California Foreclosure Fraud

Civil Code 2945 & 2945.4

Due to our current housing crisis, California foreclosure fraud is on the rise. A conviction is serious, subjecting you to substantial fines, professional discipline, and possible time in California state prison.

The good news is that we are here to help. As former police investigators and district attorneys, we know how to investigate, prosecute and defend against these types of fraud charges, which allows us to provide you with the best legal defense.

In this article, our California criminal defense attorneys¹ explain the state's foreclosure fraud laws by addressing the following:

1. The Legal Definition of "Foreclosure Fraud" in California

2. Actual Cases of Foreclosure Fraud

3. Legal Defenses

4. Penalties, Punishment and Sentencing

If, after reading this article, you would like more information, we invite you to contact us at Shouse Law Group.

In addition, you may also find helpful information in our related articles on California's Fraud Offenses; California Real Estate and Mortgage Fraud; Wobblers; Felonies; Misdemeanors; Victim Restitution; Crimes of Moral Turpitude; How Criminal Convictions Affect Professional Licenses; and California Legal Defenses.

1. The Legal Definition of "Foreclosure Fraud" in California

Foreclosure fraud is one of the most commonly prosecuted types of California real estate fraud. Perhaps this is because of the fact that pending foreclosures are public record, which means that anyone can readily obtain this information...and use it to prey on desperate homeowners.

Civil Code 2945 and 2945.4 makes it a crime for a foreclosure consultant...that is, a person who solicits or represents that for a fee he/she can help stop or postpone a foreclosure sale...to engage in any of the following practices:²

• collecting or even charging compensation before performing each and every legitimate service that he/she agreed to perform on behalf of the homeowner,



• charging or collecting excessive fees for services,



• taking a lien on the property, requiring any other security as collateral for compensation, or taking any interest in the property (for example, buying the property from the owner so that he/she can allegedly "rent it back"),



• taking money or property from a third party in connection with the services that the consultant has agreed to perform for the homeowner without fully disclosing that the third-party involvement to the homeowner,



• taking a power of attorney from the homeowner (a "power of attorney" is a document that authorizes someone to act on another person's behalf in a legal or business matter), or



• inducing or attempting to induce the owner into signing an illegal contract (that is, one that doesn't comport with all statutory rules and regulations).³

2. Actual Cases of Foreclosure Fraud

In fact, the problem became so widespread that in July of 2009, California Attorney General Jerry Brown required all foreclosure consultants not only to register their personal information with the Attorney General's office but also to post a $100,000 bond with the office. This bond would ensure that consultants who violate California's foreclosure laws could at least repay some victim restitution.⁴

The failure to register and/or post bond could trigger criminal penalties of up to one year in jail and up to $25,000 in fines per violation.⁵

As Ventura criminal defense attorney Darrell York⁶ explains, "Most violations of California's foreclosure fraud law take place when a so-called foreclosure consultant offers to 'rescue' a distressed homeowner from losing his/her home. The consultant promises the homeowner that he/she will prevent foreclosure and collects payment before he/she does any work."

In reality, the consultant provides little, if any, help and often makes matters worse, since time elapses during which the homeowner could have actually received help from a legitimate source.

Some actual recent cases that have been prosecuted include:

• One defendant who created bank accounts and provided hundreds of homeowners with forged bank documents, directing them to send their mortgage payments to those accounts instead of to their lenders.⁷



• A San Diego real estate agent started a mortgage consulting business in late 2008 when the housing market took a big hit. He collected over $500,000 in upfront fees from about 100 clients promising to delay the foreclosure process. The defendant is scheduled to be sentenced in coming months and is expected to receive four years in the state prison.

In addition to violating California's foreclosure laws, the defendant committed other acts of real estate and mortgage fraud by engaging in over 100 real estate transactions where he inflated his client's incomes to qualify buyers for properties that they otherwise would have been unable to afford so that he could collect higher commissions. That practice yielded him more than $1.3 million.⁸

• An Irvine attorney committed over 400 acts of foreclosure fraud when he collected advance payments from clients in return for empty promises to modify mortgage loans...that is, by promising to reduce rates, reduce principal and convince lenders to forgive second mortgages and late fees...in an effort to prevent foreclosure.⁹

3. Legal Defenses

Fortunately there are a variety of legal defenses to California foreclosure fraud that a California criminal fraud defense lawyer could present on your behalf. The most promising is that you didn't have fraudulent intent.

If you had good intentions...and were legitimately trying to help a client avoid a foreclosure but were simply unable to do so...you should be acquitted of this charge.

And when all else fails because the evidence against you is insurmountable, your attorney will engage in plea bargaining. Plea bargaining allows you to plead guilty or nolo contendere ("no contest") to a reduced charge and/or sentence.¹⁰

4. Penalties, Punishment and Sentencing

California Civil Code 2945.4 is what's known as a wobbler. A "wobbler" is an offense that prosecutors can charge as either a felony or a misdemeanor, depending on

1. the facts of the case, and



2. your criminal history.

If convicted of this offense as a felony, you face 16 months, or two or three years in the California state prison and a maximum $10,000 fine. If convicted of this offense as a misdemeanor, you face the same fine and a maximum one year in a county jail.¹¹

And in addition to fines and incarceration listed above, a conviction for foreclosure fraud subjects you to

• an additional and consecutive one-to-four years in the state prison if the homeowner or renter was deprived of more than $65,000,¹²



• an additional and consecutive one-to-five years in the state prison and either a maximum $500,000 fine or double the amount of the fraud, whichever is greater, if the homeowner or renter was deprived of more than $100,000 and the defendant was convicted of two or more felonies involving fraud in the same criminal proceeding (∗this penalty may even be imposed on top of the additional one-to-four years that is added on by the punishment just referenced above),¹³



• repaying victim restitution, and



• professional discipline if you hold a California professional license, such as a real estate license, mortgage broker's license, or attorney's license (even an arrest for a crime of moral turpitude such as fraud could affect your professional license...a criminal conviction will almost undoubtedly affect your professional license).¹⁴

Call us for help...

For questions about California's foreclosure fraud and Civil Code 2945.4, or to discuss your case confidentially with one of our California criminal defense attorneys, do not hesitate to contact us at Shouse Law Group.

We have local criminal law offices in and around Los Angeles, San Diego, Orange County, Riverside, San Bernardino, Ventura, San Jose, Oakland, the San Francisco Bay area, and several nearby cities.

Additionally, our Nevada criminal defense attorneys are available to answer any questions about Las Vegas Nevada's mortgage fraud laws. And for information about Nevada foreclosure fraud laws, read our article about Nevada foreclosure fraud laws . For more information, we invite you to contact our local attorneys at one of our Nevada law offices, located in Reno and Las Vegas.¹⁵

Legal References:

¹Our California criminal defense attorneys have local Los Angeles law offices in Beverly Hills, Burbank, Glendale, Lancaster, Long Beach, Los Angeles, Pasadena, Pomona, Torrance, Van Nuys, West Covina, and Whittier. We have additional law offices conveniently located throughout the state in Orange County, San Diego, Riverside, San Bernardino, Ventura, San Jose, Oakland, the San Francisco Bay area, and several nearby cities.

²California Civil Code 2945.4 -- Prohibited practices (Foreclosure fraud). ("It shall be a violation for a foreclosure consultant to: (a) Claim, demand, charge, collect, or receive any compensation until after the foreclosure consultant has fully performed each and every service the foreclosure consultant contracted to perform or represented that he or she would perform. (b) Claim, demand, charge, collect, or receive any fee, interest, or any other compensation for any reason which exceeds 10 percent per annum of the amount of any loan which the foreclosure consultant may make to the owner. (c) Take any wage assignment, any lien of any type on real or personal property, or other security to secure the payment of compensation. That security shall be void and unenforceable. (d) Receive any consideration from any third party in connection with services rendered to an owner unless that consideration is fully disclosed to the owner. (e) Acquire any interest in a residence in foreclosure from an owner with whom the foreclosure consultant has contracted. Any interest acquired in violation of this subdivision shall be voidable, provided that nothing herein shall affect or defeat the title of a bona fide purchaser or encumbrancer for value and without notice of a violation of this article. Knowledge that the property was "residential real property in foreclosure," does not constitute notice of a violation of this article. This subdivision may not be deemed to abrogate any duty of inquiry which exists as to rights or interests of persons in possession of residential real property in foreclosure. (f) Take any power of attorney from an owner for any purpose. (g) Induce or attempt to induce any owner to enter into a contract which does not comply in all respects with Sections 2945.2 and 2945.3. (h) Enter into an agreement at any time to assist the owner in arranging, or arrange for the owner, the release of surplus funds after the trustee's sale is conducted, whether the agreement involves direct payment, assignment, deed, power of attorney, assignment of claim from an owner to the foreclosure consultant or any person designated by the foreclosure consultant, or any other compensation.")

³See same, i.e., California Civil Code 2945.4 -- Prohibited practices (Foreclosure fraud).

⁴See ConsumerAffairs.COM article California Seeks to Register Foreclosure "Consultants"

⁵See same.

⁶Ventura criminal defense lawyer Darrell York uses his former experience as a Glendale Police Officer to represents clients at the Ventura Hall of Justice, the Van Nuys courthouse, the Pasadena courthouse, the Burbank courthouse, the Glendale courthouse, the Lancaster courthouse, the San Fernando courthouse, and the Criminal Courts Building.

⁷Consumer Affairs article, endnote 4, above.

⁸North County Times Online article VISTA: Real estate agent who led families to ruin will be sentenced

⁹The National Law Journal Online article Crackdown on California Attorneys for Mortgage Fraud a State-Federal Joint Effort re Christopher Diener.

¹⁰In exchange for a reduced charge or reduced sentence, you will be required to plead guity or nolo contendere ("no contest").

¹¹California Civil Code 2945.7 -- Violations; punishment; cumulative remedies. ("Any person who commits any violation described in Section 2945.4 [that is, California's foreclosure fraud law] shall be punished by a fine of not more than ten thousand dollars ($10,000), by imprisonment in the county jail for not more than one year, or in the state prison, or by both that fine and imprisonment for each violation. These penalties are cumulative to any other remedies or penalties provided by law.")

See also Penal Code 18 PC -- Punishment for felony not otherwise prescribed; alternate sentence to county jail. ("Except in cases where a different punishment is prescribed by any law of this state, every offense declared to be a felony, or to be punishable by imprisonment in a state prison, is punishable by imprisonment in any of the state prisons for 16 months, or two or three years; provided, however, every offense which is prescribed by any law of the state to be a felony punishable by imprisonment in any of the state prisons or by a fine, but without an alternate sentence to the county jail, may be punishable by imprisonment in the county jail not exceeding one year or by a fine, or by both.")

See also Penal Code 672 PC -- Offenses for which no fine prescribed; fine authorized in addition to imprisonment. ("Upon a conviction for any crime punishable by imprisonment in any jail or prison, in relation to which no fine is herein prescribed, the court may impose a fine on the offender not exceeding one thousand dollars ($1,000) in cases of misdemeanors or ten thousand dollars ($10,000) in cases of felonies, in addition to the imprisonment prescribed.")

¹²California Penal Code 12022.6 -- Taking, damaging or destruction of property; commission of felony; additional punishment. ("(a) When any person takes, damages, or destroys any property in the commission or attempted commission of a felony [such as California foreclosure fraud], with the intent to cause that taking, damage, or destruction, the court shall impose an additional term as follows: (1) If the loss exceeds sixty-five thousand dollars ($65,000), the court, in addition and consecutive to the punishment prescribed for the felony or attempted felony of which the defendant has been convicted, shall impose an additional term of one year. (2) If the loss exceeds two hundred thousand dollars ($200,000), the court, in addition and consecutive to the punishment prescribed for the felony or attempted felony of which the defendant has been convicted, shall impose an additional term of two years. (3) If the loss exceeds one million three hundred thousand dollars ($1,300,000), the court, in addition and consecutive to the punishment prescribed for the felony or attempted felony of which the defendant has been convicted, shall impose an additional term of three years. (4) If the loss exceeds three million two hundred thousand dollars ($3,200,000), the court, in addition and consecutive to the punishment prescribed for the felony or attempted felony of which the defendant has been convicted, shall impose an additional term of four years. (b) In any accusatory pleading involving multiple charges of taking, damage, or destruction, the additional terms provided in this section may be imposed if the aggregate losses to the victims from all felonies exceed the amounts specified in this section and arise from a common scheme or plan. All pleadings under this section shall remain subject to the rules of joinder and severance stated in Section 954. (c) The additional terms provided in this section shall not be imposed unless the facts of the taking, damage, or destruction in excess of the amounts provided in this section are charged in the accusatory pleading and admitted or found to be true by the trier of fact. (d) This section applies to, but is not limited to, property taken, damaged, or destroyed in violation of Section 502 or subdivision (b) of Section 502.7. This section shall also apply to applicable prosecutions for a violation of Section 350, 653h, 653s, or 653w. (e) For the purposes of this section, the term "loss" has the following meanings: (1) When counterfeit items of computer software are manufactured or possessed for sale, the "loss" from the counterfeiting of those items shall be equivalent to the retail price or fair market value of the true items that are counterfeited. (2) When counterfeited but unassembled components of computer software packages are recovered, including, but not limited to, counterfeited computer diskettes, instruction manuals, or licensing envelopes, the "loss" from the counterfeiting of those components of computer software packages shall be equivalent to the retail price or fair market value of the number of completed computer software packages that could have been made from those components. (f) It is the intent of the Legislature that the provisions of this section be reviewed within 10 years to consider the effects of inflation on the additional terms imposed. For that reason this section shall remain in effect only until January 1, 2018, and as of that date is repealed unless a later enacted statute, which is enacted before January 1, 2018, deletes or extends that date.")

¹³California Penal Code 186.11 PC – Aggravated white collar crime enhancement.

¹⁴To learn more about how criminal convictions such as California foreclosure fraud can affect professional licenses, please visit our pages on professional license issues (which are organized by individual professions).

¹⁵Please feel free to contact our Nevada criminal defense attorneys Michael Becker and Mike Castillo for any questions relating to Las Vegas Nevada's mortgage fraud laws. Our Nevada law offices are located in Reno and Las Vegas.

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