Seven Important Guidelines On Completing Board Applications And Renewals

When you are applying for a license (or renewing one) from the California Medical Board, State Bar, Department of Real Estate, Department of Pharmacy, Board of Registered Nursing or any other state agency or any employer that is required to report to state agencies or databanks (such as hospitals), all applicants need to remember the following basic guidelines:

1. When you sign the application, you are certifying that all the information is accurate. In most of the applications and renewal forms you are declaring under the penalty of perjury that all the information is true and correct. This means it is as if you are under oath and promising to tell the truth.

2. If you do not complete the form accurately, your application can be denied on the sole ground that you falsified the application and/or intended to deceive the agency. If you give inaccurate information on a renewal, this can be grounds for discipline and constitute unprofessional conduct.

3. Take the questions literally and do not rely on your own interpretation. Err on the side of being cautious. Be overinclusive and not underinclusive. For example, if the question asks if you have a conviction, find out the definition of "conviction" since any expunged or deferred entry of judgment criminal cases will probably count as "convictions."

4. Some of the questions are vague or ambiguous - err on the side of caution and full disclosure. It is not unusual for board questionnaires to be somewhat ambiguous or to be subject to some level of subjective interpretation.  If an applicant is unsure as to the interpretation of a question he or she should answer it both ways. In addition, explain that you believed there was an ambiguity and set that forth so there is no confusion.

We also suggest having an experienced licensing attorney review your application for language and explanations to ensure that it is accurate but setting forth your position in the best light. The time and expense is well worth the chance of being denied a license for intentionally misleading the licensing board. Since an attorney is objective and experienced in writing these explanations, this can help a great deal. Often people are emotional, embarrassed and have a tendency to minimize or focus on irrelevant facts which makes their statements of explanation hurt them rather than help them. 

For example, let us take a question from the Nursing Board's actual application:

Question: "Have you ever had disciplinary proceedings against any license as a RN or any health-care related license or certificate including revocation, suspension, probation, voluntary surrender, or any other proceeding in any state or country? If yes, please provide a detailed written explanation, including the date and state or country where the discipline occurred."

Ambiguity: The first part of the question asks about any "disciplinary proceedings" while the second half asks "where the discipline occurred." The question might seem to assume that it is only interested in cases where actual discipline was imposed.

Do NOT make this assumption. The safer and better course to follow is to set forth any actual accusations or disciplinary charges and if the case was dismissed or no discipline was imposed to state those facts.

5. Criminal Charges. The question that we see applicants harm themselves the most is the one regarding criminal charges. The disposition of criminal cases is often ambiguous and a review of original records is often necessary to know the proper way to answer these questions. We have had many cases where the applicant's failure to disclose the charge accurately resulted in denial of the license or the granting of a restricted license or probation being imposed and we are hired to handle the appeal or disciplinary charge. If the person had answered the question accurately -- the license would have been issued but the perceived deception created significant problems.

Case Example: Physician finished residency and applies for privileges at Los Angeles Hospital. He had disclosed an old driving under the influence conviction to the Medical Board. however, when he applied for privileges at the hospital, he did not disclose the conviction. The hospital ran a background check and denied his application for privileges on the ground that he was deceptive on his application. Under the law, the hospital was required to report the denial of privileges to the Medical Board of California. By the time we met him, the Medical Board filed an Accusation and this young physician had already entered into a Stipulated Settlement and Decision to be on probation for 3 years.

Here is a sample criminal charge question:

"Have you ever been convicted of any offense other than minor traffic violations? If yes, explain fully as described in the applicant instructions. Convictions must be reported even if they have been adjudicated, dismissed or expunged or if a diversion program has been completed under the Penal Code or Article 5 of the Vehicle Code. Traffic violations involving driving under the influence, injury to persons or providing false information must be reported. The definition of conviction includes a plea of nolo contendere (no contest), as well as pleas or verdicts of guilty."

Thus, if someone had been charged and there was a deferred entry of judgment where the case would be dismissed upon the completion of community service and having no further arrests for one year, it will probably be necessary to disclose that charge. Err on the side of caution.

6. Make sure the application is complete to avoid unnecessary delays. Read and re-read the requirements and have someone else review it for errors or omissions.

7. Rehabilitation. If in your youth or past, you had some criminal charges, discipline from employers or agencies, drug/alcohol issues, mental health issues or other life experiences that contributed to the prior conviction/discipline -- your application should reflect your rehabilitation and why you are not the same person that committed those errors and why it is unlikely that these issues will arise again.

We are often hired to assist a person in drafting the best application possible and creating a package that will help someone get licensed where there are past criminal convictions and disciplinary problems. The wonderful thing about the United States is the people can have second or even third acts in their life. The key is acknowledging the past problems and showing why you have earned the right to a license and there is a minimal likelihood that it will ever occur again.

Applicants must also submit a description of the rehabilitative changes in their life, which would enable them to avoid future occurrences. To make a determination in these cases, the Board considers the nature and severity of the offense, additional subsequent acts, recency of acts or crimes, compliance with court sanctions, and evidence of rehabilitation.

The burden of proof lies with the applicant to demonstrate acceptable documented evidence of rehabilitation. We create a package where we show that the applicant has met his or her burden.

Examples of rehabilitation evidence include, but are not be limited to:

• Detailed letter from applicant attached to the application describing the events at issue (prior criminal or disciplinary charges) and rehabilitative efforts or changes in life to prevent future problems.

• Letters of reference on official letterhead from employers, instructors, professionals in the same field, professional counselors, parole or probation officers, or other individuals in positions of authority who are knowledgeable about your rehabilitation efforts.

• Letters from recognized recovery programs and/or counselors attesting to current sobriety and length of time of sobriety, if there is a history of alcohol or drug abuse.

• Proof of community work, schooling, self-improvement efforts.

• Court-issued certificate of rehabilitation or evidence of expungement, proof of compliance with criminal probation or parole, and orders of the court.

• Support letters from others in the community who are knowledgeable about rehabilitation efforts, current skills and why they are supporting your application even though they know about the prior criminal or disciplinary case.

We help outline, draft and coordinate the letters and entire application package and provide an objective view of what the typical agency or bureau wants in the application. Often the applicant fails to realize that although there are many current licensees with problems and issues, in order to be licensed with some adverse history he or she needs to jump a hurdle and prove that he or she is not a disaster waiting to happen and that instead, will be a credit to the profession.

Conclusion: Your application and/or renewal application is one of the most important documents you can complete. If there are some areas of your past that are troublesome or cause you concern, it is well worth hiring an experienced attorney (even if only for a few hours) to assist you in handling these issues such as ordering the court records and drafting the explanation in an attachment. Remember the value of your license over the course of your lifetime. It is a very valuable asset often worth millions of dollars.

Posted by Tracy Green, Esq. Please email Ms. Green at tgreen@greenassoc.com or call her at 213-233-2260 to schedule a complimentary 30-minute consultation.  

Any questions or comments  should be directed to Tracy Green, a very experienced California administrative law attorney, Los Angeles administrative law attorney attorney, and Los Angeles board and bureau attorney at tgreen@greenassoc.com.

The firm focuses its practice on the representation of licensed professionals, individuals and businesses in civil, business, administrative and criminal proceedings. They have a specialty in representing licensed providers and in administrative board and discipline matters in California and throughout the country. Their website is: http://www.greenassoc.com/

Real Estate Agents And Attorney Arrested For Fraud In San Bernardino

On June 4, 2009, the San Bernardino County District Attorney’s Office filed grand theft charges against Richard Nazabal (a Rancho Cucamonga real estate agent), Garabed Kamarian (Glendale attorney), and others (where charges were later dropped) related to an alleged real estate investment fraud scheme. The case is assigned to the San Bernardino County Real Estate Fraud Prosecution Unit. The felony complaint charges seemed to have been overstated since the case ultimately was plead out with two defendants dismissed and multiple counts dismissed

A criminal complaint contains only allegations against an individual and all four of these people must must be presumed innocent unless and until proven guilty.

The felony complaint alleges that beginning in 2006 and continuing through 2008, Richard Nazabal solicited funds from victims to invest in several inland empire homes with the stated intention of renovating and reselling the properties at a profit. It was alleged that more than twenty-five people invested more than $2.5 million dollars with the Nazabals. It is alleged that instead of investing the victims' funds, the Nazabals used the money for personal gain and never purchased homes for the victims.

Attorney Garabed Kamarian allegedly applied for loans the Nazabals could not qualify for in order to purchase the luxury home in the extreme north end of Alta Loma in which the Nazabal family was living. Kamarian allegedly falsified the loan applications, showing he was the owner and primary occupant of the home in order to make the purchase of the residence on behalf of Richard Nazabal.

Attorney Commentary: In the past, real estate fraud was not aggressively prosecuted. It was often treated as a civil matter. In today's economy and with increased real estate and mortgage fraud, county district attorney offices are making real estate fraud prosecutions a priority. For example, in Shasta County the district attorney recently sought to create a real estate fraud prosecution unit by having the county add $3 filing fees to any real estate documents so the units can be self-funded.

If real estate agents or other professionals are faced with civil fraud allegations, they need to be very careful so that the civil lawsuit is not used to build a criminal case or administrative case with the Department of Real Estate. Cases that would not have been treated as criminal years ago, may be treated so now.

Post-Script/Follow-Up: This case settled relatively quickly. In September 2009, Richard Nazabal pleaded guilty to four counts of grand theft and none counts of tax fraud, and was sentenced to 9 years in state prison (which would mean he would serve half his time) and pay approximately $2.5 million in restitution.  The charges against two other family members were dismissed.

The attorney Garabed Kamarian plead guilty to being an accessory to a felony after the fact (a misdemeanor). He admitted that he applied for a loan to buy a home for a "friend" who could not qualify because of unpaid child support. The friend said he would live in the house, give Kamarian money every month to pay for the mortgage and eventually Kamarian would sign a quit claim deed transferring his interest to the friend, who would apply for a loan in his name. In his loan application, Kamarian said he was the "real buyer" and would live in the house, knowing both statements were false. he believed his friend had adequate income to pay the mortgage. Of course, the reason the case was filed is because the friend made one payment before the house was transferred by Kamarian and then the friend did not apply for the loan, defaulted on the mortgage payments and the house went into foreclosure. The loan was in Kamarian's name.

 Any questions or comments should be directed to: tgreen@greenassoc.com.  Tracy Green is a principal at Green and  Associates, Attorneys at Law, in Los Angeles, California. They focus their practice on the representation of licensed professionals and businesses in civil, business, administrative and criminal proceedings, with a specialty in real estate agents, brokers and other licensed professionals. 

Federal Los Angeles Jury Convicts Real Estate Agent In Flipping Case With Straw Buyers

On June 1, 2009, a federal jury in Los Angeles convicted real estate agent Maria Sanchez on 14 counts contained in an indictment, including conspiracy, money laundering, wire fraud and aggravated identity theft. This was a "flipping" case with "straw buyers."

According to a press release from the U.S. Attorney's Office, the evidence presented during a week long trial showed that Maria Sanchez was a real estate agent and loan officer for both Locke Realty and Lending of Sante Fe Springs and Online Financial Services of Lawndale, where she was responsible for completing and verifying information in mortgage applications. It was alleged that Maria Sanchez submitted home loan financing packages to purchase residential real estate in the names of family members. Those mortgage applications contained false statements and forged signatures.

When the loans were funded, Maria Sanchez fraudulently obtained more than $1 million in loan proceeds from financial institutions and mortgage lenders for four properties in El Monte, Norwalk, Paramount and Los Angeles. It was then alleged that Maria Sanchez financially benefited from this scheme by flipping one of the properties, as well as collecting points, fees and commissions from the loan transactions. The alleged wrongdoing took place from 2003 to 2006.

In three of the transactions, Maria Sanchez's sister, Beatriz Sanchez, was identified as the buyer of the property. In the loan applications for those three properties, Maria Sanchez falsified her sister’s income, claiming that Beatriz Sanchez earned up to $8,900 per month. In the loan applications, Maria Sanchez submitted documents she obtained from friends who worked at legitimate businesses that supported the claims of her sister’s inflated income. Some of the applications were also in the name of a sister-in-law who was not accused of being part of the loan scheme but was convicted of a drug charge and was accused of wire transferring illegal drug proceeds to an escrow account to be used as a down payment.

Maria Sanchez is scheduled to be sentenced by United States District Judge George H. Wu on September 10, 2009. At that time, Maria Sanchez faces a maximum statutory penalty of 239 years in federal prison. As a result of the aggravated identity theft conviction, Maria Sanchez faces a mandatory sentence of two years in prison.

Previously in this case, Beatriz Sanchez pleaded guilty to charges that she filed false documents with the Internal Revenue Service. Beatriz Sanchez is scheduled to be sentenced by Judge Wu on August 17, 2009 at which time she faces a sentence of up to one year in prison.

Any questions or comments should be directed to: tgreen@greenassoc.com. Tracy Green is a principal at Green and Associates, Attorneys at Law, in Los Angeles, California. They focus their practice on the representation of licensed professionals and businesses in civil, business, administrative and criminal proceedings, with a specialty in real estate agents, brokers and other licensed professionals. Cases handled have included real estate fraud investigations and charges. 

Mortgage Fraud: Attorney And Title Agent Sentenced For Role In Florida Case - What Is Mortgage Fraud?

On March 20, 2009, Howard Gaines was sentenced after a jury trial by U.S. District Judge William Dimitrouleas in the Southern District of Florida for his role in a complex mortgage fraud case. Gaines was sentenced to 8 years in prison, to be followed by 3 years of supervised release.

In addition, Gaines was ordered to pay restitution in the amount of $422,465 to three lenders. A jury convicted Gaines in December 2008 on one count of conspiracy to commit mail and wire fraud and two counts of mail fraud.

Gaines, an attorney and a licensed title agent allegedly ran a company known as Your Title Choice, Inc., in Deerfield Beach, Florida. This is the sixth conviction in this case, following five earlier guilty pleas by other conspirators. It appears that the others cooperated and testified against Gaines at trial.

According to the evidence presented at trial, Gaines, as a title agent, aided co-conspirator Anthony Dehaney and others to close on fraudulent loans. Among the fraudulent documents presented at closings were HUD 1 Settlement Forms, which falsely represented that buyers were using their own money to close on the purchases. The evidence showed that Gaines helped Dehaney close more than $10,000,000 in loans during 2004, 2005, and 2006, including $5,000,000 in fraudulent mortgages. Related court documents and information may be found on the website of the District Court for the Southern District of Florida at www.flsd.uscourts.gov or on http://pacer.flsd.uscourts.gov/.

Attorney Commentary: For those convicted of mail fraud or wire fraud related to mortgages, the sentences will likely be long. You will note that there was no count of "mortgage fraud" in this case.

What is mortgage fraud? There is no specific statute that defines mortgage fraud. A mortgage fraud case usually has charges of mail or wire fraud combined with some type of material misstatement, misrepresentation or omission relied upon by an underwriter or lender to fund, purchase or insure a loan.

Mortgage fraud can be broken down in two distinct areas: 1) Fraud for Profit; and 2) Fraud for Housing.

Fraud for Profit uses a scheme to remove equity, falsely inflate the value of the property or issue loans relating to fictitious property(ies). Many of the Fraud for Profit schemes rely on “industry insiders”, who override lender controls. Industry insiders are appraisers, accountants, attorneys, real estate brokers, mortgage underwriters and processors, settlement/title company employees, mortgage brokers, loan originators, and other mortgage professionals engaged in the mortgage industry.

Fraud for Housing represents illegal actions perpetrated by a borrower, typically with the assistance of real estate professionals. The simple motive behind this fraud is to acquire and maintain ownership of a house under false pretenses. This type of fraud is typified by a borrower who makes misrepresentations regarding the borrower’s income or employment history to qualify for a loan.

There is an exponential rise in mortgage fraud investigations. The number of open FBI mortgage fraud investigations has risen from 881 in FY 2006 to more than 2,000 in 2009. Mortgage fraud is a priority for prosecution since the mortgage backed securities and related financial industry corporate fraud have shaken the world’s confidence in the U.S. financial system.

The current mortgage fraud trends that are being investigated include: equity skimming, property flipping, mortgage identity related theft, and foreclosure rescue scams.

Equity skimming schemes involve the use of corporate shell companies, corporate identity theft and the use or threat of bankruptcy/foreclosure to dupe homeowners and investors.

Property flipping is nothing new; however, law enforcement is focusing on those that use identity theft, straw borrowers and shell companies, along with industry insiders to conceal their methods and override lender controls.

Identity theft in its many forms is a growing problem and is manifested in many ways, including mortgage documents. The mortgage industry has indicated that personal, corporate, and professional identity theft in the mortgage industry is on the rise. Computer technology advances and the use of online sources have also been used to commit identity theft in committing outright mortgage fraud.

Foreclosure rescue companies will be investigated aggressively since the government wants to ensure that no one is taking advantage and illegally profiting from other individuals’ misfortunes. As foreclosures continue to rise across the country, so too have the number of foreclosure rescue companies. Where these customers lose their home while paying thousands of dollars in fees for little or no services – there will be scrutiny.

Any individual or company being investigated for these type of allegations need to be aggressive in their defense at the beginning when grand jury subpoenas, search warrants or interviews are conducted. We can see the likelihood of many common business practices being characterized as "fraud" where money is lost or properties are foreclosed.

Any questions or comments should be directed to: tgreen@greenassoc.com. Tracy Green is a principal at Green and Associates in Los Angeles, California. They focus their practice on the representation of licensed professionals, individuals and businesses in civil, business, administrative and criminal proceedings.

Real Estate Licenses: Attorney Comments On Recent Case Of Unlicensed Practice As Real Estate Broker

The recent case of Venturi & Co. LLC v. Pacific Malibu Development Corp. (B205789 & B206774, Cal. App. 2d Dist., Apr. 10, 2009) reminds us that persons who perform services for which a real estate broker's license is required, but who do not hold a valid license, face the undesireable prospect of being uncompensated for such services. However, unlicensed persons who contract to perform both broker's services and related "non-professional services" (i.e., services for which no real estate broker's license is required) may still be entitled to compensation for the non-professional services.

How does one know whether they can be compensated for performing real estate related services? First, look at the applicable statutes. Section 10136 of the Business and Professions Code allows only licensed real estate brokers to receive compensation for real estate brokerage services. That section states:

"No person engaged in the business or acting in the capacity of a real estate broker or a real estate salesman within this State shall bring or maintain any action in the courts of this State for the collection of compensation for the performance of any of the acts mentioned in this article without alleging and proving that he was a duly licensed real estate broker or real estate salesman at the time the alleged cause of action arose." Cal. Bus. & Prof. Code § 10136.

Then, we proceed to Business and Professions Code Section 10131 which defines a “real estate broker” as one who:

-- (a) Sells or offers to sell, buys or offers to buy, solicits prospective sellers or purchasers of, solicits or obtains listings of, or negotiates the purchase, sale or exchange of real property or a business opportunity. [However, one who simply finds and introduces a prospective buyer to a person who wishes to sell his property, and does not engage in any negotiating to consummate the transaction, need not be licensed by the state in order to recover a commission for his services. Lindenstadt v. Staff Builders, 55 Cal. App. 4th 882, 886 n.3 (1997).]

--(b) Leases or rents or offers to lease or rent, or places for rent, or solicits listings of places for rent, or solicits for prospective tenants, or negotiates the sale, purchase or exchanges of leases on real property, or on a business opportunity, or collects rents from real property, or improvements thereon, or from business opportunities.

--(c) Assists or offers to assist in filing an application for the purchase or lease of, or in locating or entering upon, lands owned by the state or federal government.

--(d) Solicits borrowers or lenders for or negotiates loans or collects payments or performs services for borrowers or lenders or note owners in connection with loans secured directly or collaterally by liens on real property or on a business opportunity.

--(e) Sells or offers to sell, buys or offers to buy, or exchanges or offers to exchange a real property sales contract, or a promissory note secured directly or collaterally by a lien on real property or on a business opportunity, and performs services for the holders thereof.

Third, look at the actual services you or your company are performing and determine whether they are services that can only be performed by licensed real estate salesman or brokers.

Facts of Venturi Case

In June 2003, appellant Venturi and Pacific Malibu entered into a contract involving development of a resort on the Bahamian island of Little Exuma. Under the contract, Venturi agreed to serve as a financial advisor and find financing for the Little Exuma project through a private placement of equity, preferred stock, debt securities, or a combination of those financial instruments, which collectively the contract called “Securities.” The contract called for Venturi to provide the following services:

 review the proposed development costs, business operations and financial requirements of the Project;

 assist Pacific Malibu in preparing information materials and documents with regard to a Placement, including an executive summary, confidential information memorandum, term sheets and related due diligence information in connection with the Project;

 assist Pacific Malibu in formulating a marketing strategy for the Securities, including identifying and contacting selected parties with regard to a Placement, scheduling meetings with such parties and participating in meetings and/or relevant discussions relating thereto;

 advise Pacific Malibu as to the strategy and tactics of negotiations in connection with the Placement and, if requested, assist in the negotiations with the related parties; and

 provide such other financial advisory and investment banking services as may be mutually agreed upon.

Pacific Malibu agreed to compensate Venturi with two possible fees: (1) upon “completion of a Placement,” a "Monthly Advisory Fee" of $30,0000 for at least three months “at the close of any such Placement;” and (2) a “Success Fee” to appellant “promptly upon consummation of any Placement of Securities.”

The amount of the success fee, depended on Venturi’s role in the consummated placement: (a) 5% if Venturi either introduced Pacific Malibu to the party who provided financing, or participated in “active negotiations” with that party; or (b) 1% if Venturi neither introduced the party providing financing nor negotiated the financing.

After signing the contract, Venturi contacted more than 60 potential sources of financing for the project. However, in the end, Pacific Malibu did not receive financing from any source that appellant had identified.

Pacific Malibu terminated the contract in January 2005. Two months earlier, however, Pacific Malibu had signed a term sheet with the Talisker Group. Venturi was not involved in Pacific Malibu's negotiations with the Talisker Group or in the placement of Securities with that group. Nevertheless, Venturi claimed it was entitled to the 1% Success Fee following the placement. Pacific Malibu refused to pay, and the litigation began.

Venturi sued for breach of contract and, alternatively, for "quantum meruit" to recover the reasonable value of its services.

Pacific Malibu argued that Venturi could not recover either for breach of contract or quantum meruit because Venturi provided the services of a real estate broker by soliciting financing for the Little Exuma project yet did not have a broker’s license. In turn, Venturi argued that it properly provided real estate broker's services because one of its managing principals (Jane Venturi), had a real estate sales license and was employed by an unnamed real estate broker at the time that Pacific Malibu signed the term sheet with the Talisker Group. The trial court found Venturi was not entitled to any compensation, and the decision was appealed.

The court of appeal agreed that Venturi performed services for which a broker's license was required by: (1) helping find possible sources of financing for the Little Exuma project; and (b) helping negotiate the placement of Securities to procure that financing. But it also found that the contract called for Venturi to provide services different from a real estate broker: (a) reviewing the project’s costs and financial requirements; (b) helping Pacific Malibu prepare information materials and documents related to financing the project, and to help formulate a marketing strategy to secure financing; and (c) providing mutually agreed upon financial advice and investment banking services.

The court of appeal affirmed that Venturi could not receive compensation for providing real estate broker services to Pacific Malibu because Venturi was not a licensed broker. The court of appeals rejected Venturi's argument that Jane Venturi's status as a real estate agent working under an unnamed broker permitted Venturi to perform broker's services, noting that a broker under whose authority a salesperson may act must itself be a party to the real estate contract, which was not the case here.

However, the appellate court found that the trial court failed to consider whether Venturi might be entitled to recover for other services called for under the contract which did not require a broker's license. See, e.g., Executive Landscape Corp. v. San Vicente Country Villas IV Ass'n, 145 Cal. App. 3d 496, 499-500 (1983) (statute barring unlicensed contractor from receiving fees for some services did not prohibit recovery for work not within scope of licensing statute). The case was returned to the trial court for further proceedings on that issue.

Attorney Commentary: There are several issues to analyze in entering into and structuring agreements regarding real estate transactions that are required to be performed by a licensed broker. First, if your services would require being licensed as a broker, your contract may be unenforceable. This is similar to not having a valid contractor's license when one seeks to enforce a contract for contracting work.

Second, those in the real estate, foreclosure and loan modification business can expect to receive close scrutiny by the Department of Real Estate (DRE) to ensure compliance with licensing requirements. Business and Professions Code § 10131(d) requires anyone who "[s]olicits borrowers or lenders for or negotiates loans or collects payments or performs services for borrowers or lenders or note owners in connection with loans secured directly or collaterally by liens on real property or on a business opportunity" to have a real estate broker's license. All it takes is one unhappy customer to make a complaint to trigger an inquiry.

If you or your company receives a Desist and Refrain Order from the DRE, you should immediately contact an attorney to respond within the deadline and analyze whether the Order has any merit.

Third, persons performing real estate finance and loan modification services without a license face not only the prospect of going uncompensated, but also criminal liability. Business and Professions Code § 10139 provides that any person acting as a real estate broker without a license shall be guilty of a public offense punishable by a fine not exceeding twenty thousand dollars ($20,000), or by imprisonment in the county jail for a term not to exceed six months, or by both fine and imprisonment; or if a corporation, be punished by a fine not exceeding sixty thousand dollars ($60,000).

Any questions or comments should be directed to: tgreen@greenassoc.com. Tracy Green is a principal at Green and Associates in Los Angeles, CA. The firm focuses its practice on the representation of licensed professionals and businesses in civil, business, administrative and criminal proceedings, including real estate brokers and salespersons.

Real Estate Broker Charged In Fraud Case

On February 20, 2009, the California Attorney General’s Office filed 73 criminal counts against real estate broker Thomas Hastert in the Nevada County Superior Court for embezzlement, securities fraud, conspiracy, and filing false documents. A criminal complaint contains merely charges and a defendant is presumed innocent until proven guilty.

Hastert brokered over 270 hard-money loans in Nevada, Sacramento, Sutter, Butte, Placer, and Yolo Counties between September 2004 and September 2007 for real estate development projects. Hard-money loans typically provide high returns for private investors and are secured through collateral such as real estate. In this case, Hastert secured $20 million from several investors, using the funds to broker hard-money loans to borrowers seeking to develop homes on real estate.

In the criminal complaint, Hastert is alleged to have:

■ Misled investors. Hastert told investors that borrowers had excellent credit scores and were capable of repaying the loans. This proved to be untrue. Many borrowers had poor credit scores, did not make regular payments on the loans, and held properties that were in foreclosure.
■ The loans that Hastert brokered were required by law to be placed into a special trust account overseen by a third-party escrow firm. The firm had to verify whether funds being withdrawn by borrowers were being used for construction projects. Despite telling investors he had established such a trust account, Hastert never did, and the money was regularly withdrawn and misused by borrowers with no oversight.

■ Hastert told investors he would personally oversee the development of the land. In one instance, he was asked by investors to drive them to a particular property that was supposedly under development. Hastert could not locate the property.

■ Set up fake investors, known as “straw men,” to keep concerned investors at bay. Hastert filed documents with a county recorder’s office saying that his secretary owned a majority interest in the investment, despite the fact that she had never invested a single dollar. If a legitimate investor tried to initiate foreclosure proceedings, Hastert would contend that the supposed majority owner opposed the action.

■ Embezzled fees. Hastert was entitled to collect a 3% fee on loans he brokered. However, he took all his fees up-front as if the loan were fully funded. The complaint alleges some loans never fully funded, and others took more than a year to fully fund.

If convicted, he could face up to 11 years and 4 months in prison apart from the collateral consequence of losing his real estate broker license. Bail was set at $540,000. To review the complaint and arrest warrant declaration:http://ag.ca.gov/cms_attachments/press/pdfs/n1683_aw_dec;aration_filed.pdf
http://ag.ca.gov/cms_attachments/press/pdfs/n1683_complaint_filed.pdf

Attorney Comments: There will be a large increase in the number of criminal cases filed against real estate professionals in the next few years both by the U.S. Attorneys' Offices, State Attorney General's Office and District Attorneys' Offices. These cases take years to investigate and prosecute and any individuals who are targets of investigation should seek counsel early in order to do their best to seek to avoid criminal filings. In cases where there are viable defenses and the losses were due to economic reasons or bad business decisions and not fraud, strategic decisions need to be made on whether to approach the investigating authorities.

Any questions or comments should be directed to: tgreen@greenassoc.com. Tracy Green is a principal at Green and Associates. They focus their practice on the representation of licensed professionals and businesses in civil, business, administrative and criminal proceedings, with a specialty in health care providers.