Charged with rent skimming? Let our California real estate fraud lawyers help! Regardless of whether or not you are professionally affiliated with the real estate industry, we know the most effective legal techniques to help you clear your charges.
In this article, our California criminal defense attorneys1 explain California's rent skimming laws by addressing
- 1. The Legal Definition of Rent Skimming in Civil Code 890
- 2. Legal Defenses
- 2.1. The rent was used for unforeseen medical expenses or to cure physical repairs
- 2.2. You didn't have fraudulent intent
- 2.3. False accusations / mistaken identity
- 2.4. Plea bargains
- 3. Penalties, Punishment, and Sentencing
- 4. Related Offenses
If, after reading this article, you would like more information, we invite you to contact us at Shouse Law Group.
Civil Code 890--California's rent skimming law--is one of the most common types of California real estate fraud. "Rent skimming" involves
- collecting income without first paying your obligatory debt (that is, using rent proceeds from your residential rental property at any time during the first year after acquiring the property without first applying it...or an equivalent amount...to your mortgage), or
- renting a property that you don't own or have authority to rent and collecting that rent for your own use (which, depending on the circumstances, could subject you to additional charges under Penal Code 602 PC California's trespass law).2
Engaging in a single act of rent skimming only subjects you to civil penalties. However, engaging in "multiple acts of rent skimming" subjects you to civil and criminal penalties (both of which are discussed below in Section 3. Penalties, Punishment, and Sentencing).
If you engage in "multiple acts of rent skimming," it means that you knowingly and willfully "rent skim" with respect to each of five or more properties acquired within any two-year period.3
Example: Within a two year period, Jim convinced five different homeowners whose properties were going into foreclosure to convey their properties to him. He explained that if they did so, he would assume their debts and they could walk away with their credit intact. He used a variety of names when engaging in these transactions. Some of these victims remained in their homes and paid Jim rent, while others moved out allowing Jim to rent the properties to others.
Jim would ultimately declare bankruptcy in the fictitious names he used which would delay the foreclosure proceedings and allow Jim to collect even more rent. He pocketed the rent money and didn't apply it towards paying the mortgages. Jim has engaged in "multiple acts of rent skimming."
The good news is that there are a variety of legal defenses to California's rent skimming laws that a skilled California real estate fraud defense lawyer could present on your behalf. Some of the most common include (but are not limited to):
There are certain circumstances that excuse rent skimming. If, instead of using your rent to pay your loan, you
- pay healthcare providers for unforeseen, necessary medical expenses for yourself or your family, or
- use the money to pay licensed contractors or material suppliers to correct violations of law relating to the habitability of premises that you legally own (and you have no other source of income to pay those debts),
you are not guilty of rent skimming under California Civil Code 890, as long as you used the rent proceeds within 30 days of their receipt.4
In order to prove that you are guilty of rent skimming, the prosecutor must prove that you engaged in fraud.
Perhaps you didn't realize it was illegal to use the proceeds to pay other expenses...perhaps you were simply following the directions of someone you believed was properly advising you (who, it turns out, was using you to achieve his/her criminal purpose without your knowledge or consent ).
If the prosecutor can't prove that you acted with the specific intent to defraud, you should be acquitted of the charge.
There are a number of reasons why an innocent person could be falsely accused of rent skimming...or the victim of mistaken identity. Maybe someone who was illegally renting property was using your name in violation of California's identity theft laws to collect rent checks.
Perhaps someone...maybe one of the financial institutions' employee's...was stealing part of your rent proceeds before recording the remainder of the payment. Because he was under investigation for theft, he accused you of rent skimming to cover his own criminal culpability.
Regardless of the reason, as former police investigators and prosecutors we know how to uncover and uncover the truth so that we can show your innocence.
Unfortunately, there are times when the evidence against you is so strong that it cannot be disputed. When that is the case, a skilled California criminal defense lawyer will attempt to negotiate a plea bargain for a reduced charge and/or sentence.
As Rancho Cucamonga criminal defense attorney John Murray5 explains, "Whether you face civil or criminal penalties depends on whether you are convicted of engaging in a single act of rent skimming or of multiple acts of rent skimming.6 If multiple acts are alleged, you potentially face civil and criminal punishment."7
If you lose a civil lawsuit, you face fines but no incarceration. These fines include
- reimbursing the victim for any financial losses he/she actually incurred,
- reimbursement for reasonable attorney's fees, and
- possible punitive damages which are imposed in an effort to punish you for your wrongdoing.8
If you are convicted of rent skimming as a crime, you face a wobbler. A "wobbler" is a crime that prosecutors may file as either a misdemeanor or a felony, 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 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.9
Each additional act of skimming subjects you to the same penalties.10
Example: Bob commits seven acts of rent skimming. Five acts that constitute "multiple acts" of rent skimming, subjecting him to a maximum three years prison. Each of the two additional acts subjects him to another three years in prison. This means that Bob faces a total of nine years in the state prison and a maximum fine $30,000.
And...along these same lines...if you have been previously convicted of multiple acts of rent skimming, you face these same penalties for any additional act. This means that if, for example, you were convicted of multiple acts of rent skimming in 2000, you still face these same penalties if you commit a single act of rent skimming today.11
Depending on the circumstances, there are a variety of California real estate and mortgage fraud offenses that prosecutors could charge in addition to...or in lieu of...Civil Code 890 California's rent skimming law. Some of the most common include (but are not limited to):
You violate Civil Code 2945.4 California's "foreclosure fraud" law when you offer to "rescue" a distressed homeowner from losing his/her home.12 This type of fraud usually involves
- collecting (or even charging) fees for services that you haven't performed (which is also known as a phantom help scam),
- charging excessive fees for your services,
- 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),
- inducing or attempting to induce the homeowner into signing an illegal contract (an "illegal" contract is one that doesn't comport with all statutory rules and regulations...which, depending on the circumstances, could also be lead to forgery charges for forging deeds),
- predatory lending (that is, creating a loan...typically a refinance loan...that (1) involves unnecessary and excessive fees that are designed to (2) pad your commission, and (3) provides no benefit to the borrower),
- engaging in "straw buyer schemes" (that is, using a third party's name to obtain a loan and then personally collecting the loan proceeds, leaving the "straw buyer" to pay for the loan), and
- illegal property flipping (that is, unjustly inflating a property so that the unsuspecting homebuyer obtains a loan for more than the home is worth so that you obtain a higher commission).
Most foreclosure fraud violations are also wobblers, punishable by up to three years in the state prison and a maximum $10,000 fine.13
Almost every type of rent skimming involves a simultaneous violation of Penal Code 487 PC California's grand theft law. You commit grand theft when you unlawfully collect more than $950 worth of money or property from another person.14
This means that if you "skim rent" from another person...and that rent is more than $950...prosecutors can charge you with this offense in addition to or in lieu of the above Civil Code violations.
Penal Code 487 PC California's grand theft law is also a wobbler, subjecting you to the same punishments described above.15
Call us for help...
If you or loved one is charged with Civil Code 890 rent skimming 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 Las Vegas Nevada criminal defense attorneys are available to answer any questions about Nevada's real estate 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.16
For information about Nevada fraud law, go to our page on Nevada fraud law.
- Our California real estate fraud lawyers 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.
- California Civil Code 890 -- Definitions (Rent skimming). ("(a)(1) "Rent skimming" means using revenue received from the rental of a parcel of residential real property at any time during the first year period after acquiring that property without first applying the revenue or an equivalent amount to the payments due on all mortgages and deeds of trust encumbering that property. (2) For purposes of this section, "rent skimming" also means receiving revenue from the rental of a parcel of residential real property where the person receiving that revenue, without the consent of the owner or owner's agent, asserted possession or ownership of the residential property, whether under a false claim of title, by trespass, or any other unauthorized means, rented the property to another, and collected rents from the other person for the rental of the property. This paragraph does not apply to any tenant, subtenant, lessee, sublessee, or assignee, nor to any other hirer having a lawful occupancy interest in the residential dwelling. (b) "Multiple acts of rent skimming" means knowingly and willfully rent skimming with respect to each of five or more parcels of residential real property acquired within any two-year period. (c) "Person" means any natural person, any form of business organization, its officers and directors, and any natural person who authorizes rent skimming or who, being in a position of control, fails to prevent another from rent skimming.")
See also People v. Lapcheske (1999) 73 Cal.App.4th 571 - summary. ("The Court of Appeal, McKinster, J., held that: (1) scheme in which defendant took over residential real properties he believed to have been abandoned, and occupied properties by placing tenants in properties and collecting rents, resulted in acquisition of property through occupancy, and thus could support rent skimming charges; and (2) fact that defendant was adversely possessing property, which conferred title by occupancy and made him subject to rent skimming statutes, did not bar his conviction on trespassing charges; but (3) defendant had legal right to place tenants on property and collect rents, and could not be convicted of grand theft based on retention of rents.")
See also People v. Bell (1996) 45 Cal.App.4th 1030, 1039 (overruled on other grounds). ("Appellants ran a rent skimming operation. Rent skimming occurs when, in the first year after acquiring residential real property, rent received for such property is used without first applying it to the payment due on mortgages and deeds of trust encumbering that property. Rent skimming is a crime when a person engages in such conduct with regard to five or more parcels within a two-year period. (Civ.Code, §§ 890-894.). Appellants established post office boxes, opened bank accounts and filed articles of incorporation using various names. Using legal notices in newspapers, they identified residential real property going into foreclosure. Robert approached the homeowners and explained that if the owners conveyed the property to him, he could assume the obligation on their deed of trust and they could walk away with their credit intact. The homeowners signed one or more grant deeds conveying their interest to one of appellants' fictitious business entities or signed a blank deed. In some cases the homeowner remained in the residence and paid rent; in the other cases, the owner moved out and appellants rented the property to others. Appellants then applied for bankruptcy in the name of the entity to which the subject real property had been conveyed and foreclosure was automatically stayed. The stay delayed foreclosure and extended the period during which appellants could collect rents. In some cases when stays were lifted, appellants filed subsequent applications for bankruptcy on the same parcel. In every case after filing for bankruptcy, appellants took no further action on the petitions, as required to move the matters to discharge, and the petitions were dismissed by the bankruptcy court. Appellants applied none of the rent monies to the deeds of trust encumbering the property.")
Additionally, Penal Code 602 PC California's trespass law prohibits a variety of conduct that involves illegally being on another person's property without permission or a legal right to be there.
- See California Civil Code 890, endnote 2, above.
- California Civil Code 893 -- Affirmative defense; burden of producing evidence, burden of proof. ("(a) It is an affirmative defense for a natural person who is a defendant in a civil action brought under Section 891, or a criminal action brought under Section 892, if all of the following occurred: (1) The defendant used the rental revenue due but not paid to holders of mortgages or deeds of trust to make payments to any of the following: (A) Health care providers, as defined in paragraph (2) of subdivision (c) of Section 6146 of the Business and Professions Code, for the unforeseen and necessary medical treatment of the defendant or his or her spouse, parents, or children. (B) Licensed contractors or material suppliers to correct the violation of any statute, ordinance, or regulation relating to the habitability of the premises. (2) The defendant made the payments within 30 days of receiving the rental revenue. (3) The defendant had no other source of funds from which to make the payments. (b) The defendant has the burden of producing evidence of each element of the defense specified in subdivision (a) in a criminal action under Section 892 and the burden of proof of each element of the defense in a civil action under Section 891.")
- Orange County criminal defense attorney John Murray represents clients throughout Orange County, including Newport Beach, Fullerton, Laguna Beach, Irvine, Santa Ana, Anaheim and Westminster.
- California Civil Code 891 -- Civil rights and remedies. ("(a) A seller of an interest in residential real property who received a promissory note or other evidence of indebtedness for all or a portion of its purchase price secured by a lien on the property may bring an action against any person who has engaged in rent skimming with respect to that property. A seller who prevails in the action shall recover all actual damages and reasonable attorney's fees and costs. The court may award any appropriate equitable relief. The court shall award exemplary damages of not less than three times the actual damages if the defendant has engaged in multiple acts of rent skimming and may award exemplary damages in other cases. (b) A seller of an interest in residential real property who reacquires the interest from a person who has engaged in rent skimming with respect to that property, or a law enforcement agency, may request the court for an order declaring that the reacquired interest is not encumbered by any lien that is or has the effect of a judgment lien against the person who engaged in rent skimming if the lien is not related to any improvement of the property and does not represent security for loan proceeds made by a bona fide lien holder without knowledge of facts constituting a violation of this title. The motion or application shall be made with at least 30 days' advance written notice to all persons who may be affected by the order, including lienholders, and shall be granted unless the interests of justice would not be served by such an order. (c) A mortgagee or beneficiary under a deed of trust encumbering residential real property may bring an action against a person who has engaged in rent skimming with respect to that property as one of multiple acts of rent skimming, whether or not the person has become contractually bound by an obligation secured by the mortgage or deed of trust. The mortgagee or beneficiary who prevails in the action shall recover actual damages to the extent of the amount of the rent collected on the encumbered property and attorney's fees and costs. The court also may order any appropriate equitable relief and may award exemplary damages. (d) A tenant of residential real property may bring an action against a person who has engaged in rent skimming with respect to that property for the recovery of actual damages, including any security, as defined in Section 1950.5, and moving expenses if the property is sold at a foreclosure sale and the tenant was required to move. A prevailing plaintiff in such an action shall be awarded reasonable attorney's fees and costs. The court also may award exemplary damages; it shall award exemplary damages of at least three times the amount of actual damages if the payments due under any deed of trust or mortgage were two or more months delinquent at the time the tenant rented the premises or if the defendant has engaged in multiple acts of rent skimming. (e) The rights and remedies provided in this section are in addition to any other rights and remedies provided by law. (f) Rent skimming is unlawful, and any waiver of the provisions of this section are void and unenforceable as contrary to public policy. (g) Sections 580a, 580b, 580d, and 726 of the Code of Civil Procedure do not apply to any action brought under this title.")
- See same.
See also California Civil Code 892 -- Criminal penalties; prior convictions; limitations; other remedies or penalties. ("(a) Any person who engages in multiple acts of rent skimming is subject to criminal prosecution. Each act of rent skimming comprising the multiple acts of rent skimming shall be separately alleged. A person found guilty of five acts shall be punished by imprisonment in the state prison or by imprisonment in the county jail for not more than one year, by a fine of not more than ten thousand dollars ($10,000), or by both that fine and imprisonment. A person found guilty of additional acts shall be separately punished for each additional act by imprisonment in the state prison or by imprisonment in the county jail for not more than one year, by a fine of not more than ten thousand dollars ($10,000), or by both that fine and imprisonment. (b) If a defendant has been once previously convicted of a violation of subdivision (a), any subsequent knowing and willful act of rent skimming shall be punishable by imprisonment in the state prison or by imprisonment in the county jail for not more than one year, or by a fine of not more than ten thousand dollars ($10,000), or by both that fine and imprisonment. (c) A prosecution for a violation of this section shall be commenced within three years after the date of the acquisition of the last parcel of property that was the subject of the conduct for which the defendant is prosecuted. (d) The penalties under this section are in addition to any other remedies or penalties provided by law for the conduct proscribed by this section.")
- See California Civil Code 891, endnote 6, above.
- See California Civil Code 892, endnote 7, above.
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.")
- See California Civil Code 892, endnote 7, above.
- See same.
- California 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.")
- California 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 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 Codes 18 and 672, endnote 9, above.
- California Penal Code 487 PC -- Grand theft defined. ("Grand theft is theft committed in any of the following cases: (a) When the money, labor, or real or personal property taken is of a value exceeding nine hundred and fifty dollars ($950) except as provided in subdivision (b). (b) Notwithstanding subdivision (a), grand theft is committed in any of the following cases: (1)(A) When domestic fowls, avocados, olives, citrus or deciduous fruits, other fruits, vegetables, nuts, artichokes, or other farm crops are taken of a value exceeding two hundred fifty dollars ($250). (B) For the purposes of establishing that the value of avocados or citrus fruit under this paragraph exceeds two hundred fifty dollars ($250), that value may be shown by the presentation of credible evidence which establishes that on the day of the theft avocados or citrus fruit of the same variety and weight exceeded two hundred fifty dollars ($250) in wholesale value. (2) When fish, shellfish, mollusks, crustaceans, kelp, algae, or other aquacultural products are taken from a commercial or research operation which is producing that product, of a value exceeding two hundred fifty dollars ($250). (3) Where the money, labor, or real or personal property is taken by a servant, agent, or employee from his or her principal or employer and aggregates nine hundred and fifty dollars ($950) or more in any 12 consecutive month period. (c) When the property is taken from the person of another. (d) When the property taken is any of the following: (1) An automobile, horse, mare, gelding, any bovine animal, any caprine animal, mule, jack, jenny, sheep, lamb, hog, sow, boar, gilt, barrow, or pig. (2) A firearm. (e) This section shall become operative on January 1, 1997.")
- California Penal Code 489 PC -- Grand theft, punishment. ("Grand theft is punishable as follows: (a) When the grand theft involves the theft of a firearm, by imprisonment in the state prison for 16 months, 2, or 3 years. (b) In all other cases, by imprisonment in a county jail not exceeding one year or in the state prison.")
See also Penal Codes 18 and 672 PC, endnote 9, above.
- Please feel free to contact our Nevada criminal defense attorneys Michael Becker and Neil Shouse for any questions relating to Nevada's fraud and theft laws. Our Nevada law offices are located in Reno and Las Vegas.