Review of Mortgage Fraud Laws and Best Defenses
California Penal Code 532f describes the crime of mortgage fraud, which is also commonly called real estate fraud.
This statute applies to anyone involved in a mortgage transaction, including the lender, borrower, along with others who participate in the process.
PC 532f covers not only residential mortgage loan transactions, but also commercial and other forms of credit.
Put simply, mortgage fraud occurs when somebody commits a fraudulent act directly related to the purchase, sale, rental or financing of real estate property.
These laws cover a wide array of conduct involving housing, rental agreements, mortgages, and foreclosures. They provide penalties for anyone who deliberately provide false representation connected to any part of a real estate transaction.
Anyone convicted of mortgage fraud will face harsh penalties, including jail time, fines, and restitution.
Foreclosure fraud and other types of real estate fraud are normally a California “wobbler” offense that means the prosecutor has the discretion to file the case as either a misdemeanor or felony crime.
A conviction will normally require defendants to pay restitution to the victim. Some common examples of real estate and mortgage fraud include:
- foreclosure fraud,
- filing forged documents,
- rent skimming,
- illegal property flipping,
- straw buyer schemes,
- predatory lending schemes,
- phantom help schemes.
For more information, our Los Angeles criminal defense lawyers are reviewing mortgage fraud below and we'll explain what the laws says and what your charge means. With this knowledge, you can feel more empowered about your legal situation.
Definition of PC 532f PC Mortgage Fraud
California Penal Code § 532f PC states that you can be charged with mortgage fraud if, “with the intent to defraud,” you:
- deliberately make any inaccurate or misleading statements during the mortgage lending process;
- you intentionally omit relevant information during the mortgage lending process that it be relied on by mortgage lender:
- receive funds as a result of information you knew to be false;
- file documents containing the information you know to be false during the mortgage lending process.
Other actions, omissions, and statements may result in a criminal charge of mortgage fraud. As noted, this charge is also frequently called real estate fraud. Until proven guilty, these charges are all alleged.
Specific Actions That Can Lead to a Mortgage Fraud Charge
In 2018, the U.S. Attorney's Office for the Central District of California sentenced a married couple and their adult daughter to lengthy prison sentences.
They were convicted of perpetrating a $20 million “foreclosure rescue scheme.” Their crimes included:
- making false claims to distressed homeowners;
- providing fraudulent documents to mortgage lenders to prevent foreclosure;
- obtaining mortgages using false identities;
- filing for bankruptcy using the names of those who they were defrauding.
This is a case of intentional, elaborate mortgage fraud. Some individuals charged under California PC § 532f PC may never have intended to break the law, but could be charged with mortgage fraud if:
- they forgot to include certain information when submitting a loan application;
- they made an unintentional clerical error on a loan application;
- they submitted information that was accurate at the time but became inaccurate due to a later change in circumstances (like a change in one's income);
- there was a miscommunication between two parties that led to a charge of mortgage fraud
Defendants can unintentionally wade into criminal territory despite having no ill intent.
For example, say that Jane has qualifying income, is gainfully employed, has ample assets, and checks all of the other boxes for mortgage approval.
There's just one problem—her credit score is in the low 500s thanks to undetected identity theft years ago.
Jane is ready to become a homeowner, but her bad credit stands between her and a mortgage. So, she has her brother apply for the mortgage in his name, knowing that she will be making the payments.
This can qualify as mortgage fraud. It's one of many examples where a defendant may feel justified in their actions but can unintentionally run afoul of the law.
Offenses Commonly Related to Mortgage Fraud
California offenses that may become relevant to a mortgage fraud case include:
Grand theft under California Penal Code 487 is a general statute used by prosecutors for mortgage fraud and real estate fraud cases.
In the context of PC 487, a mortgage fraud allegation is typically related to a theft by false pretenses when they defraud someone related to real estate property by use of false representations or promises.
Put simply, mortgage fraud can occur under Penal Code 487 when someone makes false statements or promises to either a buyer or seller with intent to mislead them, such as lying about ownership or concealing defects.
Filing forged documents under California Penal Code 115 PC covers forgery, theft, and falsification of documents.
In the context of mortgage fraud, PC 115 makes it a crime to file a forged deed with the county recorder to deceive the government regarding ownership of real estate property.
This statute also also applies to forging mortgage loan contracts, real estate sale contracts, disclosure forms related to defects with the property, among other related documents.
Foreclosure fraud under Civil Code 2945.4 cover covers alleged crimes during the foreclosure process, which skyrocketed during the 2008 great recession when homeowners were facing possible loss of their home.
Many alleged businesses opened under the auspices of helping homeowners navigate the foreclosure process, but instead charged excessive fees, and defrauded desperate homeowners.
Rent skimming under Civil Code 890 is another type of mortgage fraud where someone intentionally fails to apply rent payments that were actually received on a residential property or they deceive a renter that they are the owner.
Predatory lending schemes in California is the illegal practice by a bank and other lenders that take advantage of people who are seeking a mortgage loan.
Other forms of mortgage fraud and real estate fraud in California includes illegal property flipping and straw buyer schemes. Diversion of a construction loan is defined under Penal Code 484b PC.
Possible Criminal Penalties for a Mortgage Fraud Conviction
Criminal penalties for mortgage fraud generally fall under the umbrella of grand theft. It is up to the prosecutor's discretion whether to charge a defendant with a misdemeanor or felony.
For a misdemeanor conviction related to mortgage fraud, a defendant may face:
- up to one year in jail,
- a fine up to $1,000.
For a felony conviction, they may face:
- up to three years in California state prison,
- a fine up to $10,000.
Penal Code 115 PC filing forged documents is always a felony crime carrying a sentence of up to three years in jail and a fine of up to $10,000.
Civil Code 890 rent skimming is normally charged when are are multiple acts of skimming. If there was just a single act, criminal charges will be not filed and the violator will face a civil penalty. The criminal penalties are the same as PC 487 grand theft listed above.
Civil Code 2945.4 foreclosure fraud is also a wobbler that can be charged by the prosecutor as a misdemeanor or felony. The penalties for a conviction are also the same as grand theft penalties listed above.
Defendants may also face fines and additional penalties. These details vary case-by-case. Several other criminal and civil statutes may apply to a mortgage fraud case.
Defenses Against a Mortgage Fraud Charge
“With the intent to defraud” is a key phrase in all mortgage fraud cases. The state's ability to prove the intentionality of the alleged actions could determine the outcome of a case.
Defenses against a mortgage fraud charge in California may include:
- that you were misled in a manner that absolves you of criminal liability;
- you had no intent to defraud—instead, you made an honest error that you can prove was not intentional;
- alleged victim was not defrauded or deceived;
- that another party committed the fraudulent act;
- Constitutional violations,
- insufficient evidence,
- false accusation.
The appropriate defense to a mortgage fraud charge will depend on the specific nature of the alleged crime.
As noted, it can't be overstated that the crime of real estate fraud requires somebody to have a criminal intent to unlawfully profit by using a false claim or other type of fraudulent activity that is related to a real estate transaction.
Put simply, a prosecutor has the burden to prove you had a criminal intent directly related to a real estate transaction.
Thus, we might be able to make a reasonable argument that an honest mistake was made – a good faith error – that does not rise to the level of a deliberate attempt to defraud someone.
If the prosecutor can't prove your acted to defraud related to a mortgage, beyond a reasonable doubt, then there is a good chance of avoiding a conviction.
We might be able to negotiate with the prosecutor to get the mortgage fraud charges reduced of even dismissed.
Further, it might be possible to avoid the formal filing of criminal charges before court through a proses called “prefiling intervention.”
So, if you've been charged with mortgage fraud under California Penal Code 532f. PC, or another related statute discussed above, you will need to have the case reviewed by a seasoned criminal defense lawyer to determine best strategy to fight the case.
Eisner Gorin LLP can help you. We have two office locations based in Los Angeles County, including Century City and Van Nuys, which is in the San Fernando Valley.
Call us at (877) 781-1570, or fill out our contact form.