Scenario |
Type of Fraud |
Why It Qualifies |
Legal Consequences |
|
Broker claims property is “subdividable” without verifying zoning. |
Constructive Fraud |
Breach of fiduciary duty; failure to verify a material fact misleads the client. |
Civil liability: damages, possible punitive damages (Salahutdin v. Valley of California). |
|
Agent omits known water intrusion issues in disclosures. |
Constructive Fraud |
Fiduciary duty requires full disclosure; omission misleads the client. |
Civil liability; disciplinary action (Easton v. Strassburger). |
|
Broker inflates property valuation to induce listing. |
Actual Fraud |
Intentional misrepresentation to gain an advantage. |
Civil liability: possible criminal exposure under AB 3108 if recorded documents are false. |
|
Mortgage broker instructs Borrower to sign “business purpose” loan docs for personal use. |
Statutory Fraud (AB 3108) |
Knowledge and intent to misrepresent loan purpose; violates Penal Code § 532f. |
Felony charges, license revocation, and civil damages. |
|
Broker fails to disclose prepayment penalty in loan terms. |
Constructive Fraud |
Omission of a material financing term breaches fiduciary duty. |
Civil liability; administrative discipline. |
|
Broker knowingly records a deed with an incorrect legal description. |
Statutory Fraud (AB 3108) |
Filing a document with a material misstatement; knowledge of falsity triggers criminal liability. |
Felony under Penal Code § 532f; overlaps with § 115 (false instruments). |
|
Agent advertises property as “income-producing” without confirming that rental permits are in place. |
Constructive Fraud |
Failure to verify a material fact before representation; fiduciary breach. |
Civil liability; possible license discipline. |
|
Broker conceals dual agency relationship from client. |
Constructive Fraud |
Fiduciary duty of loyalty breached; omission misleads client. |
Civil liability; license suspension or revocation. |
|
Broker promises “guaranteed returns” on investment property without basis. |
Actual Fraud |
Intentional false promise; no reasonable grounds for guarantee. |
Civil liability, punitive damages, and possible securities Law violations. |
|
Broker misstates Borrower’s income on loan application to qualify for financing. |
Statutory Fraud (AB 3108) |
Knowingly submitting false information in a mortgage transaction; intent to defraud the lender. |
Felony charges; federal exposure under 18 U.S.C. § 1014.
|
Closing Paragraph:
These examples illustrate the broad spectrum of conduct that can expose real estate and mortgage professionals to liability—from negligent omissions that constitute constructive fraud to intentional misrepresentations and statutory violations under AB 3108. The common thread is the fiduciary obligation to act with honesty, full disclosure, and reasonable care. When these duties are breached, courts have consistently imposed civil remedies, and under recent legislative changes, criminal penalties may also apply. Brokers and agents must therefore adopt rigorous compliance practices, verify all material facts, and document communications to mitigate risk in an increasingly regulated environment.