
Federal Real Estate Fraud – Table of Contents
Real estate fraud (or mortgage fraud) is a serious crime. A conviction of this crime can result in serious consequences, including significant monetary fines, long-term prison sentences, and a damaged reputation. As outlined more fully below, the crime is a “wobbler,” meaning it can be charged as either a misdemeanor or a felony, with felony convictions carrying harsher penalties. It can also be charged at both the state and federal levels.
In short, real estate fraud happens when the seller or buyer of real estate property has perpetuated fraud upon another person or business in connection with a real estate transaction; a buyer can do this to a seller, and a seller can do this to a buyer. The fraud involved is a general term for any type of misconduct that a person or business uses to commit theft, criminal misconduct, or theft related to real estate transactions. Usually, the transaction at issue involves buying, selling, renting, or financing real estate property.
What is Federal Real Estate Fraud
Under California law, this crime is often prosecuted under the following:
- Penal Code 487 PC, which prohibits grand theft of property exceeding $950.00 in value;
- Penal Code 115 PC, which makes it a crime to file any forged documents;
- Civil Code 2945.4, which makes it unlawful to commit fraud related to foreclosures;
- Civil Code 890, which disallows rent skimming.
Any of the crimes mentioned above can be charged at the state level as felonies or misdemeanors.
When someone is charged at the federal level with real estate fraud, it is frequently done under the auspices of the federal wire fraud statute. The prosecution and the federal government have cracked down on this crime in the last 10-15 years after the 2008 real estate market fallout. Surprisingly to some, this crime can be prosecuted at both the state and federal levels. As discussed in more detail below, in California, the prosecution usually makes charges under California Penal Code 487 and Penal Code 115 and some other Civil Code Sections. These crimes are often complex and involve many financial nuances. Thus, for the prosecution to successfully obtain a conviction, they must show intentional misrepresentation by the alleged perpetrator. The best defense in these circumstances for the accused is that the alleged fraud or misrepresentation is actually a mistake. Thus, an essential aspect of defending these cases is demonstrating a lack of intent to commit the alleged fraud.
While these crimes can be prosecuted at the state level, also with severe consequences, the federal government usually becomes involved when the real estate transaction at issue involves a financial institution. When financial institutions are involved, federal jurisdiction will take priority over state jurisdiction. When the federal government is involved, the penalties are often harsher than those imposed at the state levels. Moreover, federal prosecutors and investigators have much more tools at their disposal to investigate and prosecute these crimes than those at the state level. However, there is not necessarily one federal statute associated with real estate fraud. When someone is charged at the federal level with real estate fraud, it is frequently done under the auspices of the federal wire fraud statute. As a result, a conviction at the federal level can wreak havoc on one’s life with devasting consequences, including lengthy prison sentences of up to 20 years, harsh monetary penalties as high as $1 million, and loss of significant rights, including the right to vote, bear arms, or visit with your own children.
Types of Real Estate and Mortgage Fraud
Real estate transactions are often complex, and various stages are involved in these transactions.
Fraud usually occurs between the parties during the following critical stages:
- Closing; and
At the state level, there are different statutes and legal strategies that the prosecution can use to file charges against alleged offenders, which may include:
- Theft by false pretense;
- Fraud involving foreclosures;
- Rent skimming;
- Filing forged documents such as deeds.
While there are many types of real estate fraud, let’s examine the most common types of fraud.
This is usually charged at the state level in California under Penal Code 487 PC. The essential elements for the prosecution to prove are that someone does the following:
- Intentionally defrauds someone of money or property worth over $950.00; and
- This is done through intentional false promises or representations or misrepresentations.
In addition, although the laws and theories vary in different states, the prosecution generally has to prove the following:
- The alleged offender intentionally deceived someone who owns real estate or a mortgage lender;
- Such deception was accomplished by stating false promises; and
- The victim of the crime relied on the promise or gave the accused his or her property or money.
Let’s assume Mary owns a condo and has $100,000 of equity in the property. However, she has suddenly fallen on difficult financial times and can no longer pay her mortgage payments. Because of this, she is now at risk of foreclosure on the condo. She learns of a business owned by Oliver that allegedly specializes in “foreclosure consulting.” Oliver assures her that he can prevent foreclosure if he negotiates with the bank that gave her the loan. (He has no intention of doing this, so it is a “false promise.”) He also tells her he will negotiate with the lender, but only if she agrees to sign documents that give him the authority to act on her behalf in the negotiations. Mary signs the documents that Oliver sent her but does not realize she signed a deed that transferred the title of her condo to Oliver. Oliver now owns the equity in Mary’s condo, which he obtained by misleading her. Oliver has committed theft by false pretense.
(An example will be shown later that he also committed foreclosure fraud).
It should be noted that if he had actually negotiated with the bank or financial institution with the intent to ultimately deceive Mary in some other way, this would be prosecuted at the federal level since a financial institution would have been involved if Oliver had contacted the bank.
Under California law, this is prosecuted under Civil Code Section 2945.4.
Essentially, the prosecution has to prove the accused committed any of the following:
- Charged the real estate owner for services before providing any service;
- Ultimately charged or collected excessive fees for such services;
- Actually took a legal interest in the real estate that was subject to foreclosure;
- Took money from any third party for these services and failed to disclose this to the owner;
- Took power of attorney from the property owner; or
- Defrauded the owner into signing an illegal contract related to the property.
Please refer to the previous example of Mary and Oliver. Oliver is guilty of foreclosure fraud because he obtained a legal interest in Mary’s condo through his foreclosure services when she signed the deed under false pretenses.
Note that Oliver would also be guilty of foreclosure fraud if he charged Mary an excessive fee for his services or took money from a third party for his services and failed to disclose the information to Mary.
Under California law, this is prosecuted under Civil Code Section 890.
There are two ways in which someone could be prosecuted for this crime.
Under the first scenario, a person would be guilty of the crime if the accused did the following:
- Rented residential property during the first year that the property was acquired; and
- Failed to apply those proceeds to the mortgage.
Under the second scenario, the defendant would have to do the following:
- Pretend to own property that he or she does not actually own;
- Rent the property fraudulently without the right to do so;
- Keep any of the rental proceeds.
It should be noted that most states only consider rent-skimming a crime if it is committed on more than one occasion. However, a one-time act of rent-skimming could subject a defendant to a civil suit.
In California, this is prosecuted under Penal Code 115 PC.
The law states that it is a crime for an individual to do the following:
- Intentionally file, record, register a forged or false document; and
- File the document with a governmental office, such as a county clerk’s office.
Examples of this type of fraud would be filing a forged deed.
While these are some of the most common types of real estate fraud, other examples would include the following:
- Phantom Help Scam; (Foreclosure assistance company promises an individual who owns real estate that they can avoid foreclosure with an upfront fee, takes the money, but performs no service. After that, the homeowner is unable to prevent the foreclosure);
- Straw Buyer Schemes; (The actual buyer cannot purchase the property for a particular reason, for example, they have bad credit. Thus, a straw buyer is used. If this transaction defrauds someone, or it is unlawful for the genuine buyer to purchase the property, this is a crime)
- Illegal Property Flipping; (Fraudulently inflating the value of the property at the time of the appraisal so that an innocent person buys the property at the inflated price and the bank lends money on the real estate property for more than its actual value). Again, this would elevate the crime to prosecution at the federal level since a financial institution, the bank, is involved. (This is not a crime if a person buys a home, makes significant changes or improvements to the house, and resells it at a higher price)
- Predatory Lending; (A mortgage broker creates the loan for a buyer and does so with unnecessary fees that do not benefit the borrower).
There are many different types of sentencing for convictions of this crime.
As stated above, these crimes are wobblers, meaning they can be charged either as misdemeanors or felonies, with felonies carrying harsher penalties.
For example, misdemeanor grand theft would be punishable for up to one year in county jail. ‘
A felony conviction would be punishable by a maximum jail sentence of three years. Foreclosure fraud carries the same penalties as does rent skimming. However, it should be noted that a one-time offense of rent skimming does not lead to criminal charges; a one-time rent skimming act would subject someone to civil penalties. If you file forged documents, such as a deed, this is a felony and punishable in county jail for up to three years as well as a fine of up to $10,000.
You need an experienced federal defense attorney to assist you in defending against these serious crimes and potential convictions and penalties.
In most of these cases, the prosecution must prove intent to defraud. However, their case will attempt to show that a defendant knowingly intended to defraud a person or business. The best way for the defense to defend against such accusations is to show that the defendant made a mistake and did not intend to defraud anyone.
Real estate transactions are complicated and full of intricate nuances during the often-complicated process of buying or selling real estate. Many documents are filed, lengthy contracts are signed which may be difficult to understand, and information is obtained to secure a loan. Some individuals may sign something by accident without knowing precisely what is being signed. Others may provide inaccurate information to a lender simply through an innocent mistake.
When there is no intent to defraud, there is no crime. This will be the cornerstone of your defense in fighting a real estate fraud charge.
An experienced defense attorney can help you prepare the best possible defense to challenge the prosecution’s case.
If you are being charged with real estate fraud, either on the state level or federal level, in the Los Angeles area, contact us today for a free consultation. Your freedom depends on finding an experienced defense attorney immediately. The sooner you reach out, the sooner we can work on your legal defense which may involve avoiding an arrest or charges being filed. Assuming charges have already been filed, an experienced defense attorney can potentially have your case drastically reduced or dismissed entirely.
If you or a loved one is being charged with real estate fraud, we invite you to contact us immediately for a free case review.
Our experienced and assiduous attorneys will be sure to fight until the end to protect your interests and possibly reduce or drop your charges entirely.
Call Us for a FREE Case Review: 310-274-6529
How to Win Your Case
We cannot stress enough that you read, understand and follow these 10 basic rules if you are criminally charged or under investigation:
- Don’t ever talk to the police
- Do not discuss your case with anyone
- Everything you tell your lawyer is confidential
- Tell police you need to contact your attorney
- Never consent to any search by the police
- If the police knock on your door, don't answer!
- Realize the consequences of a criminal conviction
- Your lawyer (not you) will contact any witnesses
- Information on your cell phone is evidence
- Early Intervention is the key