IMPACT OF THE PENAL CODE AND OTHER STATUES
Penal Code
Violations of the Penal Code (PC) are of interest to real estate licensees because such offenses may be
committed by clients or by others with whom licensees come into contact. If there is doubt as to whether a
transaction involves a crime, a licensee should obtain legal advice.
For the most part, grand (as opposed to petty) theft is committed when the value of the money, labor, or real or
personal property taken exceeds four hundred dollars ($400). Theft of certain farm crops, farm animals and real
property severed from land is defined as grand theft at values below $400. (PC 484, 487, 487a through 487g,
488)
Some examples of real estate related crimes are:
1. Diversion of construction funds from the intended purpose; use of a false voucher to obtain construction
loan funds. (PC 484b, 484c)
2. Copying without permission, and with intent to use, documents owned by a title company. (PC 496c)
3. Removal of a structure from mortgaged real property, or after a foreclosure sale, with intent to defraud or
to injure the mortgagee or purchaser. (PC 502.5)
4. Fraudulent appropriation of or secreting of trust funds by a broker or other fiduciary. (PC 506)
5. Failure by debtor, upon sale of property covered by a security agreement, to pay to the secured party the
amount due under the security agreement (or the sale proceeds, whichever is less). (PC 504b)
6. Obtaining property from another by extortion, i.e., by force or by a threat of injury to person or property,
including injury to reputation. (PC 518, 519)
7. Making or recording a deed, knowing the maker has no title; being a party to a fraudulent conveyance of
land. (PC 531a)
8. Making or procuring a false financial statement to benefit oneself or another person in obtaining credit. (PC
532a)
9. Offering or giving parcels of real property by means of winning numbers at any drawing or with admission
tickets, and collecting fees in connection with the land transfer. (PC 532c)
10. Giving a kickback of construction funds. (PC 532e)
11. Selling the same land twice to different persons. (PC 533)
12. Willful concealment by a married person of the necessity for concurrence of a spouse in the sale or
mortgaging of land. (PC 534)
13. A broker or agent who “holds out” on a principal, or renders a principal a false accounting, commits a
misdemeanor. (PC 536, 536a)
14. Except for posting legal notices, placing advertising signs on public or private property without
permission. (PC 556, 556.1, 556.2)
15. Bribing a lender to obtain credit; accepting the bribe. (PC 639, 639a)
16. Accepting compensation or consideration from a title or escrow company given as an inducement for the
referral of title business. (PC 641.4)
17. Signing the name of another person, or of a fictitious person, without authority to do so; falsely making,
altering, forging or counterfeiting documents such as leases, deeds or checks; passing such documents as
true and genuine, with intent to defraud. (PC 470, 473)
Unlawful Practice of Law
Sections 6125 and 6126 of the California Business and Professions Code prohibit the practice of law by persons
who are not active members of the State Bar.
In 1943, in People v. Sipper (61 CA 2d Supp. 844), the Appellate Department of the Los Angeles County
Superior Court stated that the practice of law is the doing and performing of services in a court of justice in any
matter pending therein throughout its various stages and in conformity with the adopted rules of procedure. The
court recited the larger traditional definition that includes legal advice and counsel and the preparation of legal
instruments and contracts by which legal rights are secured, although such matters may not be pending in a
court.
In the Sipper case, a married couple had asked the real estate broker “to make out a paper to protect Mrs.
Hetman for the money” which they had borrowed from her in order to pay off the indebtedness on their real
property. The defendant broker proceeded to prepare a trust deed, and later a mortgage. He charged $15 for his
services, later reducing the charge to $10.
The appellate court held that the trial jury was justified in concluding that the defendant broker undertook to,
and did, advise his clients as to the kind of legal document that they should execute in order to secure the loan.
He made a charge which clearly indicated “…that he considered he was called upon to do something more than
the mere clerical work of typing in certain furnished information on a blank form.” This was practicing law.
Significantly, the court stated that if the defendant “…had only been called upon to perform and had only
undertaken to perform the clerical service of filling in the blanks on a particular form in accordance with
information furnished by the parties, or had merely acted as a scrivener to record the stated agreement of the
parties to the transaction, he would not have been guilty of practicing law without a license.”
In discussing this problem, an authoritative encyclopedia of California law, California Jurisprudence, states
that, “…an established business custom sanctions the activities of real estate and insurance agents in drawing
certain agreements in business transactions in which they take part in their respective professional capacities.”
The editors then quoted an article by Robert L. Lancefield (29 California Law Review 602) which stated:
“While these actions are technically within the usual definition of practice of law, they are generally recognized
as proper where:
• the instrument is simple or standardized;
• the draftsman or intermediary does not charge any fee for such work (other than his regular commission for
the transaction); and,
• the drafting is incidental to his other activities in the transaction.”
Selection and use of a form by the broker may sometimes require a lawyer’s help.
Business and Professions Code
The Department of Real Estate publishes the Real Estate Law, a book which includes the many Business and
Professions Code Sections which regulate real estate licensees.
Civil Code
The Civil Code (CC) proscribes various acts relative to real property sales contracts. A real property sales
contract (sometimes called a contract of sale or a land installment contract) is defined (with certain exceptions)
as an agreement to convey title to land upon satisfaction of specified conditions set forth in the contract and
which does not require conveyance within one year of formation of the contract. (CC 2985)
Some examples of violations involving contracts of sale are:
1. Without the buyer’s consent, the seller under an unrecorded contract of sale encumbers the land in an
amount exceeding the present contract balance. (CC 2985.2)
b. When there is a payment due on an obligation secured by the land, a seller under a contract of sale
appropriates a payment received from the buyer to any purpose except payment on that obligation. (CC
2985.3)
c. Failure by the seller under a contract of sale to hold in trust and properly apply pro rata tax and insurance
payments received from the buyer. (CC 2985.4)
(The Department of Real Estate’s Real Estate Law book includes these and other Civil Code sections which are
of interest to real estate licensees.)