“Lowers the Bar”

• Meaning: The statute reduces the mental state or evidentiary threshold required to prove a violation.
• Example in AB-3108: Changing from “deliberate” falsity to “material misstatement known to the filer” means prosecutors no longer need to show intent to defraud—just knowledge of falsity.
• Effect: Makes enforcement easier because the government needs less proof of subjective purpose.  It does not mean anyone can accuse without basis; the state still must prove knowledge beyond a reasonable doubt.

“Open Invitation to Accusing a Broker of a Criminal Act”

• Meaning: Suggests whether the Law is so broad or vague that it encourages frivolous or retaliatory accusations.
• Risk: If statutory language is unclear (e.g., what counts as “material”), it could lead to over-reporting or misuse by competitors, disgruntled clients, or even political actors.
• Effect: While accusations may increase, actual convictions still require proof of the statutory elements.  However, the cost and stress of defending against allegations—even if unfounded—can be significant.

✅ Key Difference:

• Lowers the bar = legal threshold for conviction drops (easier for prosecutors to prove guilt).
• Open invitation = practical risk of more complaints or charges, even if many lack merit, because the Law appears expansive or ambiguous.

Rule

• AB 3108 (ch. 517, stats. 2024) amends Financial Code § 4973 and Penal Code § 532f, replacing “deliberate” with “material” in the recorder‑filing prong and adding broker-specific mortgage‑fraud provisions (e.g., mislabeling business‑purpose or bridge loans with knowledge of consumer use), effective 1 January 2025.
• Penal Code § 532f(a)(4) (as amended) now prohibits filing with the county recorder “any document the person knows to contain a material misstatement, misrepresentation, or omission” in connection with a mortgage loan transaction; § 532f(b) adds broker liability when, with intent to defraud, brokers cause borrowers to sign documents mischaracterizing loan purpose or bridge‑loan use.
• Financial Code § 4973 governs “covered loans” and prohibits evasion of the Covered Loan Law; AB 3108 ties mortgage‑fraud prohibitions to evasion of that Law.
• Penal Code § 115 separately criminalizes knowingly offering or causing a false or forged instrument to be filed/recorded in any public office; each instrument constitutes a separate violation.

Analysis (with Case Law)

A. Statutory Expansion and Mental State Under AB 3108

AB 3108 lowers the threshold from “deliberate” to “material” for documents filed with the recorder, while preserving a knowledge requirement and, elsewhere, intent to defraud for broker conduct—broadening prosecutorial reach in mortgage‑fraud cases tied to recorded instruments.

Legislative materials underscore consumer protection aims and anti-evasion measures under the Covered Loan Law, aligning the criminal provision with predatory lending enforcement.

B. Interaction with Penal Code § 115 (Filing False or Forged Instruments)

California has long criminalized the filing of false instruments under Penal Code § 115, which broadly applies to deeds and other documents recorded in public offices, with separate counts per instrument.

In People v. Garfield (Cal. 1985), the Supreme Court addressed § 115’s statute of limitations framework but reaffirmed prosecutions for offering false instruments; the case highlights that filing forged wills or similar instruments falls within § 115’s ambit, demonstrating courts’ readiness to punish falsified public filings.

AB 3108’s recorder‑filing prong of § 532f(a)(4) operates alongside § 115, specifically tethering criminal liability to mortgage loan transactions and to material falsity, which may ease proof relative to the prior “deliberate” language while still requiring knowledge.

C. Civil Duties and Broker Liability: Fiduciary Standards and Misrepresentation

California imposes robust fiduciary and disclosure duties on brokers:

• Easton v. Strassburger (1984) held that a listing broker must conduct a reasonably competent and diligent inspection and disclose material defects affecting value or desirability—illustrating negligence exposure when “red flags” are ignored.
• Salahutdin v. Valley of California, Inc. (1994) affirmed liability for constructive fraud where a broker misrepresented acreage/subdividability and failed to verify critical facts, emphasizing fiduciary duties beyond mere negligence.
• Seeley v. Seymour (1987) upheld damages, including punitive damages, for slander of title and negligence arising from wrongful recordation of facially valid but baseless instruments—relevant to AB 3108’s focus on recorder filings.
  These cases collectively show that material misstatements, omissions, and wrongful recordings already carry significant civil exposure; AB 3108 overlays criminal liability where knowledge and, in broker-specific scenarios, intent to defraud are present.

D. First Amendment Boundaries: Fraudulent or Commercial Speech Is Not Protected

Concerns that AB 3108 might chill political speech must be assessed against the doctrine that fraud is unprotected:

• The U.S. Supreme Court unanimously held in Illinois ex rel.  Madigan v. Telemarketing Associates (2003), which holds that states may pursue fraud actions when fundraisers make false or misleading representations designed to deceive; nondisclosure alone may be insufficient, but the First Amendment does not shield intentional deception.
• The California Supreme Court’s Kasky v. Nike, Inc. (2002) treated corporate statements about business operations, aimed at influencing consumers, as commercial speech subject to false‑advertising laws; while SCOTUS later dismissed certiorari, the California decision remains a caution that corporate PR touching sales can be regulated for truthfulness.
  AB 3108 targets documents in the mortgage lending process and recorder filings with known material falsity—not generalized political advocacy—placing enforcement within the well-recognized realm where fraudulent commercial conduct may be sanctioned consistent with the First Amendment.

E. Financial Code § 4973 Context: Anti-Predatory‑Lending Enforcement

Courts have construed the Covered Loan Law in ways that delimit what counts as “points and fees” (e.g., Wolski v. Fremont Investment & Loan held that a yield‑spread premium was not part of points/fees for covered‑loan thresholds), and have allowed other consumer‑finance doctrines (e.g., De La Torre v. CashCall, Inc.) to police unconscionable pricing.  These decisions frame a judiciary receptive to consumer‑protection enforcement while requiring statutory precision.

AB 3108 explicitly ties mortgage fraud prohibitions to evasion of Covered Loan Law duties, reinforcing the statutory scheme against predatory practices and improper loan classification (e.g., mislabeling consumer loans as business-purpose loans).

Review my consumer vs business purpose article:

https://danharkey.com/post/consumer-vs-business-purpose-lending

F. Litigation Risk and Compliance Practices

Because § 532f now penalizes knowledge of material falsity in recorded loan documents, brokers and originators face heightened exposure if they proceed with filings amid unresolved factual discrepancies (e.g., occupancy, business purpose, or bridge‑loan intent).  Practical steps proposed by industry counsel include contemporaneous documentation of the business purpose (letters, corroborating financials, business account funding) to mitigate inferences of intent or knowledge.

Assembly policy analysis similarly flags expanded conviction scenarios under AB 3108, underscoring the need for rigorous internal controls around how loan purpose and terms are memorialized and communicated.

Conclusion

The case Law landscape supports AB 3108’s focus on fraudulent filings and broker misconduct: California precedents establish stringent fiduciary and disclosure duties for brokers, liability for wrongful recordings, and clear constitutional limits that permit fraud enforcement without infringing protected speech.

Nonetheless, AB 3108’s lowered threshold for material falsity in recorder filings and added broker-specific felony provisions will likely increase litigation and prosecutorial leverage, making robust documentation and verification of loan purpose, occupancy, and bridge loan use essential to reduce risk.

Recommendations of Procedures

·       Verification Protocols: Require independent corroboration of business‑purpose representations (in-person signed letters, invoices, bank statements) before filing any recorder-bound instruments. 

·       Pre‑Recording Audit: Adopt a checklist keyed to § 532f(a)(4) and § 115 elements to confirm no material misstatements/omissions are present in recorded documents.

·       Training & Disclosures: Train staff on Covered Loan Law (Fin. Code § 4973) anti-evasion provisions and commercial‑speech/false‑advertising exposure per Kasky, to avoid mischaracterizations in marketing or Borrower communications. 

California (AB 3108)

• Statute: Penal Code § 532f (as amended) + Financial Code § 4973.
• Key Features:
• Criminalizes filing with the county recorder any document known to contain a material mistake, misrepresentation, or omission in connection with a mortgage loan transaction.
• Adds broker-specific liability for instructing borrowers to sign documents misrepresenting business purpose or bridge-loan use.
• Lowers threshold from “deliberate” to “material” falsity, but retains knowledge and, in some cases, intent to defraud.
• Penalty: Felony; overlaps with Penal Code § 115 (false instruments), which carries up to 3 years imprisonment and $10,000 fine. 

New York

• Statute: Penal Law § 175.35 – Offering a False Instrument for Filing in the First Degree.
• Key Features:
• Applies to any written instrument knowingly containing false information, filed with a public office, with the intent to defraud the state or a political subdivision.
• Covers deeds, financing statements, and other official filings.
• Penalty: Class E felony (up to 4 years imprisonment).  Requires specific intent to defraud, not mere knowledge.   

Florida

• Statute: Fla. Stat.  § 817.545 – Mortgage Fraud.
• Key Features:
• Criminalizes knowingly making or using a material misstatement, misrepresentation, or omission during the mortgage lending process with the intent to defraud.
• Explicitly includes filing with the clerk of court any document involved in the mortgage process that contains such falsity.
• Penalty: Felony; degree depends on the amount defrauded (typically a third-degree felony, with up to 5 years’ imprisonment). 

Texas

• Statute: Penal Code § 32.32 – False Statement to Obtain Property or Credit.
• Key Features:
• Covers intentionally or knowingly making a materially false or misleading written statement to obtain property or credit, including mortgage loans.
• Applies broadly to loan applications and appraisals.
• Penalty: Scales by value:
• $2,500–$30,000 → State jail felony (180 days–2 years).
• $300,000+ → First-degree felony (5–99 years).
• Notice Requirement: Finance Code § 343.105 mandates disclosure of penalties at closing.

Federal Law

• Statute: 18 U.S.C. § 1014 – False Statements to Financial Institutions.
• Key Features:
• Criminalizes knowingly making any false statement or willfully overvaluing property to influence a federally insured bank or mortgage lender.
• No requirement that the institution relied on the statement; materiality and intent suffice.
• Penalty: Up to 30 years imprisonment and $1,000,000 fine.
• Recent Clarification: Thompson v. United States (2025) – § 1014 does not cover “half-truths” unless a provably false assertion exists.

Key Differences

✅ Observation:

AB 3108 aligns most closely with Florida’s mortgage fraud statute.  Still, its lower threshold (“material” vs. “deliberate”) and explicit broker provisions make it broader than New York’s filing Law and more targeted than Texas’s general false-statement statute.  Federal Law remains the harshest in terms of penalties and scope.

In Law, intent and knowledge are distinct mental states that affect how crimes and civil wrongs are defined and prosecuted:

1.  Intent

• Definition: A conscious objective or purpose to bring about a particular result.
• Key Element: The person wants the outcome to occur.
• Example: A broker deliberately falsifies a property appraisal to inflate the value because they intend to secure a higher commission.
• Legal Effect: Crimes requiring intent (often called specific intent crimes) demand proof that the defendant acted to achieve the prohibited result.
• Common Phrases: “With intent to defraud,” “purposefully,” “willfully.”

2.  Knowledge

• Definition: Awareness that specific facts or circumstances exist, even if the person does not desire the outcome.
• Key Element: The person knows the statement or document is false but may not have a specific goal beyond completing the act.
• Example: A broker files a deed knowing it contains a false legal description, even if they didn’t plan to harm anyone.
• Legal Effect: Crimes requiring knowledge (general intent crimes) only need proof that the defendant knew the falsity or illegality, not that they intended a particular harm.
• Common Phrases: “Knowingly,” “aware that.”

Why It Matters

• Burden of Proof: Intent is more complex to prove than knowledge because it involves motive and purpose.
• Penalty Severity: Statutes often impose harsher penalties for intent-based fraud than for mere knowing violations.
• AB 3108 Shift: By criminalizing filings with knowledge of material falsity, AB 3108 lowers the threshold from deliberate fraud to awareness, making prosecutions easier.