State Agencies Act to Control Fraud by Mortgage Brokers

In a move aimed at curbing abuses by dishonest home loan firms, two state agencies have launched an effort to keep mortgage brokers who are stripped of licenses by one department from obtaining a license from the other.

Top officials with California’s Department of Real Estate and Department of Corporations said they have agreed on a formal process for sharing information on consumer complaints and disciplinary actions to foil the practice of “agency shopping,” in which firms faced with the loss of a license simply apply for a new one.

Dale E. Bonner, corporations commissioner, and Jim Antt Jr., real estate commissioner, who signed the three-page agreement last week, said it was inspired in part by a recent report in The Times about the ease with which some firms that lose their licenses manage to stay in business.

The article highlighted the case of TriStar Mortgage and Polo Financial Services, affiliated firms in Woodland Hills that were accused in dozens of complaints and lawsuits of defrauding borrowers and lenders of millions of dollars.

The firms, which arranged home loans, were facing loss of their licenses with the Department of Real Estate in 1996. But by the time the agency pulled the plug, owner Edward Rostami had obtained a similar license with a new corporate name from the Department of Corporations.

Because the agencies had no system for sharing information or cooperating to fight consumer abuse, the Department of Corporations staff was unaware of Rostami’s track record. “There’s probably too many more [examples] out there that we don’t know about,” Bonner said.

Attorneys for some victims--including a number of senior citizens--said their clients were defrauded after the Department of Corporations granted Rostami and his firms their new lease on life. The firms, which have since closed down, are under criminal investigation by the FBI and the Internal Revenue Service.

Compounding the problem is the fact that many firms already hold licenses with both agencies.

Officials say that when one of the departments raises a compliance issue, such dual license holders often respond that they were acting under the license of the other. Under long-standing California law, both agencies can license firms that broker home loans.

The new agreement requires agency employees to regularly exchange information on complaints and disciplinary actions taken against those licensed as real estate brokers or salespeople with the Department of Real Estate--as well as those licensed to act as consumer finance lenders, residential mortgage lenders or escrow agents with the Department of Corporations.

Manuel Duran, an attorney with Bet Tzedek Legal Services who represented many TriStar victims and had accused the agencies of “incompetence,” said the agreement should “definitely help . . . in trying to stop some of the scams.”

Andrew Fagan, lawyer for an elderly Santa Clara, Calif., homeowner who was allegedly defrauded, called the agreement “a step in the right direction.”

But Fagan noted that the agreement is “entirely silent” on what has been called the rent-a-broker problem, in which a broker fronts for an unscrupulous firm.

When violations pile up, these figureheads invariably are stripped of their licenses for failing to supervise the dishonest operation. However, the ringleaders simply hire a new rent-a-broker.

Antt said the rent-a-broker problem has generated considerable discussion within the Department of Real Estate, but “we have not been able to find a way” to solve it.