The pressure to find and buy the perfect home can be overwhelming. In a highly competitive market, there is always the urge to act fast once you find an ideal property. Unfortunately, real estate scam artists frequently use this to defraud people out of their money by selling them properties that do not exist or providing false information about the conditions of their contracts.
If you have been the victim of real property fraud, you can contact the Los Angeles Business & Real Estate Law Firm. Our law firm represents victims of real estate fraud to recover the financial losses they incurred due to fraud. We can launch a lawsuit on your behalf and address any issues that arise during this process.
What is Real Estate Fraud?
Real estate fraud occurs when scam artists utilize real estate as a front to defraud you. There are many different ways in which real estate fraud occurs, but mortgage scam is among the most common. Loan brokers or unscrupulous lenders will sometimes promote misleading information to get money from unwary borrowers.
Real estate fraud victims run the risk of losing large investments, unknowingly taking on someone else’s debt, being held responsible for someone else’s fraudulent activity, or even receiving higher payments than promised. Real estate fraud could result in financial loss, bankruptcy, property foreclosure, and bad credit.
Real estate fraud victims are entitled to legal defense and potential remedies from civil action litigation while people who conduct real estate fraud are subject to legal action or criminal charges.
Common Forms of Real Estate Fraud
Here are a handful of the real estate fraud crimes that are committed more frequently in Los Angeles:
Foreclosure Bailout Scams
Here, victims are drawn in by the promise of assistance to individuals who are financially “upside-down” in their mortgage payments and owe far more than their property is worth. Such homeowners typically have no other choice except to sell their property at a loss or allow the lender to foreclose, which would badly damage their credit.
The “bailout” experts often target immigrants or generally people who are not native to the United States. The “bailout” expert informs the victim that banks would rather accept losses on loans than foreclose on the property and that if their loan is FHA-insured, the lender can avoid the trouble of having to put up the property for sale. The victims are informed that they have the option of arranging for short sales, which won’t have an impact on their credit score.
Typically, the homeowner will transfer their home to a “bailout” professional in exchange for a payment of between 1,000 dollars to $2,500. After that, the “bailout” expert either leases out the property or allows the previous homeowner to continue living there while paying some rent. Once that is done, the “bailout” expert doesn’t make mortgage payments and doesn’t set up a short sale, which leads to the tenant’s eviction and foreclosure.
The “bailout” expert keeps the rental income and deposit fees. It initially seems entirely lawful. If the victim carefully reads the fine print on the paperwork provided to him or her, it may contain warnings that their credit could be damaged and also that the expert is not required to resell the home or successfully negotiate the short sale. Below are some definitions of these forms of foreclosure scams:
Title Transfer
When a realtor or a foreclosure advisor convinces a homeowner facing foreclosure to sign away their home’s title, they are engaging in the form of fraud known as a title transfer. They deceive the homeowner by telling them that they could live as tenants on their property and promise to resell it to them later. Then, they are evicted and lose ownership of their home.
Bait and Switch
Title transfer is closely connected to this foreclosure fraud scheme known as “bait and switch.” The key difference is that while using bait and switch, someone could convince the owner of the property to sign documents that could enable them to receive payment on their mortgage. In reality, the paperwork the victim signs gives the perpetrator legal ownership over their home. A lot of the time, the text on the paperwork that victims sign is small, indecipherable, and difficult to read.
Phantom Help
When a foreclosure advisor claims that they’ll assist a homeowner in averting foreclosure and get paid for the services offered, but they don’t follow through, they are said to have committed phantom help fraud. When the homeowner finally learns of the deceit, it is usually late to prevent foreclosure on their home.
Rental Fraud
Scams involving rental fraud entail a con artist renting out properties that they do not own. First, the perpetrator finds a property that is unoccupied or has been abandoned. It could be an unoccupied vacation property or a house that is under foreclosure. The scam artist breaks into the home, replaces the locks, and lists the home for rent—typically at a lower rate than the standard market rate.
A tenant moves in after paying the security deposit, plus the necessary monthly rent. The perpetrator then collects the rent and keeps the money. There is no payment made to the real owner or lender.
When the deception is uncovered, the occupant is evicted and loses their deposit and rent money. Some scam artists are so audacious that they’ll rent out a piece of real estate to multiple tenants, receive advance rental payments and deposit payments, and then disappear.
Some perpetrators of this fraud put a novel spin on things by claiming they have the right to the home under the adverse possession law. Be wary of rental fraud if the landlord requires rent to be paid in cash without receipts or if utilities are listed in someone else’s name other than the landlord’s. Another red flag is if you receive legal letters in your mailbox or they have been displayed on the premises and the property owner tells you to disregard them.
Straw Buyer Scheme
People who purchase real estate on other people’s behalf are referred to as straw buyers. When an actual buyer is unable to complete a deal for any number of reasons, a “straw buyer” could step in on their behalf. A good example would be if the buyer’s credit is poor. They could pay a straw buyer cash in exchange for their permission to use their identification and contact information.
When the straw buyer wraps up the purchase, the actual buyer doesn’t make the agreed-upon mortgage payments, making the straw buyers in charge of dealing with the lenders. The straw purchaser could have violated federal as well as state laws. Their credit is damaged, and they are required to repay the loan’s principal. The most effective way to safeguard yourself is not to give in to external pressure as well as always rely on receiving financial or professional counsel before signing a contract or taking out a loan. Always keep in mind that you have three days to terminate a contract or loan. Take this time to carefully consider the implications of entering into such a contract or loan.
Home Equity Fraud
Individuals who have amassed equity in the homes they own make excellent targets for home equity fraud. Elderly homeowners are offered unwarranted and expensive home improvements by high-pressure home renovation companies on “easy” loans.
Crafty salespeople could propose refinancing the property at “desirable interest terms to give the property owner cash so they can cover bills. Sometimes victims claim that they are requested to fill out blank contracts, are not permitted to review the paperwork before signing them, and were not provided copies of those contracts. The victim doesn’t learn until much later that the terms of the contract are entirely unrelated to what was initially promised.
In many cases, the house owner discovers that the value of their property has been “eaten up” by the cost of the home renovation contract. The homeowner discovers that they signed loans with exorbitant lending fees and high-interest rates. The homeowner could be required to make loan installments that they cannot manage. “Attractive” loan repayments only pay the interest. After a certain number of years, the principal balance is expected to be paid off in a single “balloon” payment.
The homeowner is forced to take out a new loan once the “balloon” repayment is due, incurring more charges and expenses, or is at risk of losing their house through foreclosure. To get possession of loan money included in the contract for home improvements, a property sale, or a refinance, perpetrators could engage in blatant forgery.
Predatory Lending
If someone creates a refinancing plan that includes outrageous or unnecessary fees that aren’t beneficial to the lender, they are engaging in predatory lending. Perpetrators commit this offense when they’re trying to boost their earnings through commissions and don’t care about the borrower’s capacity to pay back the loan. This kind of fraud entails the following acts:
- Putting victims under unfair and unjust terms, particularly through forceful sales techniques
- Exploiting borrowers who are not aware of such predatory acts
- Outright deception
Fraudulent Property Flipping
Even if the process of “flipping” properties—quickly purchasing and selling real estate—is legal, it can still include various forms of fraud. This happens when a property appraiser, realtor, or mortgage broker exaggerates a property’s value using a false assessment and an innocent buyer purchases it.
This can also happen when a fraudster utilizes the exaggerated valuation of the property to secure a loan from a financial institution. However, these charges cannot be brought against someone who purchases a house, renovates it, and then sells it for profit.
California Real Estate Fraud Laws
For the many fraudulent behaviors that may occur during a purchase or sale of property, there are various statutes under which fraud crimes can be prosecuted.
The following Penal Code provisions may be used in California to prosecute various types of real estate fraud:
California PC 487
Under PC 487, Grand theft occurs if an individual is accused of defrauding over $950 in property value. This provision is typically applied to allegations of mortgage or real estate fraud as well as theft committed under pretenses.
California PC 115
A person is prosecuted for filing forged paperwork when they deliberately provide fake or fabricated real estate documentation to any government entity. These documents often pertain to property ownership, but they may also contain mortgage loan agreements.
Civil Code 890
When someone leases out a residence during the initial year of paying off their mortgage while supposedly living there and fails to put the rent they receive toward their mortgage payment, they could be charged with rent skimming. The practice of fraudulently renting out a property while faking ownership is known as rent skimming.
Civil Code 2945.4
There are various grounds for charging persons participating in foreclosure actions with foreclosure fraud. Fraudulent foreclosure charges could be brought against someone “assisting” a homeowner when they demand an outrageous amount of payment, ask for payment before offering the required services, or acquire an ownership stake in the target property.
The severity of the penalties against you could also depend on your criminal record. Because real estate transfers sometimes include banks with government backing, real estate fraud could potentially give rise to federal charges.
Spotting Real Estate Scams
Understanding the common signs of fraud is the best approach to safeguarding yourself from falling victim to real estate fraud. The importance of this cannot be overstated, particularly among first-time buyers who may lack an understanding of the process. The following red flags could be indicators of real estate fraud:
Insufficient Documentation
When you’re looking to buy a house and the person selling it doesn’t have the required documentation, this could be a major warning sign. Sometimes fraudsters can say that they will mail the prospective buyer the necessary paperwork, such as a deed after they have received payment or certain financial details.
Pressure to Take Act Fast
Real estate fraudsters often exert pressure on prospective purchasers to provide money or certain details. They could create an impression of scarcity and convince you that if you fail to act immediately, you could miss out on the opportunity to buy.
You should view the pressure to act as a red flag. The offer to purchase a house is often made by the buyer’s real estate representative. When the seller approves the offer, you will make a payment that will go toward the deposit payment and other transaction expenses.
Unrealistic Promises
If a lender or seller makes you a guarantee that appears absurdly generous, it likely is. It is a popular strategy employed in fraud involving mortgage relief. Scammers often claim to make adjustments to your mortgage in return for an advance payment while the property owner has reached the verge of default.
Demands a Wire Transfer
Some fraudsters will request that potential homebuyers send them money immediately via wire transfer, saying the money is a deposit or down payment. You should consider this as a red flag since that’s not how purchasing a property works.
Frequently Asked Questions
Below are the most commonly asked questions on real estate fraud:
How Does Real Estate Fraud Happen?
Real estate fraud is the unauthorized acquisition or use of someone else’s property for one’s personal gain. This could be executed in several ways, including document forgery, lending money in someone else’s name, and using someone else’s identity to access the property in question.
What Does Real Estate Intentional Fraud Mean?
When someone intentionally presents false information or withholds information to secure a real estate contract, they are said to have committed intentional fraud. This could be executed by telling lies regarding the state of the real estate, the provisions of the agreement, or other crucial details. Fraud perpetrated deliberately is a felony that carries harsh consequences, including time in jail.
How Does One Deal With Real Estate Fraud?
Real estate fraud carries devastating effects on the victims. If you suspect that you are the victim of real estate fraud, you have to act quickly to safeguard your rights.
You can take the following actions:
- Contact the authorities
You should call the authorities immediately if you think you’ve been taken advantage of in a real estate transaction.
- Inquire with your mortgage lender
You need to get in touch with the lending institution and explain the situation if you are making mortgage payments on your home.
- Contact a lawyer
Getting in touch with a legal professional who can assist you in defending your rights and filing charges against the offenders is among the most important steps you can take.
Find a Real Estate Attorney Near Me
Real estate fraud is a problem that affects many people buying and selling property. It can cause financial losses, damage relationships, or create other legal issues. If you have fallen victim to real estate fraud and have incurred financial losses, you can contact the Los Angeles Business & Real Estate Law Firm. We will work with you to ensure your rights are protected. Call us today at 310-796-7794.
