West Covina Man Indicted in Alleged Real Estate Scam

A real estate manager in Southern California was indicted Wednesday for allegedly running a massive rent-skimming and foreclosure scam that involved more than 500 houses and defrauded several commercial banks, federal authorities said.

Bernard Gross, 52, faced the 17-count criminal indictment at a federal court hearing in Los Angeles after FBI agents arrested him Tuesday at a Covina storage facility, said Kendra S. McNally, an assistant U.S. attorney.

Gross, of West Covina, was still being held late Wednesday after being ordered by U.S. Magistrate Brian Q. Robbins to post an unspecified amount of property to gain his release, said Gross’ lawyer, David A. Katz.

Katz said that although Gross won’t respond to the charges in court until his formal arraignment, “he’s not guilty and looks forward to being vindicated. His activity is lawful.”

Gross, an immigrant from Chile who at times also lived in Studio City and Laguna Hills, was the central figure in the alleged scam, which authorities said also relied on clogging the Bankruptcy Courts with bogus petitions.

The indictment charges that the alleged scam, which a Times investigation chronicled in 1995, mostly occurred in the early 1990s and basically worked this way:

Gross allegedly controlled a vast but constantly changing list of properties by getting homeowners who faced foreclosure to deed their homes to him at little or no cost. Gross and his agents promised to delay foreclosure and renegotiate the mortgages, while allowing the homeowners to remain renters in their properties for less than their monthly house payments.

But Gross did so “with the wrongful intent of keeping such rent money and not making payments on the mortgage,” the indictment states.

Gross allegedly then failed to pay the banks holding the mortgages, by running the properties through bankruptcy proceedings. The bankruptcy laws include provisions that keep creditors at bay while the debtor reorganizes its finances, and this served to block the banks from foreclosing on Gross’ houses, the indictment states.

The banks could ask the courts for relief, but when they did so, Gross allegedly divided the properties’ ownership “to other individuals and entities also in bankruptcy, in order to further delay the foreclosure,” with Gross all the while still collecting rents.

The houses covered in the indictment are located throughout Southern California, in communities including Chatsworth, Santa Ana, Glendale, Escondido, Palmdale and Riverside. The banks and thrifts that allegedly were defrauded included H.F. Ahmanson & Co.’s Home Savings of America, BankAmerica Corp.’s Bank of America and Washington Mutual Inc.’s American Savings Bank.

Gross could face a maximum of 65 years in prison on the 13 counts that deal with bank fraud and additional time on the other four counts, McNally said.

Authorities seized about $50,000 in cash and checks from Gross, but he was not allowed to use that money to post bail, Katz said.

In February, a U.S. Bankruptcy Court judge in Santa Ana fined Gross $85,000 after ruling that his activities amounted to the worst case of bankruptcy abuse the judge had ever seen.