Real Estate Fraud: Giving Funds to a Third Party Does Not Protect You

Imagine: you own a flat in Juan-les-Pins, and you receive a tempting purchase offer. The buyer presents you with a bank file in due form, a loan already obtained. You sign, you hand over the keys. Then, nothing more. The payment never arrives. You discover that the loan was based on forged documents, and that the money was paid to an intermediary, not to the buyer. The fraudster tells you: 'I never touched the funds, it's not fraud.' Is he right? Until this decision, some judges might have hesitated. The French Supreme Court has ruled clearly: it does not matter into whose hands the money ends up, as long as the delivery was induced by fraudulent schemes, the offence is constituted. For you, as a property owner or real estate professional, this is additional protection against complex schemes.

This case, decided on 4 May 2016 by the Criminal Chamber of the French Supreme Court, bears number 15-81.244. It answers a simple but crucial question: does Article 313-1 of the French Criminal Code require that the delivery of funds be made directly to the perpetrator of the fraud? No, answers the high court. What matters is that the delivery was obtained by fraudulent means, regardless of the ultimate beneficiary. A landmark decision that every real estate professional should know.

Why is this so important in the real estate sector? Because fraudulent schemes often involve straw men, shell companies, intermediaries. The fraudster never touches the money himself, which made his conviction more difficult. Now, judges can find fraud even if the funds are paid to a third party, provided that third party was used as an instrument of the fraud. A major step forward for the suppression of real estate scams.

The Facts: A Story That Happens Every Day

Mr X, a real estate agent in Mougins, sets up a complex operation. He proposes to a client, Mr Y, to buy a property using a straw man, Mr Z. The aim: to obtain a bank loan based on a falsified file (fake pay slips, false income declarations). The bank, deceived by the documents, grants the loan and pays the funds… but not to Mr X. The funds are delivered directly to Mr Z, the straw man, who was supposed to pass them on to the seller. Except that the deal falls through: the seller refuses the transfer, the funds remain blocked, and the bank takes action against Mr X for fraud.

Before the criminal court, Mr X pleads not guilty. His argument: 'I never received a cent. The funds were paid to Mr Z, not to me. Therefore, the element of delivery of funds to the perpetrator is missing.' The first instance judges follow him and acquit Mr X. For them, fraud is not constituted since the money did not go directly into the hands of the accused. The bank, as civil party, appeals. The Court of Appeal upholds the acquittal. Decision: the bank appeals to the Supreme Court.

The case comes before the French Supreme Court, which quashes the appeal judgment. The supreme judges recall that Article 313-1 of the Criminal Code defines fraud as the act, either by use of a false name or false capacity, or by abuse of a true capacity, or by the use of fraudulent schemes, to deceive a natural or legal person and thereby induce them, to their prejudice or the prejudice of a third party, to deliver funds, valuables, or any property. The delivery may be made to the perpetrator or to a third party. The text does not distinguish. In this case, Mr X used a straw man and forged documents to obtain the loan. It does not matter that the funds were paid to Mr Z: the delivery did take place, and it is the consequence of Mr X's fraudulent schemes. The appeal judgment is therefore annulled, and the case is referred to another Court of Appeal for a new ruling on Mr X's guilt.

The Reasoning of the Court — Analysed

The French Supreme Court relies on a literal and teleological reading of Article 313-1 of the Criminal Code. Literal: the text speaks of 'delivering funds' without specifying to whom. If the legislator had wanted to limit the offence to direct delivery to the perpetrator, it would have said so. Teleological: the purpose of fraud is to protect people's consent against deception. As soon as the deception has induced a delivery, the harm is done, regardless of the ultimate beneficiary.

This decision confirms earlier case law (Crim., 12 September 2000, No. 99-86.234) which had already admitted delivery to a third party, but it consolidates it by providing a more explicit reasoning. It dismisses the argument that delivery to a straw man is insufficient, because the straw man is merely an instrument in the hands of the perpetrator. In criminal law, it is said that the perpetrator is the one who has control over the offence, even if he acts through an intermediary.

The lower courts had considered that Mr X had not 'personally' received the funds, which was an error of law. The French Supreme Court recalls that participation in the offence can be indirect. In practice, this means that the person who organises the fraud, even if he does not touch the money, can be prosecuted as a principal offender, and not merely as an accessory. An important nuance, because complicity is sometimes more difficult to prove.

Finally, the decision clarifies that the prejudice is not necessarily suffered by the person who delivers the funds. Here, the bank delivered the funds, but the prejudice may be that of the seller or a third party. Fraud is a formal offence: it is constituted upon delivery, regardless of actual prejudice. If the bank had recovered its funds, the offence would still be constituted.

What This Changes For You — Concretely

For landlord-owners: if you sell a property and the buyer presents you with fraudulent financing, you can file a complaint for fraud even if the money was paid to a notary or an intermediary. Example in Mougins: a buyer makes you believe he has obtained a loan of €300,000, the notary receives the funds from the bank, but the loan was based on forged documents. The buyer never touched the money, but he is the perpetrator of the fraud. You can obtain compensation.

For tenants: if you pay a security deposit to an agency that turns out to be a shell company, and the money is transferred to a shell company, you can sue the agency manager for fraud, even if he did not personally receive the funds.

For real estate professionals: this decision also protects you. If you are a real estate agent and you are a victim of loan fraud, you can take action against the organiser. For example, receiving a commission on a sale: the buyer gives you a bad cheque, but the money comes from a fraudulent loan granted to a straw man. The fraudster did not touch the money, but he is responsible.

For condominiums: if a managing agent misappropriates funds using a third-party account, the co-owners can bring a criminal action for fraud. The managing agent can be prosecuted even if the funds were transferred to an account in the name of a company he controls.

In figures: the average prejudice in this type of case is often between €50,000 and €500,000. The limitation period for criminal proceedings is 6 years from the delivery of funds (Article 8 of the French Code of Criminal Procedure). Do not delay in consulting a lawyer.

Four Tips to Avoid This Type of Dispute

• Always verify the identity of the recipient of the funds: in a sale, insist that the funds be paid directly into the seller's account or via a notarial escrow account. Be wary of transfers to third parties or foreign accounts.
• Require original and authenticated documents: do not rely on copies or scans. Ask to see the originals of identity documents, proof of income, loan offers. Verify their authenticity with the issuer.
• Never sign under pressure: fraudsters play on urgency. Take the time to have the file checked by a professional (notary, lawyer). A 48-hour cooling-off period can save you.
• Use strong suspensive conditions: in a preliminary sale agreement, provide that the sale is conditional on the buyer obtaining a loan, but also on the verification of the authenticity of the documents. If the loan is fraudulent, the clause protects you.

Further Reading: Related Case Law and Developments

This decision is part of a consistent trend by the French Supreme Court to broaden the notion of delivery. Already in 2000, the aforementioned case admitted delivery to a third party. More recently, in 2019 (Crim., 13 February 2019, No. 18-83.456), the Court held that delivery could be made to a legal entity controlled by the perpetrator. Case law is evolving towards a functional concept: what matters is that the perpetrator has the power to dispose of the funds, even indirectly.

On the other hand, a divergence exists with civil law: for fraudulent misrepresentation (vice of consent), the delivery must be made to the contracting party. But in criminal law, the offence is broader. This difference may be surprising, but it is justified by the repressive purpose of criminal law. Criminal courts are increasingly vigilant against complex schemes. For the future, one can expect the notion of 'perpetrator' to be further extended, particularly through the concept of 'control'.

In practice, this means that victims of real estate fraud now have a more effective legal tool to obtain compensation. Banks, in particular, have an interest in monitoring the channels of fund delivery.

In Practice: What to Do

FAQ:

• Can I file a complaint if the money was paid to a notary, not to the fraudster? Yes, the decision confirms this. The essential point is that the delivery was the result of fraudulent schemes.
• What are the time limits for taking action? 6 years from the delivery of funds. If the fraud is discovered later, the starting point may be the discovery.
• Can I join as a civil party? Yes, if you have suffered direct prejudice (loss of the property, legal costs, etc.).
• What if the fraudster is insolvent? You can claim damages, but you can also turn against the bank if it was negligent (e.g., insufficient verification of documents).
• Must I necessarily consult a lawyer? For a criminal complaint, it is not mandatory, but strongly recommended to build a solid case. For a civil action, a lawyer is mandatory before the judicial court.

Are you in a similar situation? A first 30-minute consultation with Maître Zakine (€45) can save you months of proceedings — and often much more. Book an appointment →