COVER STORY : WOLF AT THE DOOR : The Victims of Real Estate Rip-Offs and Repair Scams Often Sign Deeds of Trust That Cost Them Their Homes. With Limited Resources, Authorities Have a Poor Prosecution Rate Against the Con Artists.

SHE JUST WANTED TO GET SOME MONEY TO PAY off part of the roughly $10,000 in liens against her South-Central Los Angeles home.

Instead, the 71-year-old widow lost her home after taking out more than $100,000 in high-interest loans through the advice of an alleged loan broker and investor who she says defrauded her and took most of the money for himself.

“I don’t know why I trusted him like that. . . . He seemed to be a religious-type person and I admired him for being young,” said the victim, who asked not to be identified.

Despite what the woman’s attorney calls a clear case of home-equity fraud and deception, it may never reach the criminal courts for prosecution.

In a system where real estate fraud cases are arcane and difficult to investigate and law enforcement authorities and prosecutors have limited resources, real estate hustlers often elude prosecution, easily circumventing the few legal safeguards on the books to protect homeowners.

As in the case of the 71-year-old widow, authorities are well aware of the identity of many real estate hustlers. But long paper trails and a pervasive ignorance of the vagaries of real estate law among victims--and indeed, among some law enforcement officials--emboldens con artists who know that even if they are caught, they are likely to be able to quickly set up shop again.

Some victims, distressed by the poor prosecution rate against the hustlers, often try to recover their losses in civil court, but attorneys’ fees and court backlogs sometimes put them further in debt. And even if the court rules in favor of the plaintiff, finding the scammer to collect damages is an iffy proposition at best.

“We do as much as we can do as far as civil cases are concerned. . . . We can’t get these predators off the street. The way to put them out of business permanently is through prosecution,” said Joy Simmons, senior attorney at Legal Aid Foundation.

Law enforcement officials and public-interest attorneys estimate that about 60% of the victims of real estate fraud live in South-Central or East Los Angeles. Scams started to appear in the city’s low-income communities in the late ‘70s and proliferated with the real estate boom of the ‘80s. The estimated number of cases has grown from the hundreds to the thousands over the past dozen years, authorities said.

Most victims are elderly women or immigrants, particularly those from Spanish-speaking nations who speak little or no English, say public-interest attorneys.

South and East Los Angeles are prime targets for real-estate hustlers because of the dearth of lending institutions in the areas. With few alternatives, residents often turn to whomever will grant them loans, regardless of the terms.

The goal in many real estate rip-offs is to get victims to sign deeds of trust using their property as collateral in case they default on payments. In home-loan scams, fraudulent lenders sometimes persuade victims to turn the money over to them for investments or to pay debt consolidation. In home improvement scams, promised work is often shoddy and when the owner refuses to pay, a lien is placed on the property.

Home-loan and home-improvement scams are among the five most common home-equity fraud cases in South-Central and East Los Angeles, authorities and attorneys say. The others involve foreclosure loans, forged deeds and installation of water purifiers.

In scams involving foreclosure loans, con artists contact homeowners whose properties are in foreclosure and offer loans with few questions asked. But the loans are often at high interest and have balloon payments. In forged deed scams, a homeowner’s signature is forged on a quitclaim deed to make it appear as if the property were given to a scammer as a gift, and the con artist in turn takes out loans against the property that are never repaid.

Water purifier scams are aimed most often at Latino immigrants who come from countries where water is a health problem.

Romelia Depaz, an immigrant from Belize, signed up for a $4,000 water purifier tank a few years ago after a sales representative told her his company would clean her allegedly tainted water. She also wanted to use the deal to establish a credit record.

She could not remember if the representative mentioned signing a lien, but eventually she found her South Gramercy Place home in foreclosure after missing a few payments.

“I think it was really a rip-off,” Depaz said of the water purifying tank she received. “Because really the water is not good . . . when you look inside the tank, it’s all slimy and green.”

Patricia Goldsmith, an attorney for the Legal Aid Foundation of Los Angeles, said victims do not realize that it is illegal to ask buyers to sign a deed of trust as collateral against any item that can be removed from a home.

“But people are told they have to sign this, they don’t know any better and then when they can’t pay, their home is taken,” Goldsmith said.

The elderly, who usually have the most equity in their homes, are tricked into signing documents involving any of the five scams that could put the ownership of their properties in jeopardy, lawyers say.

In many cases, when victims have lost their property they have lost their primary asset. The 71-year-old widow now pays $500 a month in rent to her mortgage company to live in the home she had owned for 20 years. With only $680 a month from Social Security, the former dry-cleaning press operator said she will have to find work to pay her bills.

In the meantime, she has filed a civil suit against the alleged scammer, Tim Barnett. Authorities allege that Barnett has perpetrated similar scams against other residents, but are still investigating those cases and have not charged him with any crime.

“He has done this innumerable times and nothing is ever done. . . . The man is never prosecuted,” said Goldsmith, who is representing the widow.

Barnett did not return phone calls to City Times.

According to the lawsuit, Barnett allegedly took the woman to a high-interest loan broker to get a $10,000 loan and offered to pay a $4,000 debt on a previous loan if she gave him the money. The bill was never paid. When she defaulted, Barnett persuaded her to take out a second $10,000 loan, and then a $38,000 loan that he said he would invest for her. He never invested the money.

When the larger loan was due, Barnett took the woman to American City Mortgage, where she took out a $64,000 loan to pay her overdue bills. When the woman could not pay back that loan, American City foreclosed on her property.

Deputy Dist. Atty. Allen Field, head of the major fraud division, said the office is investigating Barnett, but would not comment on the investigation.

For all fraud victims, keeping their homes is their main concern. They first turn most often to the police, the County Department of Consumer Affairs or public-interest law firms such as the Legal Aid Foundation or Bet Tzedek Legal Services.

Even with small offices in South-Central and East Los Angeles, in addition to its main Downtown office, the county’s consumer affairs department sometimes has difficulty resolving cases quickly, said Timothy Bissell, chief investigator for the department.

“The department focuses heavily on home-equity fraud, but we’re strapped as far as how much we can get accomplished because we just don’t have enough people,” Bissell said, noting that the staff has fewer than 20 workers and investigators.

Field said only 14 prosecutors and 10 investigators handle general fraud cases in the county. And with only two police officers in the Los Angeles Police Department assigned to investigate real estate fraud and neither educated in the complexities of such issues, the police are backlogged with numerous cases involving difficult investigations, said Detective Richard LeVos.

LeVos, who has been investigating real estate frauds cases for four years, has never taken a class in real estate law and said he lacks knowledge in the subtleties of the subject. Yet, he is the department’s leading investigator for real estate fraud and is relied on heavily by attorneys and agencies that deal with such cases.

“There needs to be more manpower to investigate these cases and more information to instruct people on what some of the problems are,” LeVos said.

The city attorney’s office, which deals with misdemeanor cases--those in which victims have been defrauded of a maximum $10,000--prosecutes only a few real estate fraud cases, said Deputy City Atty. Ruth Kwan, supervisor of the consumer protection division.

The district attorney’s major-fraud division handled 58 cases in the county between July, 1990, and October, 1992, representing nearly 1,200 victims. Officials in the office could not determine how many of those victims were from South-Central or East Los Angeles.

Because of staffing problems, Field said, some cases are turned away if the burden of proof against the defendant is too high. Most of the easily proven cases involve forgery of deeds or several victims defrauded by a defendant, he said. Other cases are not prosecuted because the three-year statute of limitations has run out.

Some public-interest attorneys say discrimination also contributes to the lack of prosecution, especially in the district attorney’s office.

“I personally believe that if this was happening on the Westside you’d have a totally different approach,” said William Flanagan, director of litigation at Bet Tzedek, a public-interest law office.

But prosecutors denied that discrimination is a factor. Kwan said her office is working on programs with other agencies to instruct police, sheriff’s deputies and other investigators about the complexities of real-estate fraud.

Prosecutors, public-interest attorneys and legislators are also working on proposals for more stringent legislation and better policing against real estate fraud.

A county law that went into effect Jan. 1 requires a homeowner’s thumbprint on all deeds before property can be transferred. The district attorney’s office recently drafted a bill to pay for expanding the number of investigators and prosecutors involved in real estate fraud by establishing a $1 fee to record documents in the county recorder’s office.

In addition, Assemblywoman Gwen Moore (D-Los Angeles) this month introduced a bill requiring commercial lenders to determine whether borrowers can repay home-improvement loans. The bill also calls for homeowners’ signatures to be notarized on all deeds involving the property before they can be recorded.

Homeowners’ signatures or notary signatures and seals forged on deeds easily slip through the county recorder’s office, which files more than 2 million documents annually and is not required to verify signatures.

And the state’s Department of Real Estate, which oversees mortgage bankers and brokers, regulates only licensing. No single agency is responsible for regulating such businesses.

Part of the responsibility in curbing the real estate hustlers falls on the victims as well, authorities say. Bissell and Flanagan caution homeowners not to sign any papers unless they are first reviewed by a lawyer or someone who understands contracts. And they should not do business with door-to-door sales representatives or advertisers who boast “easy money” loans. Those loans often come with high interest levels--18% to 30%--and balloon payments that are higher than most homeowners can pay.

“The problem is that people aren’t reading the fine print and they need to do that,” Goldsmith said.

Failure to read the fine print almost cost Clarice Barrett, 28, the East 45th Street house her grandparents bought 30 years ago when she and her grandmother signed a lien on their house, believing it was a work order to install a large satellite dish.

“We didn’t realize what had been done until two years later,” Barrett said.

When the cable company reneged on the agreement, Barrett stopped payment and the finance company that bought the contracts threatened foreclosure. Barrett was one of 20 homeowners who complained to consumer affairs about the satellite dishes. The district attorney’s office successfully prosecuted the case in 1991 and all liens against the properties were dropped, officials said.

But even with a successful prosecution, victims of home-equity fraud still suffer financial losses. Barrett’s credit rating was damaged because she stopped payments on the satellite dish.

And 50-year-old Christina Hicks, whose name was forged on the title to her house to make it appear that she had deeded the home to a con man as a gift, has suffered serious financial setbacks because legal fees and payments on bills accrued about $60,000 during the criminal trial of the scammer and civil proceedings to retrieve her four-unit building on West 48th Street.

The man who forged the deed, Patrick Russo, also took out $100,000 worth of loans against Hicks’ building and rented out the apartment to transients who stopped paying rent. Russo was convicted and sentenced to nine years and eight months in state prison on forgery and theft charges, but Hicks is unable to get any loans because of bad credit.

“So the only thing I can do is suffer the loss. And it’s a great loss,” Hicks said.

Safeguarding Against Scams

Here are a few important precautions provided by the Legal Aid Foundation of Los Angeles that homeowners can take: * Never sign any papers before reading them or having them checked by a real estate attorney. * Do not use a loan broker unless necessary. Often a broker can only get you a high-interest loan or one with balloon payments that may cost twice the amount of your initial loan. Also, do not sign your property over to a loan broker, even if you are in foreclosure. * Do not do business with door-to-door sales representatives selling loans, home repairs, cable TV or water-purifying systems. * Call the county consumer affairs department to see if any complaints have been filed against home repair firms, cable TV installers and other companies before you agree to a work contract. * Never sign a grant deed or quitclaim deed when you want only a loan. You risk signing away a home’s equity or ownership. * Before saying yes to a loan, get clearly stated, written agreements on all aspects. You should have a firm agreement on the annual percentage rate (APR) and the total of loan fees, and reject any loan that requires balloon payments. If you are consolidating payments, make sure that the agreement requires the homeowner to sign a release for each check before loan money is distributed.

For additional help, contact the following agencies: * Legal Aid Foundation of L.A. Homeowners Outreach Center. 3406 W. Washington Blvd., Los Angeles 90018; (213) 732-0153 * East Los Angeles Legal Aid. 5228 E. Whittier Blvd., Los Angeles 90022 (213) 266-6550 * Bet Tzedek Legal Services. 145 S. Fairfax Ave., Los Angeles 90036 (213) 939-0506 * South-Central Legal Aid. 8601 S. Broadway, Los Angeles 90003; (213) 971-4102 * Center for Law and Justice. 2606 E. 1st St., Los Angeles 90033; (213) 266-2690 * L.A. County Dept. of Consumer Affairs. 500 W. Temple St., Room B-96, Los Angeles 90012 (213) 974-1452 * Los Angeles Police Dept. Bunco/Forgery Division. 150 N. Los Angeles St., Los Angeles 90012; (213) 485-3795