Have you been charged with participation in a "phantom help" real estate fraud scheme? If so, we're here to help!
In this article, our California criminal fraud attorneys1 explain the laws regulating California's "phantom help" scams by addressing the following:
If, after reading this article, you would like more information, we invite you to contact us at Shouse Law Group.
A phantom help scam.also referred to as "phony counseling".is one of the most prevalent types of California mortgage and real estate fraud taking place today. Real estate and mortgage fraud is essentially any deliberate false representation that is made in connection with any portion of a real estate transaction.
Phantom help scams are specifically prohibited under Civil Code 2945.4 California's foreclosure fraud law.2 Foreclosure fraud takes place anytime a "foreclosure consultant".or anyone posing as a foreclosure consultant.promises to help a distressed homeowner delay or even prevent a pending foreclosure from taking place, yet does nothing to further that promise.
The housing crisis that has plagued California for the last few years has generated an onset of this type of fraud.
There are basically three types of phantom help schemes.
The first type of phantom help scheme takes place when a so-called "foreclosure consultant", "mortgage modification specialist", etc. targets a homeowner who is facing a pending foreclosure and charges upfront fees -- typically between $500 and $5,000 -- to delay or prevent those foreclosure proceedings.
Most of the time, the consultant does little or no work on the homeowner's behalf. By the time the homeowner realizes that the specialist has not fulfilled his/her promise, enough time has elapsed that the foreclosure is an imminent certainty.
The second type of phantom help scam takes place when an individual markets a home that is pending foreclosure to an unsophisticated homebuyer who doesn't understand how the escrow or title insurance process work. The "seller" then collects a down payment from the unsuspecting homebuyer and turns over an unrecorded deed (that is, a document -- most likely a fraudulent one -- that may not legally entitle a homebuyer to the property he/she believes he/she has purchased).
Because the "client" is not savvy in the real estate process, he/she incorrectly believes that the deed and down payment entitle him/her to move into the home. The "buyer" then moves in, paying rent directly to the seller (that is, the "consultant", "specialist", etc.). In a short time, however, he/she is evicted by the legitimate purchaser who buys the property from the bank.
A third example of phantom help scheme occurs when the consultant instructs the desperate homeowner that he/she should not communicate with his/her lender, lawyer, or credit counselor because the consultant is now taking care of all of the arrangements.
During this alleged "negotiation process", the consultant convinces the homeowner to make his/her mortgage payments directly to the consultant who states that he/she will act as the liaison between the homeowner and the bank. The consultant then collects a few monthly payments before moving on to the next victim.
Fortunately there are a variety of legal defenses to charges involving phantom help or phony counseling that a California criminal defense lawyer could present on your behalf. Some of the most common include (but are not limited to):
If you obtained consent to help the homeowner prevent or delay the foreclosure process, you may not be guilty of this crime. But in order to prevail on this defense, you must not have fraudulently obtained that consent.
This means that any promises or strategies that you presented to the homeowner must have been legitimately made. If you believed that you were legitimately helping the homeowner.and not merely benefiting yourself.you may be excused from any criminal wrongdoing.
As Newport Beach criminal defense attorney Zachary McCready3 explains, "Once you are accused of being involved in a phantom help scam is it critical that you immediately contact a skilled California criminal defense attorney. An experienced attorney can help prove that you had consent to represent the homeowner and that that consent should excuse your potential criminal conduct or, at the very least, justify a reduced charge."
If you collect upfront fees from the homeowner, the fact of the matter is that your case will be more difficult to defend. This is because charging upfront fees is a direct violation of California's foreclosure fraud laws. By law, you are not permitted to collect compensation until you have performed every service that you agreed to perform.4
However, if you did perform the agreed upon services and thereafter collected compensation -- but your efforts simply weren't enough to prevent or delay the foreclosure process.you should be acquitted of phantom help fraud.
And in those instances where the evidence unfortunately points to your guilt, your California criminal defense attorney will attempt to negotiate a plea bargain for a reduced charge and/or reduced sentence.
By entering a guilty or nolo contendere ("no contest") plea to a lesser charge or lesser sentence, it not only allows you to escape greater penalties (and social stigma) but allows the prosecutor to obtain a conviction.5
There are two common ways that prosecutors can charge alleged phantom help scams. The first is through California's foreclosure fraud law. The second is through Penal Code 487 PC California's grand theft law.
Participation in a phantom help scam via California's foreclosure fraud law is a "wobbler." A "wobbler" is an offense that prosecutors can charge as either a felony or a misdemeanor, depending on
- the facts of the case, and
- your criminal history.
If convicted of this offense as a felony, you face:
- 16 months, or two or three years in county jail, and/or
- a maximum $10,000 fine.
If convicted of this offense as a misdemeanor, you face:
- a maximum $10,000 fine, and/or
- up to one year in a county jail.6
Penal Code 487 PC California's grand theft law is also a wobbler, subjecting you to the same penalties just listed above.
In addition to the penalties noted above.and to any other penalties that might be imposed with a conviction for this offense.a conviction for participation in a California phantom help or phony consulting scam subjects you to
- an additional and consecutive one to four years if the homeowner or renter was deprived of more than $65,000,7
- 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),8 and
- professional discipline if you hold a California professional license (given that criminal convictions can affect professional licenses.especially when the crime is classified as a crime of moral turpitude which is typically the case with fraud offenses).9
Call us for help.
If you're a real estate broker, you may also find useful information on our page about how California criminal convictions affect real estate broker licenses.
If you or a loved one is charged with phantom help and you are looking to hire an attorney for representation, we invite you to contact us at Shouse Law Group. We can provide a free consultation in office or by phone. We have local offices in Los Angeles, the San Fernando Valley, Pasadena, Long Beach, Orange County, Ventura, San Bernardino, Rancho Cucamonga, Riverside, San Diego, Sacramento, Oakland, San Francisco, San Jose and throughout California.
Additionally, our Nevada criminal defense attorneys are available to answer any questions about Las Vegas Nevada's mortgage 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.10
1Our California criminal fraud 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. ("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 [a violation of which is a type of phantom help scam]. (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.")
3Orange County criminal defense attorney Zachary McCready defends clients throughout Orange County, including Fullerton, Anaheim, Newport Beach, Santa Ana, Irvine and Westminster.
4See California Civil Code 2945.4, endnote 2, above.
5Pleading guilty or nolo contendere ("no contest") to a reduced charge is considered a smart legal defense when the facts against you are simply too strong to overcome. Speak to your attorney about possible plea bargain charges to know what types of negotiations are in your best interest.
6California Civil Code 2945.7 -- Violations; punishment; cumulative remedies. ("Any person who commits any violation described in Section 2945.4 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 pursuant to subdivision (h) of Section 1170 of the Penal Code, 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. ("(a) Except in cases where a different punishment is prescribed by any law of this state, every offense declared to be a felony is punishable by imprisonment for 16 months, or two or three years in the state prison unless the offense is punishable pursuant to subdivision (h) of Section 1170. (b) Every offense which is prescribed by any law of the state to be a felony punishable by imprisonment or by a fine, but without an alternate sentence to the county jail for a period not exceeding one year, 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.")
7 California 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, 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.")
8California Penal Code 186.11 PC - Aggravated white collar crime enhancement.
9To learn more about how criminal convictions can affect professional licenses, please visit our pages on professional license issues (which are organized by individual professions).
10Please feel free to contact our Nevada criminal defense attorneys Michael Becker and Neil Shouse for any questions relating to Las Vegas Nevada's mortgage fraud laws. Our Nevada law offices are located in Reno and Las Vegas.