Real Estate Fraud

What is the Real Estate Fraud Unit?

Under the direction of District Attorney David W. Paulson, the Real Estate Fraud Unit consists of two Deputies District Attorney, three District Attorney Investigators, and a Legal Secretary. This is a focused unit that vertically investigates and prosecutes real estate fraud and related crimes. Vertical prosecution means that the members of this unit handle each case from the beginning of the investigation through sentencing.

In 2004, District Attorney Paulson realized there was a need for a vertical prosecution unit that would specialize in real estate fraud. The volume of the evidence and necessary specialized knowledge of the subject matter made it very difficult for Deputies District Attorney on normal assignments to handle real estate fraud cases. The number of reported cases was growing and victims increasingly did not have the ability to hire private civil attorneys to protect them.

The District Attorney and the Board of Supervisors took advantage of legislation (Government Code §27388) that provided funding for the investigation and prosecution of real estate fraud cases. Under this legislation, the County Recorder charges a $2.00 fee for each real estate instrument recorded in the county. Those funds are expended for the exclusive purpose of deterring, investigating, and prosecuting real estate fraud crimes. The emphasis is placed on fraud against individuals whose residences are in danger of, or are in, foreclosure.

What does the Real Estate Fraud Unit do?

Although investigation and prosecution of real estate crimes is our primary focus, it is important that we also educate the public and, in particular, potential victims of real estate fraud. The District Attorney has published an informational brochure (just click to download a copy). Members of the unit are also available for and have participated in outreach programs, such as speaking at service groups, public forums, and at professional training meetings.

In January of 2007 District Attorney Paulson established a unique program that specifically targets potential victims of the current trend of stealing equity from persons in foreclosure. There are several common scams with regard to stealing equity (see Common Scams below). The District Attorney, on a monthly basis, sends a letter and relevant information to each person who has had a Notice of Default filed in the County Recorders Office. The letter explains that there are unscrupulous criminals who claim they want to help people who are in foreclosure to keep their property. These criminals use certain scams to actually strip the victim of whatever equity they have left in their homes. The letter cautions potential victims not to deal with these people, and gives them information about how to contact the investigators in the Real Estate Fraud Unit and/or get other help. The purpose of the letter is not just to identify potential victims but also to help prevent people from becoming victims in the first place.

Why does the DA have a Real Estate Fraud Unit?

Imagine you worked all your life to do the right thing, to advance in life, to build good credit, and provide a future for yourself and your family. Then one day you are taking one of the biggest steps in your life. You are buying a home. You are proud of what you have accomplished. Your future is bright. It is all coming together. You take your good credit to people you think are going to help you. They promise you they will give you the best deal possible. But in reality they are going to take your good credit and buy other houses by falsifying documents and forging your signature. They are going to use your hard work to make money for themselves, to commit crimes, to commit fraud. The next thing you know, you get notices of default on four pieces of property that you know nothing about. The criminals used your credit to buy the other properties, take the money from the sales, and then they disappear to do their crimes elsewhere. There is nothing you can do. You can't pay for the properties. The foreclosures go through. Your credit is forever ruined. Your future is stolen from you. Your security is gone. Things will never be the same.

Imagine you're a normal hard working family that has built a life and a home over the years. Suddenly, you have health problems. You're out of work for an extended period of time. The medical bills have stacked up. Creditors have put liens on your property. You're in or near foreclosure. A "real estate foreclosure expert" contacts you and promises you a way out of your problems. They know a person with good credit who is willing to help you. This "straw buyer" will take out a loan on your property. You deed your property to the "straw buyer" just for a year. The equity you have in your property will be used by the "real estate foreclosure expert" to make the payments on the new loan for one year and what is left over will be returned to you. During that year you get to live in the property free, save money, and get out of debt. At the end of the year, you get to buy the property back for the same price the straw buyer paid for it. Three months after you fall for this scam, you get a notice at your home that the property is being foreclosed upon because no payments have been made on the new loan. The "real estate foreclosure expert" and "straw buyer" are nowhere to be found. You lose your home. You lose the years of equity you had built up in the home. You have to start over.

That's what happens to victims of real estate fraud. Any crime can have a devastating effect on a victim, their families and friends. The harm done to real estate fraud victims, in particular, can last a lifetime and affect many more people than just the immediate victim. Whole families and extended families can be left homeless and without hope for the future. Often these victims do not have any resources left to hire a lawyer to assist them.

Who are the most common victims and perpetrators of real estate fraud?

The common victims of real estate fraud include the elderly, the mentally challenged, those who don't speak or read English, anyone in or near foreclosure, first time or unsophisticated home buyers, and victims that trusted their families or friends.

Common perpetrators include family members, unlicensed real estate professionals, licensed real estate professionals, people who hold themselves out as helping people of a particular ethnic group, notary publics, property appraisers, escrow officers, and friends (often friends of friends) of the victims.

How big is the problem of real estate fraud?

The opportunity for committing these types of crimes is great because there are so many potential victims. Of course, the elderly, mentally challenged, and those with language barriers are always vulnerable to scam artists. In Solano County, approximately 350 notices of default on mortgages are filed per month. This is the first step in the foreclosure process. Each of these property owners and any other property owner with financial problems is a potential target.

There are several cases currently pending in Solano County as well as even more cases in the pre-filing investigative stages. The estimated amount of loss that is known at this time with regard to these cases is over $5,000,000. However, in the majority of the pre-filing cases, the loss has yet to be determined.

Unfortunately, a large percentage of the real estate fraud crimes will never be reported. Some are not reported because of a family connection. Other times, the victims don't even realize they are the victims of a crime. They merely think they have made bad decisions and things didn't work out for them. Many times, they believe this because the very scam artist so skilled at taking their money is equally skilled at convincing the victim that nothing criminal has occurred. The victims are told it was just a business deal gone wrong; the scam artist was just trying to help; and they are just as sorry as the victim. Sometimes they will even claim that they lost money on the deal.

What are some of the more common real estate fraud scams?

1. Property Flipping - Property is purchased, falsely appraised at a higher value, and then quickly sold. What makes property flipping illegal is that the appraisal information is fraudulent. The schemes typically involve one or more of the following:
(a) Fraudulent appraisals, doctored loan documentation, inflating buyer income, etc.
(b) Kickbacks to buyers, investors, property/loan brokers, appraisers, title company employees are common in this scheme.
(c) A home worth $550,000 may be appraised for $800,000 or higher in this type of scheme.

2. Nominee Loans/Straw Buyers - The identity of the borrower is concealed through the use of a nominee who allows the borrower to use the nominee's name and credit history to apply for a loan.

3. Fictitious/Stolen Identity - A fictitious/stolen identity may be used on the loan application. The applicant may be involved in an identity theft scheme: the applicant's name, personal identifying information and credit history are used without the true person's knowledge.

4. Inflated Appraisals - An appraiser acts in collusion with a borrower and provides a misleading appraisal report to the lender. The report inaccurately states an inflated property value.

5. Foreclosure / Equity Skimming Schemes - The perpetrator identifies homeowners who are at risk of defaulting on loans or whose houses are already in foreclosure. Perpetrators mislead the homeowners into believing that they can save their homes in exchange for a transfer of the deed and up-front fees for their services. The victim is supposed to get their property back within a certain time and the equity in their home will be used to make the payments on the new loan. The perpetrator may use a straw buyer, false income documents, and false credit reports to obtain a mortgage loan in the straw buyer's name. The straw buyer is often paid a fee for the use of their credit or they do it to help out a family member. Subsequent to closing, the perpetrator does not make any mortgage payments on the new loan, the property goes into foreclosure, and the perpetrator keeps the loan proceeds.

How can I avoid being a victim of real estate fraud?

1. Always, always, always understand what you are signing and agreeing to, AND always seek assistance from a skilled real estate attorney. If you do not understand something you're being asked to sign, ask for clarification and re-read the document before signing.

2. Ask for and check referrals and references for real estate and mortgage industry professionals. Check the licenses of the real estate and mortgage professionals with state, county, or city regulatory agencies. Make sure the people you're dealing with are `in good standing' with the appropriate regulatory bodies.

3. Be suspicious of outrageous promises of extraordinary profit in a short period of time. If it sounds too good to be true, it probably is!

4. Always conduct business at either the real estate professional's office or a bank. Doing so gives you further opportunities to verify the agent or broker's professional standing, as well as alleviates pressure you may feel if someone is strong-arming you inside of your own home. Never sign documents in an unmarked office, i.e., an office without business identifying signage.

5. Be wary of strangers and unsolicited contacts, as well as high-pressure sales techniques and people who play to your emotions or religious beliefs. Again, if it seems too good to be true, it probably is!

6. Look at written information including recent comparable sales in the area and other documents such as tax assessments to verify the value of the property.

7. Make sure the name on any documents you sign matches the name on your own personal identification card, i.e., driver's license, social security card, state issued identification card, etc.

8. Review the title history of the property to determine if the property has been sold multiple times within a short period. If so, it could mean that this property has been "flipped" and that the value has been falsely inflated either by the seller or appraiser.

9. Know and understand the terms of your mortgage. Check your information against the information in the loan documents to ensure they are accurate and complete.

10. Be cautious of any real estate industry or mortgage professional who conducts 100 percent of their business on a cell phone on the road. Upstanding real estate industry professionals almost always have an official office and telephone line. Verify this information before agreeing to conduct business exclusively via a cell phone.

Real Estate Fraud Links

The District Attorney has published an informational brochure on real estate fraud (just click to download a copy).

Additional tips on how to avoid becoming the victim of real estate fraud are available on the Mortgage Bankers Association's (MBA) website.

Persons who are in foreclosure can get assistance by calling HOPEĀ - Foreclosure Counseling Hotline
(888) 995-HOPE (4673) - available 24/7

For more information or to report a suspected crime, please call the District Attorney's Real Estate Fraud Unit at (866) 463-6380.