Elderly, Poor Are Easy Prey for Home-Equity Schemers

As the value of land soared in Southern California over the last decade, elderly people and low-income families who purchased a home years ago found themselves with a valuable asset: property with substantial equity.

But many of them also became targets for unscrupulous real estate dealers.

Law enforcement officials and public-interest attorneys say fixed-income homeowners, strapped for cash and ignorant of the law, have increasingly fallen victim to schemes in which the equity in their property--and sometimes the property itself--is snatched away.

Networks of fast operators have especially been targeting homeowners in poor or working-class neighborhoods, such as South-Central and East Los Angeles, victimizing hundreds of people, according to law enforcement authorities and public-interest attorneys.

One Los Angeles man alone faces 14 counts of grand theft and forgery for allegedly recording deeds in his name for several properties in South-Central. He simply drove through the neighborhood and picked the property he wanted, police said. He never even met the owners.

The phenomenon continues largely to elude prosecution while sending shock waves through regulatory agencies and the title insurance industry, which estimates that real estate fraud will cost insurers $250 million this year.

“Equity in someone’s home is like money in the bank,” said William E. Moran, managing deputy state real estate commissioner. “Some people rob banks. Those more clever can rob equity.”

Police, the city attorney’s office and others in Los Angeles County consider the problem serious enough to have reactivated a special inter-agency task force on housing and real estate, which meets regularly to discuss alleged scams or frauds that befall homeowners.

“It’s a perfect crime,” said Deputy Dist. Atty. Robert M. Youngdahl, who is handling several real estate fraud cases. “It’s all done on paper, then the legal process helps the crook.”

A review by The Times of dozens of civil lawsuits and criminal investigations sheds light on how low-income people might lose their equity or their entire home--often their principal material asset. In many cases, the same players appear time and again, interwoven in a complicated web of fast-paced business deals and straw buyers.

No matter how the home equity schemes have been carried out, there usually are two basic ingredients: an unsophisticated victim and a home with substantial equity--one purchased years ago and nearly paid off.

The trouble often starts when the homeowner defaults on mortgage payments. When that happens, a flag goes up in the computerized world of real estate. Notices are printed in trade journals, and then the homeowner is inundated with offers of help from lenders, buyers and “consultants”--many legitimate, others not.

At that point, according to attorneys and authorities, there are a variety of ways--some legal--in which one can lose title to one’s property. Some examples:

* The homeowner is persuaded to sign “loan documents” to save his home from foreclosure. In fact, a deed conveying ownership to someone else is slipped among the documents, and the homeowner unwittingly signs his house away.

* Or, the homeowner is told to “temporarily” sign over the property to someone else to secure refinancing, but title is not returned.

* In a perfectly legal transaction, so-called hard-money lenders--the lenders of last resort--make a home equity loan for an amount the borrower clearly cannot pay back. When the homeowner defaults, the lender forecloses and takes the house.

Home equity rip-offs were rampant in Southern California in the late 1970s and early ‘80s. But despite a series of new laws aimed at preventing such abuse, authorities say the problem appears to be on the rise again as the region’s land values soar.

“A lot of these equity rip-off artists see a property bought in 1960 for $10,000, and now they can come and see $80,000 or $90,000 in equity to be taken,” said Kenneth W. Babcock, director of the Poverty Law Program for Public Counsel. “They are realizing there’s a lot of profit to be made.”

TARGET: THE ELDERLY

It is often the elderly--unschooled in the wheeler-dealer world of real estate--who are most in danger of losing their homes. Public-interest attorneys say they make easy targets because they are easy to trick, often do not have access to legal help and are less likely to make good witnesses if the case does get to court.

Ora Lee Colbert, a 69-year-old widow and retired X-ray technician, appears to be losing her battle to get her house back, even though the man who allegedly took it from her is in jail. She is staying with relatives now, having been evicted in June from her home of 29 years.

Her story, outlined in a lawsuit filed in Superior Court, is typical, according to public-interest attorneys. She said she borrowed $4,000 from a man named Artie Gilbert, offering her property as collateral. She maintains that even though she paid Gilbert back, he recorded a grant deed against the home, listing himself as owner.

Records show Gilbert then sold the home, and it was transferred back and forth between him and other parties for three years until it ended up with a realty company that evicted Colbert this year. Gilbert pleaded guilty this year in U.S. District Court to unrelated drug charges and was sentenced to 10 years in prison, police said. A separate trial on real estate fraud counts--none involving Colbert--is under way in Los Angeles. Gilbert could not be reached for comment.

SELLING FALSE HOPE

Homeowners are frequently hit at a vulnerable time, when they are in need of cash and are already afraid of losing their homes. Sinking deeper in debt, they readily accept what the man at the door is offering.

“They want to believe these equity skimmers . . . who come on as financial whizzes, telling them to ‘use your money, use your equity,’ ” said Betty Stark, senior investigator for the county Department of Consumer Affairs.

“But the equity skimmers are selling them false hope,” she said. “The homeowners are getting taken.”

Doris and Gary Clark have lived in their Inglewood home for 16 years. Mounting medical bills from Gary Clark’s kidney operation caused them to default on a mortgage, and soon they faced foreclosure.

A man who identified himself as Gary L. Palmer showed up at the Clarks’ front door one day in the autumn of 1986, the Clarks told district attorney investigators. He offered his services as a “loan broker” and had the Clarks sign for a $5,000 loan. Two weeks later, a grant deed with the Clarks’ signature--one they insist they never signed--was recorded, establishing someone else as owner of the home.

The Clarks say now they believe Palmer hid a carbon underneath the loan paper.

The allegedly fake deed conveyed the Clarks’ home to Erikson M. Davis as a “bona fide gift,” according to property records. Davis, a Santa Monica magician who dabbled in real estate part time, told investigators that he and Palmer then took out a $60,000 loan--an arrangement that was repeated with several pieces of property.

Davis told investigators he was paid $5,000 for each loan he lent his name to, with Palmer pocketing the remainder of the loan money. Davis said he knew nothing about how the properties were acquired, and that he assumed that Palmer merely needed Davis’ credit rating to secure the loans and would be making payments on the loans.

Fronting for someone like Palmer, he said, is not an unusual practice in the real estate trade.

The loans were never paid off and Davis said he has since received several foreclosure notices. In some cases, the Clarks and other true owners of the properties have also received foreclosure notices and have had to go to court to keep their homes.

“It’s unbelievable that this can happen,” said Doris Clark, 42. “We almost lost our entire property.”

Davis has not been charged. Palmer was charged in August with eight felony counts of grand theft and four counts of forgery, including charges involving the Clark matter. A warrant has been issued for his arrest. In a telephone interview with The Times, Palmer vehemently denied the charges, denied knowing his alleged victims and said he had been “set up.”

“I never cheated anyone on real estate,” Palmer said.

GRAY AREAS

Cases that involve alleged fraud and misrepresentation are seldom clear-cut and are difficult to prove, say prosecutors and investigators.

Until she died early this year, 79-year-old widow Xenia Reece was fighting to regain title to her home of 35 years.

In a lawsuit filed in Superior Court, Reece alleged that in August, 1987, Barry A. Malcolm offered to help “save her house” by lending her $5,000 to pay overdue mortgage bills. But, she said, he tricked her into signing a blank grant deed.

According to public records, the deed was recorded in Malcolm’s name, then the property--estimated by Reece’s attorneys to have more than $50,000 in equity--was sold to a limited partnership. One of the partners was real estate businessman Kevin S. Merritt.

In their legal response, attorneys for Merritt and Malcolm denied any wrongdoing, denied that the two were acting “in concert” and said that their deal with Reece involved paying her $5,000 and creating a “life estate” that would allow her to remain in the house until she died. However, Merritt’s company tried to evict Reece after the property was conveyed to it, according to court papers.

In an interview, Merritt said Reece’s failure to make monthly payments of $185 on a first mortgage triggered the eviction proceedings, which ultimately were not carried out. He said Reece was fully aware of the terms of the life estate agreement but reneged when she got a better offer; he has since offered to return title, but efforts to settle stalled in July, according to attorneys for Reece’s estate. A trial date is set for Oct. 24.

HIGHLY LITIGIOUS BUSINESS

Merritt, 29, is one of a number of Southern California businessmen who have made money over the years in foreclosure real estate, but who have also attracted the attention of law enforcement agencies, state regulators and the press.

Many in the foreclosure and hard-money lending fields maintain that they work in a highly litigious business bound to create controversy. Merritt and others dispute the notion that there is a concerted effort to cheat homeowners out of their homes, saying it is common practice for some homeowners to back out of a deal and claim later that they were duped or did not understand the terms as a last-ditch tactic to keep their homes.

Merritt has been named in recent years in dozens of civil lawsuits--many settled out of court--but he said the number is minimal compared to the “thousands” of transactions he has handled. He also has been the subject of an investigation by the Sheriff’s Department, which referred the case to the district attorney’s office, where it is under review for possible prosecution.

Earlier this year the state Department of Real Estate revoked Merritt’s broker’s license, finding that he had charged borrowers excessive commissions and improperly used fictitious business names.

Flanked by a disbarred attorney and two other attorneys, Merritt and his associates said in the interview that the sheriff’s investigation and the lawsuits were part of a “vendetta” orchestrated in part by Legal Aid attorneys because he is a “high-profile individual,” an easy target seen by some as “a little too aggressive.”

“You default on a loan, you lose your house,” Merritt said earlier in explaining the problematic nature of his business. Foreclosure “is common in real estate. It’s not pretty, but it happens.”

Merritt said he, like others in the field, has done a portion of his business with people who receive a finder’s fee for bringing in potential borrowers or sellers. Merritt and his associates concede that there are “bad apples” among these free-lance dealers but that they sever their relationships with them.

‘I BELONG HERE’

In another suit, Lillian and Elijah Flowers, an elderly couple who have lived for years in their 75-year-old Craftsman-style home south of the Los Angeles Coliseum, claim that they were duped into signing a grant deed by a broker who then recorded it in a third party’s name.

Univest Home Loan Corp., whose president at the time was Merritt, then made a loan to the newly recorded owner, who soon defaulted. Univest, which said it ensured that the title was clear before making the loan, could foreclose but is awaiting outcome of the lawsuit.

According to the Flowers family, the problems began after Elijah Flowers, 84, suffered a stroke and was put in a convalescent home. Lillian Flowers, 76 and blind in one eye, began to lose track of a few of life’s details and neglected to mail several mortgage payments. When a foreclosure notice came in 1986, she stuffed it in a drawer and forgot about it, her relatives said.

The suit alleges that a man named Johnny Cargo “took advantage of (the Flowerses’) age and physical infirmities” to obtain their signatures on the deed. Cargo has denied the accusations, saying Lillian Flowers clearly wanted to sell the house.

Lillian Flowers did sign a handwritten statement saying she understood Cargo would be “taking over our property.” But the family says she did not understand what she was signing and instead thought she was authorizing Cargo to do work on a dilapidated garage.

“I’m too old to be moving,” Lillian Flowers said in an interview in her living room, where old photographs of her grandfather hang above the mantle. “(The house) means so much to me. . . . It’s home. . . . I belong here.”

Cargo, who has since offered to return title to the Flowerses to extricate himself, said he never planned to evict the Flowerses and would have allowed them to continue living in the house.

“You constantly have this kind of problem when you buy properties in distress,” Cargo said. “You don’t twist these people’s arms, there’s no pressure on them. We negotiate the very best we can. Every time you do business in foreclosure (real estate), you get sued half the time, mostly without merit.”

In the case of Carlos and Aurora Lopez, language differences could have cost them their home.

Carlos Lopez, a gardener, and Aurora came to Los Angeles from Mexico 20 years ago. When they fell behind on mortgage payments for their home of 12 years, the Lopezes were contacted by a representative of Pentagon Investment Group of Beverly Hills, who told them they could secure a new loan by signing over--temporarily--a partial interest in the property, according to a lawsuit filed in September.

The Lopezes do not read or write English. The documents they were told to sign, in English, actually conveyed full ownership of their home to Pentagon’s president, Navtej Kohli, according to the suit and public records.

Records show that four months after Kohli became owner of the Lopezes’ property in 1986, he transferred title to Erikson Davis--the same Santa Monica magician involved in the Palmer case--who took out a $136,000 loan on the property.

Kohli blamed the transaction on a mistake he said was the work of a business associate no longer employed by Pentagon--mistakes Kohli said he moved to correct as soon as he became aware of them. Pentagon was sued in two similar cases, both of which have been settled.

Kohli said the deal was designed to generate enough money to pay off the Lopezes’ debts and provide some working capital for Pentagon. He said Pentagon never planned to evict the Lopezes or take their property and would return title to them.

‘THE CROOKS ARE WAITING’

The vast majority of real estate transactions are on the up-and-up, and home equity lending is a valuable part of the legitimate banking industry. But, authorities say, there is enough abuse by disreputable operators to put homeowners on alert.

“People have unrealized equity in their homes; they have become wealthy beyond their wildest dreams--with their ordinary house,” Youngdahl, of the district attorney’s office, said. “The crooks . . . are waiting to prey on them.”

And, others say, the know-how for pulling off equity-seizing schemes is being imparted to entire new circles and generations of practitioners. Frequently, con artists employ as their fronts people from the targeted community who can more easily gain the trust of their potential victims.

“It used to be the white landowner coming down and ripping off the ethnic community,” said Deputy City Atty. Ellen Pais, of the consumer protection office. “Now, we have a lot of blacks preying on blacks, Hispanics preying on Hispanics. That’s the biggest selling feature. You trust someone from your own community. You don’t think they’ll harm you.”

Industrywide, a full range of real estate fraud across the nation is expected to cost insurance firms charged with guaranteeing property transfers at least $250 million this year. Title companies are expanding their corporate security divisions and starting programs that reward employees for detecting and reporting frauds and forgeries.

“Fraud . . . is increasing at a staggering rate,” said James N. Laichas, senior vice president of Ticor Title Insurance. Homeowners in financial straits “are sitting ducks for . . . swindlers.”