It’s scam season

WHEN Eddie Baker Jr. retired in 2000, he found himself struggling to make the $1,100 monthly payments on his three-bedroom Los Angeles home and eventually fell behind on the $205,000 mortgage.

Facing foreclosure, Baker, a devout Christian, prayed for assistance. And in June 2005, his prayers seemingly were answered in the form of an offer to help save him from foreclosure and credit ruin.

But that offer turned into a nightmare instead. In May of this year, attorneys for Baker, 69, filed a civil suit in Los Angeles Superior Court against several co-defendants, alleging fraud related to the retired photo technician losing title to his home.

Baker’s story is a familiar one to Benjamin Diehl, deputy attorney general in the consumer law section of the California attorney general’s office. As Southland foreclosure rates continue to rise, the number of people who will lose a home to a rescue scam will increase significantly within the next two years, Diehl said.

Maritza Gutierrez, a supervising investigator for the Los Angeles County Department of Consumer Affairs’ real estate fraud unit, said that from April to June, her section recorded about 50 cases involving alleged foreclosure scams.

But with 4,000 notices of default being recorded in L.A. County each month and the sub-prime fallout still gaining speed, Gutierrez said that number will probably triple for the same period in 2008.

Cynthia Reed, Baker’s attorney, said Public Counsel has about a dozen cases of alleged foreclosure fraud pending. “Two years ago, maybe we had one,” she added. The pro bono group provides free legal services to residents who can’t afford private representation.

Foreclosure rescue schemes are not new. In February, Downey resident Martha Rodriguez pleaded guilty to federal fraud and money laundering charges for her role in a $12-million rescue scam. According to the U.S. attorney’s office for the Central District of California, Rodriguez promised to help homeowners refinance but submitted applications for larger loans in the names of “straw buyers” (people who sell the use of their personal information), paid off the loans in default and pocketed the excess. And sometimes, the defendants simply stole the information from the unsuspecting.

Thom Mrozek, a spokesman for the U.S. attorney’s office in L.A., said these types of crimes often have two victims: “The original homeowner who loses title to the home, and the bank who loaned money to the straw borrower, because the straw borrower does not repay the loan, and the bank had funded a loan for an inflated purchase price.”

Rodriguez faces a maximum possible sentence of 40 years in federal prison. She is scheduled for sentencing in December.

Easy access to information is one reason for the growing fraud problem, experts say. If a borrower fails to pay the mortgage, the bank files a notice of default with the county recorder’s office, usually after three consecutive missed payments. Rodriguez stated in court records that she targeted people by perusing computerized database lists of homes going into foreclosure.

It may look legit

Experts say sophisticated fraud rings can include brokers, appraisers, escrow agents, loan processors and underwriters. And, they add, paper-based systems, blind chains of title, faceless transactions and straw buyers are giving such rings an advantage.

“Because modern mortgage lending is very much like an assembly plant, there are opportunities for these fraudsters to take advantage of weak links along the way,” said Michael Pfeifer, an attorney with Pfeifer & Reynolds LLP in Orange County, who specializes in fraud-for-profit rings and represents lenders and brokers in civil fraud recovery cases.

The scams can range from the simple to the complex, Deputy Atty. Gen. Diehl said. In addition to the lease-buy-back schemes, bailout scammers offer loans from private investors who require upfront charges or outrageous service fees, which often push homeowners further into debt, back into foreclosure or result in complete loss of title. Other scams feature self-proclaimed experts who promise to speak with the lender for an upfront fee and then disappear. And buyout scams come packaged as low-ball offers or fake appraisals.

Equity thieves will offer people facing foreclosure a short-term loan to cover their debts or agree to refinance the loan, said Manuel Duran, an attorney with Duran & Flanagan in Los Angeles who has served as prosecutor in foreclosure scam cases.

Although the homeowners already have bad credit, they often can still refinance, he said, “but the [swindler] tells them they won’t be able to.”

Sometimes, Duran said, scam artists say they need signatures to take out a loan to pay foreclosure fees. In other cases, they promise to refinance the loan but draw out the process to the point that the owner has no choice but to accept help from the fraudulent investor or co-signer.

Once in possession of the home, Duran said, scammers siphon off equity through a series of sales and refinanced loans and then transfer the property through a legitimate sale or walk away with the spoils and let the lender foreclose and evict the original owner.

In Baker’s case, according to the court documents filed in May, defendant Timothy Barnett would assume Baker’s home loan, pay the outstanding mortgage debts, maintain and restore Baker’s credit and advance him $12,000. For doing this, Barnett would take control of the property and hold title for three years. In return, Baker agreed to pay Barnett about $1,000 a month for three years. Baker said Barnett promised to transfer the title back to him at the end of the third year, the documents assert.

Reed said her client unknowingly signed away the rights to his home and his most valuable asset (currently valued at about $600,000, according to online valuation provider Zillow.com) to Barnett for $226,000.

Barnett’s Encino-based attorney, Harris L. Cohen, said his client, who declined to comment for this article, is a legitimate businessman.

“All the documents support the idea that Mr. Baker knew what he was doing when he signed the documents but never exercised the option to repurchase the house. No one would buy a property, take a loss for three years and then give you back the property,” Cohen said. “He was told that he would have three years to buy back the property.”

“He’s a lot like a real-estate pawnbroker,” said Encino attorney John H. Thaler of Barnett, whom he is defending in another real property suit, which he would not comment on.

But pawnbrokers don’t usually sell property before the deadline, which is illegal. Barnett sold the home within a month of Baker’s signing, according to the court documents. Cohen said the reason why would be answered in depositions.

According to Baker’s attorney Reed, Barnett sold the home to Buena Park-based Trusperity Acquisition Corp. for $285,000. From October 2005 to March 2007, Reed said, the home was sold twice, once for $440,000 and once for $560,000, and refinanced multiple times without Baker’s knowledge. Default documents obtained by The Times show that the individual who purchased the home in March -- and is also named in Baker’s civil suit -- went into foreclosure on Aug. 15, when a notice of default was recorded against the home.

Trust built and then broken

Scammers generally prey on their own ethnic or racial group, said Victor Minjares of the attorney general’s office in Washington, D.C., and a former deputy D.A. for the Los Angeles County district attorney’s office. He was the prosecuting attorney in 1997 when Barnett pleaded no contest to multiple felonies and was sentenced to state prison for defrauding more than 20 people, most of whom were elderly African Americans living in South Central Los Angeles, out of their money and their homes over a period of eight years.

“It’s all part of the building of trust,” Minjares said.

According to additional court documents filed in August, Baker said Barnett represented himself as a “man of God.” Over time, trust was built, Baker said. So, when Barnett allegedly asked him to sign and initial the mountainous stack of documents -- which, according to Reed, included a residential lease agreement, an equity purchase agreement for sale of the home and several grant deeds, an option for Baker to repurchase the home within three years and a requirement that Baker’s consent be given for any future property transfers -- the trusting retiree signed without question.

“Of course, for the entire duration of this time period, Eddie [Baker] is making these monthly payments and thinking his credit is being cleared and everything is fine,” Reed said.

According to the August court documents, Baker began receiving mail in 2006 for the co-defendant who purchased the property from Trusperity in October 2005. Although he questioned Barnett about the mail, Baker said in the court documents that he was told not to worry.

In December 2006, Baker said in court documents that several individuals came to collect the mail and visit the home. In March and April of this year, more people asked to view the property. Baker turned them away. When eviction papers arrived in March of this year, Baker turned to Public Counsel for help.

Baker’s case is scheduled to go before the court sometime next year. “But the best outcome for Eddie is that he and his family get to keep their home of almost 40 years,” Reed said.

Experts say low-income and working-class whites and monolingual Spanish speakers in their 30s and 40s and African Americans and Latinos in their 60s and 70s are choice picks for scammers.

“The elderly person generally is more vulnerable because the income stream is reduced,” Reed said. But those who are homeowners often have a valuable asset, and once they fall behind on payments, there’s an ability for businesses, both legitimate and not, to target them, she added.

“The most important thing people can do is contact the lender’s loss mitigation department,” said Debra Zimmerman, an attorney at L.A.-based Bet Tzedek Legal Services.

If you think you are the victim of fraud from a broker or lender, talk with an attorney or contact the Los Angeles County Department of Consumer Affairs, experts advise.

Before signing anything, county consumer-affairs investigator Gutierrez cautioned, read the fine print or have a housing counselor or attorney review the documents. Don’t take legal advice from family or friends or trust someone because they’re recommended by family. And if someone offers to buy your home, get a legitimate appraisal from a source not associated with the person making the offer, Diehl added.

“Many of my clients say they heard about foreclosure scams on TV but trusted the guy anyway. But when this happens, their equity gets stolen. In many cases, we can unwind the loan,” Duran added.

“But even when you can get the house back, they’ve lost the equity and will have to pay the money back.”

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Michelle Hofmann can be reached at michellehofmann@earthlink.net.

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Worried about mortgage rescue scams?

For business practices checks:

* Los Angeles County Department of Consumer Affairs Real Estate Fraud department; (800) 973-3370; dca.lacounty.gov/contact.htm.

* California Department of Real Estate; (213) 620-2072; www.dre.cahwnet.gov.

* California Department of Corporations; (866) 275-2677; www.corp.ca.gov.

For counseling and information:

* The Housing Rights Center’s Fair Housing Anti-Predatory Lending Hotline refers callers to appropriate local agencies for education, counseling and legal advice; (800) 477-5977.

* L.A. County Department of Consumer Affairs Real Estate Fraud and Homeowner Assistance Program; (800) 973-3370; dca.lacounty.gov/contact.htm.

* Los Angeles Neighbor Housing Services; (213) 381-2862; www.lanhs.org.

* National Assn. of Consumer Advocates; (202) 452-1989; www.naca.net.

* The NeighborWorks Center for Foreclosure Solutions; www.nw.org/network/neighborworksprogs/foreclosuresolutions/default.as p; (202) 220-2300.

* U.S. Department of Housing and Urban Development, HUD-certified counselors; (800) 569-4287; www.hud.gov/offices/hsg/sfh/hcc/hccprof14.cfm. Choose “search online.” Select California.

For legal help:

* American Bar Assn.; www.abanet.org. Select “legal help.”

* Legal Services Corp. hot line can help you find legal services office in your area; (202) 295-1500; www.lsc.gov.

* Los Angeles County Bar Assn. attorney referrals; (213) 243-1525.

* National Assn. of Consumer Bankruptcy Attorneys; (202) 331-8005; www.nacba.org/attorneyfinder.

If you suspect mortgage fraud:

* If Freddie Mac owns the loan, (800) 437-2838. For other lenders, contact the L.A. County Department of Consumer Affairs, (800) 593-8222.

* To file a complaint with the Office of the Attorney General; (800) 952-5225; ag.ca.gov/consumers/general.php.