real estate, hosuing and mortgage fraud in california

More often homebuyers and lenders falsify information to get a home loan. Under California Law, such unlawful act is considered to be mortgage fraud. If you are a homebuyer, sign only documents with complete and exact information. Despite humble development in various economic sectors and increased vigilance by financial institutions to reduce mortgage fraud, unfortunately, it reached to its highest point in 2012. As the housing market is still in distress, national unemployment remains high and housing inventory is at the same level it was in 2008 in the midst of the housing crisis, so it provides wide opportunities for fraud. Mortgage crime rates and new foreclosures continue to increase in prime and subprime markets.

Mortgage Rescue and Loan Modification Scams: choosing foreclosure rescue company or foreclosure assistance firm, be careful not to be nicely left by them.
Reverse Mortgage Scams: Practice shows that reverse mortgages can also be useful, but very risky as a problem solving option. It can cause inappropriate loans and annuities, especially in today’s complex economy.

Below, we will introduce you the main elements of the California Fraud Law. If you need detailed information and professional help you are on the right way, do not hesitate to call or send email to The Margarian Law Office.

1. Legal Definition of the Mortgage Fraud in California
2. Common types of California Fraud
a) Real Estate Investment Schemes
b) Short Sale Schemes
c) Commercial Real Estate Loan Fraud
d) Advanced Fee Schemes
3. Punishment of Fraud
a) California Civil Code 2945.4 — Foreclosure fraud
b) California Civil Code 890 — Rent skimming
c) Penal Code 487 PC California’s grand theft law
4. Legal Defenses to California Fraud Accusations
5. Related Articles

In addition, we are ready to provide answers to your initial questions concerning fraud charges in California for free.

You may file your request online, by telephone or by mail. 818-553-1000

1. What Does Mortgage Fraud Mean under California Law?

Submitting fake W-2 forms or getting an inflated property appraisal by a home buyer, mortgage broker and/or other real estate professional is mortgage fraud.
As mortgage fraud is often connected falsification or misstatement on mortgage documents, so two parties can be engaged in fraud if:
– One side provides false information
– The second side relies on that information to complete a transaction.
Since 2009 The Fraud Enforcement and Recovery Act (FERA) enlarged the reach of federal law enforcement officials in enforcing mortgage fraud laws. FERA can include $1 million fines and 30-year prison sentences.

According to law enforcement officials, two main categories of mortgage fraud can be taken into consideration:
Fraud for Housing: when a borrower falsifies information to qualify for a loan or to obtain more acceptable terms of buying home.
Fraud for Profit: when a real estate professional (appraiser, mortgage broker, etc.) commits fraud for retrieving money from a possessions or deal.

Mortgage fraud perpetrators mainly are licensed/registered and non-licensed/registered mortgage brokers, lenders, appraisers, underwriters, accountants, real estate agents, settlement attorneys, land developers, investors, builders, bank account representatives, and trust account representatives, that`s why they can use their experience in the banking and mortgage-related industries. They also have a high level of access to financial documents, systems, mortgage origination software, notary seals, and professional licensure information necessary to commit mortgage fraud and have demonstrated their ability to adapt to changes in legislation and mortgage lending regulations to modify existing schemes or create new ones. One of their privileges is that they can easily recognize their victims identifying common characteristics such as ethnicity, nationality, age, and socioeconomic variables, to include occupation, education, and income. All this information let them earn high profits through illegal activity and with low risk.

Being indicted of committing mortgage fraud one may also be accused in financial damages incurred by the lender. Civil claims may be based on contractual theories, misrepresentation and/or deceit, conspiracy to defraud the lender or breach of trust. Mortgage brokers or appraisers contemplated as third parties of fraudulent transaction and may also be liable for damages.

2. Common Types of Mortgage Fraud

Mortgage transactions, in which several parties and large sums of money are involved, seem very gainful and give more opportunities for fraud. Some of them can be extremely complicated and unique. Pay attention to the following types of mortgage fraud, which are the most common:

Fraudulent Supporting Loan Documentation: Loan applicant submits counterfeit or remodeled paycheck information or fraudulent documentation.
Property Flipping: A piece of real estate is acquired (with a falsely inflated value) and quickly resold. It is falsely inflated appraisal that makes this practice fraudulent, as “flipping” during a housing boom is not necessarily illegal.
Straw Buyers: Borrower’s identity is hidden through the use of a nominee, in whose name and credit history the loan application is made.
Silent Second: Getting a second mortgage by the buyer to cover the down payment on the primary loan. As the second loan is taken out without the initial lender’s knowledge it makes the process illegal.
Stolen Identity: Using a fictitious or stolen identity by a mortgage loan applicant. If the identity is stolen, all the process of mortgage is done without true person`s knowing and permission.
Equity Skimming: Using fake credit reports and fake income documents to receive a mortgage in the straw buyer’s name by the investor and after all signing property over to investor and relinquishing all property rights. Investor makes no payments but rents the property until it is interdicted.
Inflated Appraisal: Collusion of the mortgage broker and/or loan officer with appraiser for ensuring very high appraisal value to match the buyer’s offer and complete the deal.

Studying the information below, you can understand the risks of mortgage schemes and define mortgage fraud, which will help you avoid of doing investment.
a) Real Estate Investment Schemes
Real estate investment scheme works as follows: mortgage fraud perpetrators convince investors or borrowers to acquire investment properties mainly at fraudulently unreasonable values and the victim borrowers paying artificially inflated prices for these investment properties face a personal financial loss discovering the true value.
FBI analysis in FY (financial year) 2010 shows that 43 percent of FBI field offices are reporting this activity with losses exceeding $76 million.

b) Short Sale Schemes
A real estate short sale is a type of pre-foreclosure sale in which the price of the property is less than the mortgage owed. Short sale fraud occurs when collusion appears between the two sides of mortgage to resell the property for a short period and consists of false statements made to loan servicers or lenders. One of the most common forms of a short sale scheme occurs when the subject is alleged to be purchasing foreclosed properties via short sale, but not submitting the “best offer” to the lender and subsequently selling the property in a dual closing the same day or within a short time frame for a significant profit. The fraud mainly occurs in areas of the country where high rates of foreclosure or homeowner distress experienced.
Industry participants assert that short sale fraud schemes continue to be an increasing threat to the mortgage industry.

c) Commercial Real Estate Loan Fraud
Commercial real estate loan fraud continues to mirror fraud in the residential mortgage loan market. Law enforcement investigations indicate that perpetrators such as real estate agents, attorneys, appraisers, loan officers, builders, developers, straw buyer investors, title companies, and others are engaged in same-day property flips; the falsification of financial documents, performance data, invoices, tax returns, and zoning letters during origination; the diversion of loan proceeds to personal use; the misrepresentation of assets and employment; the use of inflated appraisals; and money laundering.
FBI reporting indicates that some commercial real estate-driven bank failures may expose insider and accounting fraud in regional and community banks. According to FBI analysis, these frauds are emerging in addition to the residential mortgage frauds still being found in roughly half of all bank failures investigated by the FBI. Even more some executives and loan officers may resort to issuing fraudulent loans, dishonest accounting, or other criminal activity to disguise the poor financial conditions of their institutions.

d) Advance Fee Schemes
Mortgage fraud perpetrators use advance fee schemes, which involve victims paying up-front fees for services that are never rendered, to get thousands of dollars from homeowners and straw buyers.

e) Builder Bailout Schemes
Builder bailout scheme is very actual problem, especially in distressed real estate market. It consists of builders offering excessive incentives to buyers, which are not detected on the mortgage loan documents. It happens mainly when the builder has difficulties with selling the property and offers an incentive of a mortgage with no down payment. So the builder wishes to sell an estate: inflating the value of the estate and finding a buyer, the lender funds a mortgage loan of the real value, believing that the rest was paid to the builder. The lender is actually funding 100 percent of the home’s value. The builder acquires the whole value from the sale of the home, pays off his building costs, forgives the buyer’s down payment, and keeps any profits.

3. Punishment of Fraud

California real estate fraud charges typically get filed pursuant to:
· California Civil Code 2945.4 foreclosure fraud,
· California Civil Code 890 rent skimming, and
· Penal Code 487 PC California’s grand theft law.
Note that this is not the whole list of laws related to California real estate and mortgage fraud. The above offenses are simply the most commonly prosecuted.

a) California Civil Code 2945.4 – Foreclosure fraud
Under California Civil Code Section 2945.4, ”foreclosure fraud” is prohibited. Nowadays it`s a very common type of real estate fraud considering current housing crisis. The main factor is that expected foreclosures are public record, which means that anyone can obtain this information to target distressed homeowners.
According to Civil Code Section 2945.4 California foreclosure fraud takes place when an individual offers to “rescue” the homeowner from losing his/her home. As part of the rescue, the “rescuer” convinces the desperate homeowner either to
· sign documents without informing the homeowner: the rescuer takes out a second loan and leaves with those proceeds, or
· sell the rescuer the property under the false promise that the homeowner can “rent back” the property until he/she is able to repurchase it.
California’s foreclosure fraud law states cases when a person can be found guilty of the commission of the crime. In particular, the following conduct is considered to be unlawful:
· collecting or even charging compensation for your acting on behalf of the homeowner without his privacy,
· charging or collecting over fees for your services,
· the act of taking a pledge on estate, requiring any other collateral security for compensation, or taking any interest in the property: buying the property so that the owner can rent back as described above,
· taking money or property from a third party for your service hiding the exact amount from homeowner,
· taking a power of attorney from the homeowner
· forcing or attempting to force the owner to sign an illegal contract.

b) California Civil Code 890 – Rent skimming
According to California law (Civil Code Section 890) rent skimming is prohibited. “Rent skimming” involves
· using rent proceeds from your residential rental property during the first year after acquiring the property without first applying it or an equivalent amount to your mortgage (essentially collecting income without paying off your obligatory debt), or
· fraudulently renting a property (without authority to rent a violation) to occupants and then collecting that rent for your own use.
“Multiple acts of rent skimming” is when you willfully “rent skim” with respect to each of five or more properties acquired within any two-year period. It subjects you to criminal penalties, whereas single acts of rent skimming only subject you to civil penalties.

c) Penal Code 487 PC California’s grand theft law
According to California grand theft law (Penal Code 487 PC) almost all instances of real estate or mortgage fraud are prohibited. This law makes it a crime taking another person’s property unlawfully when that property’s value is above $950.
With an amount greater than $950, prosecutors can charge you with grand theft in addition to/instead of the above Civil Code violations.

4. Legal Defenses to California Fraud Accusations

There are multiple legal defenses that may be able to reduce or dismiss the charge. Including:
Mistake of fact

False accusations

– Etc.

5. Related Articles

Fraud Offense

California Theft Crimes

Identity Theft

Dealer Fraud

Insurance Fraud

Mail Fraud

Credit Fraud

Security Fraud

Telemarketing Fraud

Wire Fraud

Tax Evasion


We are a client-centered professional law firm. When The  Margarian law firm accepts your California fraud case, you can put your mind at ease. We handle every aspect of your case. Do not hesitate to contact us!
Depending on how complicated your situation and how good your record keeping is, the entire process of clearing up your non-filing status could take as little as a few weeks.

You may file your request online, by telephone or by mail. 818-553-1000

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