California Penal Code Section 484b PC: Diversion Of Construction Loans

1. Definition and Elements of the Crime

The building and construction industry relies on the ability to receive infusion of large amounts of cash, sometimes on relatively short notice. With large sums frequently changing hands, there is a risk that unscrupulous contractors, builders or real estate speculators may be tempted to divert money intended to cover construction costs. However, under California Penal Code Section 484b PC, diversion of construction loans is a serious criminal offense that can result in felony charges.

To prove that a defendant is guilty of unlawfully diverting a construction loan, a prosecutor must be able to establish the following elements:

1. The defendant received money for the purpose of obtaining or paying for services, labor, materials or equipment.
2. The defendant willfully failed to apply such money for this purpose either by willfully failing to complete the improvements for which the funds were provided or willfully failing to pay for services, labor materials or equipment provided incident to such construction.
3. AND the defendant wrongfully diverted the funds to a use other than that for which the funds were received.

2. Related Offenses

Other similar or related offenses include:

1. Grand Theft – California Penal Code Section 487 PC
2. Petty Theft – California Penal Code Section 484 PC
3. Mortgage Fraud – California Penal Code Section 532f PC

3. Examples

A man purchases a large lot of real estate and plans to build a commercial shopping center on the site. The man draws up plans and blueprints for the project and obtains a construction loan from the bank to pay for the construction of his project. However, once the man receives the funds he suffers a financial setback and decides to use funds from the construction loan to cover other unrelated personal expenses. This man could be prosecuted for unlawfully diverting construction funds in violation of California Penal Code Section 484b PC.

In another example, a homeowner hires a contractor to complete a home improvement project. The homeowner hires the cheapest contractor he can find and provides a down payment to cover material and labor costs. The project does not go smoothly due to the fact that the contractor has hired unskilled workers and has purchased the wrong materials. When the down payment has been exhausted, the contractor leaves without finishing the job. While the contractor may be civilly liable to the homeowner, he would not be criminally liable for diverting construction funds as long as whatever money loaned was actually used in furtherance of the construction project.

4. Defenses to Diversion of Construction Loans

As noted above, California Penal Code Section 484b PC is not intended to criminalize contractors who succumb to debt and are unable to continue a job or do not complete satisfactory work. In these cases, the property owner may have a civil remedy against the contractor, but that contractor would not be guilty of a criminal offense. In many cases, it may not be clear as to whether a loan was unlawfully diverted or merely misspent on a project.

5. Penalties

If the amount of the loan that was diverted was more than $2,350, this offense is considered a “wobbler.” This means that the case can be charged as either a felony or a misdemeanor. When making a filing decision, prosecutors will consider a variety of factors, including the criminal history, if any, of the defendant and the amount of loss alleged. If filed as a felony, a defendant convicted of unlawfully diverting a construction loan can be sentenced to up to three years in prison. If filed as a misdemeanor, the defendant would face up to a year in jail. In either case, the defendant would be ordered to repay the loan amount to the victim as restitution.

If the amount of the loan was $2,350 or less, the act of unlawfully diverting a construction loan is a misdemeanor. If convicted, the maximum amount of jail that a defendant can be sentenced to is six months. In addition, the defendant would also have to pay victim restitution.

6. Criminal Defense for Diversion of Construction Loans Cases

Unlawfully diverting a construction loan is a crime that can carry serious consequences for those convicted. If you have been charged with this offense, it is important that you meet with an experienced Los Angeles Criminal Defense Attorney right away. As a former Deputy District Attorney with over 14 years of prosecutorial experience, Los Angeles Criminal Defense Lawyer Michael Kraut knows how best to defend those charged with offenses like this. Mr. Kraut is highly respected throughout the court system as a tough litigator who fights hard for his clients.

For more information about diversion of construction loans, and to schedule your free consultation, contact Los Angeles Criminal Defense Attorney Michael Kraut at the Kraut Criminal & DUI Lawyers located at 6255 Sunset Boulevard, Suite 1520, Los Angeles, CA 90028. Mr. Kraut can be reached 24/7 at 888-334-6344 or 323-464-6453.

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