Foreclosure Fraud Finds a Home

Howard Brown and his family felt panicked and desperate. They were behind on their mortgage payments, and they had just learned that their three-bedroom house in Wilmington was being foreclosed on. They did not know where to turn.

Then, a nice young man appeared in the driveway. Well-dressed and pleasant, he told Brown he was a Christian. He said he could help save Brown’s home.

All Brown had to do was sign documents that would allow Brown to arrange for someone to temporarily “share” title to his property. With someone else’s name on the title along with his, Brown could refinance and also improve his credit. Then, once his credit was repaired, he would get sole title back.

Brown signed. “He seemed like he was honest,” the legally blind Korean War veteran said.

And that’s when his real troubles began. With mounting horror, he and his family came to realize that they had signed over title to their home to a man they had never heard of. It also became clear that they were now on the hook not only for their original loan of about $160,000 but also for about $150,000 in new debt borrowed against the house without their knowledge.

Then the family began getting notices that the property was going to be put up for auction.

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Foreclosure fraud is a relatively simple crime. Once a property owner misses two or three monthly payments, a lender routinely files a notice of default with the county recorder’s office. That public document is a precursor to formal foreclosure, and all a scam artist has to do to find victims is read the notices, descend on the homeowners and trick them into signing over title to their homes.

It is a crime that consumer advocates fear could become increasingly common -- especially in Southern California, where many homeowners have stretched themselves to their financial limits to afford the region’s record high housing prices.

“The scammers don’t create the foreclosure rates, but they swoop in at the time that someone is in distress,” said Elizabeth Renuart, a staff attorney with the National Consumer Law Center in Boston and the author of “Dreams Foreclosed: The Rampant Theft of Americans’ Homes Through Equity-Stripping Foreclosure ‘Rescue’ Scams.”

While still considered low, indications are that the nation’s foreclosure rate is on the rise, meaning the pool of potential victims is growing. Overall, the foreclosure rate in the Los Angeles region has doubled since October, according to RealtyTrac Inc., an Irvine-based company that monitors foreclosures. As of February, the rate was one foreclosure for every 1,223 households.

At the same time, the steep rise in housing prices over the last few years has created a massive amount of equity in many properties -- a tempting target for swindlers.

The average value of a house in Wilmington, where the Browns live, has more than doubled over the last five years, rising from $155,000 in 2000 to $395,000 last year, according to DataQuick Information Systems, a real estate research firm in La Jolla. Similar jumps were recorded across Los Angeles County.

“There’s so much equity in houses, if you’re going to do white-collar crime, you only have to rip off 10 people to become a millionaire,” said Debra Zimmerman, an attorney at Los Angeles’ Bet Tzedek legal services who specializes in real estate fraud and elder abuse. She said she has seen a “dramatic” rise in victims of foreclosure fraud in Los Angeles County in the last few months.

“I am getting three cases a week,” she said. “I used to get none.” Attorneys at the Legal Aid Foundation of Los Angeles also report jumps.

Across the country, law enforcement officials also are grappling with the crime. Colorado’s attorney general, John Suthers, is pushing a law that would tighten rules for brokers after a rash of scams in that state. Minnesota passed new rules in 2004, Maryland in 2005.

California actually has some of the nation’s strictest regulations, but advocates say that does not stop all scam artists. And homeowners in the state could be particularly vulnerable because so many have nontraditional loans such as adjustable rate mortgages that send payments spiraling upward with rising interest rates after a fixed period. Real estate experts said many of those payments are set to begin rising this year.

Already, advocates say they are seeing a corresponding rise in fraud victims.

“We are just seeing more and more of it,” said Dan Grunfeld, president and chief executive of Public Counsel, a Los Angeles pro bono law office that tries to help victims -- including the Brown family -- reclaim title to their houses or at least escape the crushing debt that many are left with after scam artists have drained the properties’ equity.

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Brown bought his Wilmington house in 2000 for $185,000. Built over an oil well that no longer produced, it was brand-new, with three bedrooms and two bathrooms. When it’s sunny, light streams through the living room windows. There is space out front for Brown, who is retired from an auto body shop, to work on his VW Bugs.

But by the spring of 2004, Brown and his girlfriend, Dana Timmons, said, they were struggling with their monthly mortgage payment of about $1,700.

To help afford the payments, Brown and Timmons rented out some rooms.

Amy Salyer, the girlfriend of Timmons’ son, lived with the family for a time.

“They were going to lose the house,” she recalled of that period. She later played a key role in discovering what had happened when the family was allegedly defrauded.

In addition to renting out rooms, the family also began trying to refinance. But Brown’s credit was less than stellar, and things were not looking good.

Then, according to both Brown and a federal grand jury indictment filed last year, a man named Edward Seung Ok showed up one day while Brown was working on his cars in the frontyard.

Ok said his parents owned a business in Wilmington, Brown said, and that they had once been at risk of foreclosure too. Ok said he was dedicated to helping people like Brown save their homes, Brown added.

“He made everything really easy,” Timmons said.

Ok took Brown and Timmons to his office and introduced them to a woman he described as his colleague, Martha Rodriguez. The two explained that they were going to give Brown a new loan. They said he would temporarily share title to his home with someone else while his credit was being repaired, the grand jury said. They also said he would get $10,000 in cash, according to the indictment.

For their trouble, Rodriguez and Ok would receive a commission, Brown and his family said.

“It was good for everybody, right? That’s what it seemed,” Salyer said.

In September of 2004, Brown said, he signed the paperwork that Ok and Rodriguez put before him.

Within weeks, the family said, they began receiving mail for a man named Luis Pineda. They assumed it was a mistake and sent it back.

They continued to receive late notices on their loan, which they had thought had been taken care of.

Calls to Ok and Rodriguez went unreturned, Salyer said, but after days of trying, she finally reached Rodriguez. The woman assured her everything was fine, made one payment and then vanished. Salyer said they could never get her on the phone again.

Meanwhile, the Browns kept getting solicitations from people offering to help them out of foreclosure. Unbeknownst to them, they were still in default on their loan.

Salyer got on the Internet and began doing research. Slowly, the puzzle pieces came together: The house was now in Pineda’s name. And he, or someone using his name and Social Security number, had taken out a second loan on it.

What’s more, no one was making those payments either; creditors and solicitors were showing up at Brown’s door, asking for Luis Pineda and saying they could help him too.

Pineda was identified by the initials L.P. in the indictment, which described him as “a strawbuyer,” someone whose name is used on a loan application even though that person does not intend to live in the home or make any payments.

“We were frantic,” Salyer said. “We couldn’t sleep. It was sickening.”

Fearful that they would be evicted at any moment, Timmons said she began packing the family’s possessions and preparing to move.

Salyer, meanwhile, launched a campaign to try to save the family’s home. “I contacted talk shows ... Oprah, Montel,” she said. She also called officials with the county and the state. At some point, someone put her in touch with the FBI. Investigators, it turned out, were already on the trail of Ok and Rodriguez.

Last year, the U.S. attorney’s office charged the two with 10 counts of mail fraud for a scheme authorities say cheated dozens of Los Angeles and Orange County homeowners and lenders, including Brown, out of $8 million.

Rodriguez and Ok have pleaded not guilty. Their case could go to trial this year.

Ok’s lawyer, Roger Rosen, said the Brown family should not blame his client for their troubles.

“They were not tricked,” he said of Brown and the other alleged victims. “It was all above board. It was all on the table.”

Rosen said that what Ok did “was offer an opportunity to individuals that they would not otherwise have had.... So if things did not work out for some of these folks, it may be for reasons other than what they’d like to do, and that is blame Mr. Ok and Ms. Rodriguez.”

Rodriguez’s lawyer was unavailable for comment.

Legal aid lawyers contend that upward of 100 families around Los Angeles who entered into financial transactions with Ok and Rodriguez are now in danger of losing their homes.

Later this spring, attorneys plan to file lawsuits seeking to restore titles to many of the victims.

The Brown family is represented by Public Counsel and a private attorney working pro bono, Lou Schoch, of the firm Gibson Dunn & Crutcher.

Schoch said he plans a series of legal actions. One will try to get title to Brown’s home back in Brown’s name.

Now it is listed as belonging to Luis Pineda.

“Does he exist? We don’t know,” Schoch said.

Schoch said he also planned to sue Ok, Rodriguez and a number of title, realty and loan companies that may have been involved in the transactions that drained the equity from Brown’s home.

Brown and his family are hopeful. But they are also braced for the worst. Along the wall in the living room, boxes of the family’s possessions are still stacked, in case the family has to move.

Brown said he is under so much stress that his doctor recently increased Brown’s blood pressure medications.

Just last week, he said, more creditors came to the house asking for Luis Pineda.

“I said, ‘I never saw him. It’s all illegal,’ ” he said, his voice growing agitated. “I don’t sleep hardly at all anymore.”

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(BEGIN TEXT OF INFOBOX)

Avoiding scams

Here are some things consumers can do to prevent foreclosure fraud:

* Never sign a contract under pressure.

* Never sign away ownership of your property to anyone without advice from your lawyer.

* Don’t make mortgage payments to someone other than your lender.

* Beware of any home sale contract in which you aren’t formally released from liability for your mortgage.

* Never make an oral agreement; get all promises in writing.

* If you’re not English-speaking, use your own translator; do not depend on translation offered by others.

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Source: National Consumer Law Center

Los Angeles Times