This article is part of an ongoing series covering violations of real estate law. Here, the DRE revoked the California real estate license of a broker who defrauded investors in his mortgage company — a criminal act substantially related to the practice of real estate.
In May 2021, the California Department of Real Estate (DRE) revoked the broker license of Tobias Preston, who had been licensed as a broker in California since 2007.
Although Preston’s mailing address on his broker license is listed as Anchorage, Alaska, he operated primarily out of Redding, California, where his mortgage company, McKinley Mortgage, was based.
None of the doing-business-as names (DBAs) under which Preston conducted mortgage loan origination (MLO) activities was listed as a fictitious business name on Preston’s broker license — an omission that is itself a cause for revocation of a California real estate license.
However, Preston’s wrongdoing went above and beyond non-disclosure of required information to the DRE.
From 2012 to 2016, Preston raised over $66 million for a private real estate investment fund related to McKinley Mortgage. Preston claimed the investments were reliably secured by real estate trust deeds; however, the fund had been actively losing money since 2012. Further, Preston falsely claimed to investors that the investments were earning money and that the company had been audited in that period of time — even though an audit had not occurred since 2010.
Preston also used over $30 million of investors’ funds to finance the operation of McKinley Mortgage, as well as for personal transactions including the purchase of a residence in Mexico.
The Eastern District Court of California held Preston and McKinley Mortgage liable for over $14 million in money losses, including a $2.5 million fine imposed by the Securities and Exchange Commission (SEC).
The DRE’s jurisdiction
The DRE got involved in Preston’s case when the Department conducted a broker office survey in 2017, prior to the Eastern District of California’s judgment. As a result of the office survey, it discovered the absence of Preston’s DBAs on his broker license.
Acting as an MLO in California is not permitted without a DRE endorsement — which in turn requires the MLO to posses a real estate broker license. Thus, conducting brokerage activities — including mortgage origination — under a fictitious name not listed on the broker’s license is enough for the DRE to revoke a California real estate license.
A fictitious name or DBA is distinguished from a team name — teams are groups of sales agents or broker-associates who pool resources and leads to promote and expand their practice. Unlike DBAs, team names do not need to be reported to the DRE or listed on an agent’s license.
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The larger issue, of course, is that Preston intentionally defrauded investors in his company’s mortgage fund. However, the DRE can only do so much. It may require disciplined participants to pay back costs of an investigation, but its primary disciplinary power lies in the ability to revoke a license — even when it deems the crime in question substantially related to the practice of real estate.
Here, the courts handed down the brunt of Preston’s penalty, since his crimes ranged beyond the purview of an industry-specific agency.
Although the DRE can enforce little in the way of monetary penalties, it will always have the power to decide who does and does not operate in the California real estate industry, and it uses that power with impunity.
This article was updated on June 29 to include commentary on real estate team names.
Regarding Benjamin Smith’s story about Tobias Preston’s CA license revocation, there is much more.
In fact, enough for a book or a movie. The McKinley mtg debacle , according to the Alaska Division of Banking and Securities , is the biggest financial fraud case in Alaska history. 300 victims. No criminal prosecution either by the state or federal government in what has been called the “Bernie Madoff case “ of Alaska. As one of only two plaintiffs in civil cases, I obtained a judgment for my loss, effectively unenforceable due to hidden assets. Some satisfaction, however, in the admission of liability.
There needs to be much more if justice is to be served. Let me know if you want to pursue the story.