Hitting Home

At first glance, Irene Schuler’s bleak tale seems all too familiar:

Woman in her 70s, living alone, is pestered by telemarketers and induced to take out a new home loan that is supposed to leave her much better off. Instead, she is pushed to the brink of financial disaster, and traumatized by the alleged theft of a portion of her loan proceeds and the threat of losing her home in an increasingly common “reverse mortgage” scheme.

What makes Schuler’s story extraordinary, however, is that the Los Angeles firm that allegedly defrauded her was so notorious that a state agency already had revoked its licenses, only to have a different agency grant a new license, allowing it to stay in business.

By the time TriStar Mortgage, an arranger of home loans, contacted Schuler, a Santa Clara, Calif. resident, in 1997, the firm had swindled scores of borrowers and lenders in California and other states through bait-and-switch tactics and outright forgery and theft, according to lawsuits and complaints to regulators. The Woodland Hills-based company a few months earlier had lost its licenses after audits by the California Department of Real Estate uncovered the diversion of client funds.

But Edward Rostami, president and owner of TriStar, had no intention of going out of business. And like others before him, he discovered how easy it was to manipulate the system.

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Using a different corporate name, Rostami applied for and received a similar license from the state Department of Corporations, which was unaware of his past. By the time the real estate department pulled the plug in November 1996, Rostami had rendered its action moot simply by filling out a form.

Thus, through an evasion that could have been easily detected, TriStar bought itself time to fleece many more consumers, say lawyers for people who claim they were cheated after the new license was issued.

Interviews and records show that other firms also have sidestepped problems with one agency by taking refuge behind the license of the other.

This “shouldn’t happen in the state of California,” said Schuler’s attorney, Andrew Fagan, who is trying to rescue her finances and stave off foreclosure of her home. “The lack of a hookup between these two agencies is why Mrs. Schuler is a victim.”

Rostami, 36, and TriStar, along with company executive Sharon Palmer Ross and two Rostami companies, Polo Financial and KISS International Mortgage, under which TriStar did business, are being investigated by the IRS and FBI for allegedly defrauding borrowers and lenders out of millions of dollars, according to law enforcement officials and others familiar with the probe.

Neither Rostami nor Ross, who have vacated their last-known addresses, could be reached by The Times, despite repeated efforts to contact them through their attorneys and relatives.

Regulators, prosecutors and consumer advocates disagree on who’s to blame for the lax enforcement in such cases, but they all agree on one thing: Loan and property fraud are rampant in Southern California, exacting a particularly heavy toll on the elderly and poor.

And often, as in the TriStar case, the alleged perpetrators manage to go on bilking consumers for months or even years after their activities become known. As the episode also shows, idiosyncrasies of the regulatory process often render it ineffective in putting unscrupulous operators out of business.

Firms that arrange home loans usually can do so with a broker’s license from the Department of Real Estate or a finance lenders license from the Department of Corporations. As a result, many firms hold dual licenses or quickly apply to agency B at the first sign of trouble from agency A.

Yet licensing officials at the two departments rarely discuss pending applications or consult each other’s database when processing a license. As a result, playing them off against each other does not require much stealth.

With a heavy workload limiting the scope of background checks, “we are in many cases having to rely on the honesty of the applicant” in disclosing prior misconduct, said Bill McDonald, assistant commissioner for enforcement at the Department of Corporations.

Bill Kennefick, chief of legislation at the department, said touching base with the real estate department when reviewing license applications “is probably something that should be considered.”

At the Department of Real Estate, however, enforcement chief Betty Ludeman said it would be “too burdensome” for her agency to notify the Department of Corporations each time it revokes a license.

But to advocates for victims, the lack of communication is inexcusable.

“It really demonstrates the incompetence of the government,” said Manuel Duran, a lawyer for Bet Tzedek Legal Services, who has represented many purported victims of TriStar. “All they had to do was make a phone call [to the Department of Real Estate] to say, ‘Hey, do you got anything on these guys?’ ”

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Firms other than TriStar have sidestepped trouble with a simple venue change. When Preferred Credit Corp., an Orange County mortgage lender, faced disciplinary action from the Department of Real Estate in 1995, it got a new license from the Department of Corporations.

Soon the Department of Corporations also had its hands full with Preferred Credit. It wound up suing the firm for allegedly cheating thousands of borrowers by charging them interest before their funds were disbursed. To cover up the practice, Preferred Credit purportedly contrived phony mailing documents that falsely stated when loan funds were delivered.

Preferred Credit settled the case last July by agreeing to pay restitution and a $1-million penalty. It was a strong result for the Department of Corporations, but agency officials acknowledged at the time they had been unaware of Preferred Credit’s problems with the Department of Real Estate.

“Agency shopping,” as some call it, is not the only way to beat the system. Another tactic involves the use of “rent-a-broker” to serve as fronts for various schemes.

Firms regulated by the Department of Real Estate must designate a licensed broker to supervise their activities. Shady operators often buy cover by paying a figurehead broker--in essence, renting his license for as much as several hundred dollars per week. The rent-a-broker typically is elderly and retired and rarely even visits the office, leaving the real power and control to the rogue employer.

But when violations occur, the rent-a-broker takes the fall. Exercising its only real power, the Department of Real Estate revokes his or her license for failing to supervise the wayward business, which then finds a new rent-a-broker to carry on.

Hamstrung by limits on their powers, authorities compound the problem through silence. Staff members at the departments of Real Estate and Corporations have sophisticated knowledge of loan and property scams and, through public education and publicity, might save some consumers from coming to grief. Yet these obscure agencies seem to prefer their low profile, rarely making themselves heard.

But law enforcement hasn’t distinguished itself either, say consumer advocates and regulators who complain of long delays when they do refer cases for prosecution. Indeed, at a time of deep concern about violent crime, combating fraud has not been a high priority, and unscrupulous operators often get by for years with little interference.

At the Department of Real Estate, a standing joke is, “If we were going to go into a dishonest business, the county we’d pick is Los Angeles,” one agency official said. “This county has so many crooks, they’re overwhelmed . . . and the bad guys know it.”

Among those who have long been on the radar screen is Frederick L. Tucker, a loan broker in Beverly Hills and Torrance who has used at least five aliases, court papers state.

Public records show that since the 1980s, Tucker and his businesses have drawn numerous consumer complaints while operating behind at least three rent-a-brokers. The Department of Real Estate repeatedly cited Tucker for law violations, but since he did not hold a broker’s license that the agency could revoke, it had no real leverage.

But then the Los Angeles County district attorney’s office got into the act, launching a criminal investigation in 1995.

According to an affidavit filed in court by an investigator for the district attorney’s office, Tucker’s modus operandi was to blanket low-income neighborhoods with letters offering loans on attractive terms from the mythical Housing Rehabilitation and Redevelopment Management Resource.

The organization existed only in Tucker’s imagination, but the bald eagle on the letterhead and return address on Pennsylvania Avenue in Washington created the false impression that it was part of the government, the affidavit said.

People who signed up for loans discovered that the interest rate and other terms were not as promised. But those who backed out were charged high processing and cancellation fees. And if they refused to pay, Tucker reported them to credit agencies as having an unpaid loan from one of his businesses.

It was “a textbook example of oppressive and unscrupulous practices which harm a vulnerable consumer group,” the district attorney claimed. Nonetheless, prosecutors decided not to bring criminal charges. Instead they informed Tucker in September 1996 that they would file a civil lawsuit against him unless he paid a stiff penalty and restitution.

Although Tucker did not agree, the district attorney waited 21 months before filing suit against him in June. Negotiations “got to the point where [they] didn’t seem fruitful,” said Deputy Dist. Atty. Dana Aratani.

Tucker’s lawyer, Lawrence R. Lieberman, said Tucker will “vigorously defend” the lawsuit. “He felt that he did nothing wrong, [and] that he provides a needed service to people.”

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In the TriStar case, authorities seem to be taking their time, as well. Interviews, court files and other records show that they have plenty of leads to follow.

Although alleged victims include a wide range of consumers and even lenders, a number were seniors who were purportedly targeted in a reverse mortgage scheme.

A reverse mortgage is a kind of deferred-repayment loan that allows seniors to draw monthly living expenses against the equity in their homes. No monthly payments are required, and the loan is only repaid when the borrower sells the home or dies.

In recent years, schemes involving reverse mortgages have been widely reported throughout the country, in what has been called the “white-collar mugging” of seniors. Often the schemes involved the charging of unreasonably high fees by firms that arrange reverse mortgages.

But according to court papers and interviews, TriStar went these schemes one better--not only charging high fees but saddling elderly clients with conventional loans, rather than reverse mortgages, they couldn’t possibly repay, and sometimes skimming the proceeds to boot.

According to her lawsuit against TriStar, Irene Schuler was one such victim.

Within months of getting its new Department of Corporations license, TriStar telemarketers called Schuler to pitch a reverse mortgage. She already had one, but the pitchmen promised to replace it with a new reverse mortgage that would increase her monthly stipend and leave her much better off.

However, her finances lay in ruins after a maze of transactions in which her signature allegedly was forged on numerous loan documents, wiring instructions and checks drawn on an account in which her money was placed.

Instead of the increased monthly expenses she was promised, Schuler lost the $432 she was already getting each month. And in place of the reverse mortgage, Schuler suddenly had conventional debt of $340,000 with payments far out of her reach.

For good measure, more than $115,000 of the proceeds were diverted to TriStar and several of its officials, employees and lawyers, according to court papers and financial records filed as exhibits in her case.

“I’m still in the throes of shock,” said Schuler. “What kind of people are these?” she asked. “How could they be allowed to do such things?”

But Schuler was not the only one who came to grief after TriStar got its new license.

Ruth Mikolon, 64, who owned her home in San Rafael, Calif., free and clear, said she was contacted in January 1997 by telemarketers from TriStar who promised her a reverse mortgage that would cover her debts and provide her with $400 per month in living expenses.

Instead, two conventional loans for $212,000 were taken out against her property--and only $32,000 of that went to Mikolon and her creditors, she said.

Mikolon has hired an attorney to try to stave off foreclosure. “I’m just trying to keep myself calm so I don’t fall apart,” she recently told The Times.

Mikolon recounted her tale of woe in a complaint letter last November to the state attorney general’s office. Correspondence obtained by The Times shows her letter was passed on to the Department of Real Estate. Having revoked the license, that department dumped the complaint on the Department of Corporations.

Said one state official: “It doesn’t matter where the victims go, they’re not getting any assistance.”

The horror stories include that of John Peek, an 84-year-old former airline pilot.

The San Diego County resident had talked to TriStar about a loan but decided not to follow through, court papers say. So when Peek discovered that a $281,000 loan had been taken out against his home, he was surprised, to say the least.

According to exhibits filed in court, Peek is supposed to have signed loan documents in Los Angeles in August 1996, when he was actually on a visit to the Midwest, his lawsuit said. Earlier this month, he won a default judgment of $1.7 million in the case.

“It appears that Mr. Peek’s signature was, in fact, forged,” said Jeffrey Brodrick, a deputy district attorney in San Diego County who has investigated the case. Because TriStar appears to have “victims scattered throughout California,” Brodrick said, his office for now has decided to defer criminal prosecution to federal prosecutors.

Rostami and his companies have denied wrongdoing in some of the lawsuits pending against them. Other times, as in the Peek case, they have offered no defense and lost by default.

But a man whose wife used to work for Rostami and who called himself Rostami’s friend described him as “a real good guy.”

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Although “everything [at TriStar] wasn’t peaches and cream,” said the friend, Willie McCray, Rostami “has helped many people.”

But TriStar, which once employed scores of telemarketers and negotiated loans of more than $65 million in a recent year, is no more. Behind in its rent, the company last fall abandoned its Woodland Hills headquarters, and lost its Department of Corporations license for failure to pay an annual fee.

About the same time, however, Rostami turned up on the Internet pushing two new businesses: a credit repair service called Crystal Credit and an investment business, Liberty United Funding.

Although federal authorities declined to discuss the criminal probe, one official said indictments are not imminent. It is “one of your typical long-term investigations,” he said.

How to Borrow With Caution

Just as a home cannot be made absolutely safe from a clever professional burglar, neither can consumers in loan transactions be absolutely immune from fraud or abuse.

But experts say the risk can be substantially reduced by taking precautions, including the following:

* Do not believe oral promises. Carefully read loan agreements and disclosure statements, rather than rely on salespeople to tell you what they say.

* Do not sign a blank or incomplete application and let others fill it out.

* Insist that copies of anything you sign be provided on the spot. Do not agree to have the copies mailed to you.

* If you decide to refinance or consolidate debts, make sure the interest rate on the new loan is lower than the rate for each of your old debts.

* Make the broker or salesperson disclose to you under which license (Department of Real Estate or Department of Corporations) they are operating. Check with both agencies for history of disciplinary action.