For Rene Ruelas, the calls came faster than weeds sprouting in the yard of an empty house.
Foreclosure was looming for the Buena Park home that Ruelas shared with his wife, Rose, and four children. The longshore mechanic was headed into his fourth month without a paycheck because of a workers' compensation dispute as he recovered from his second knee surgery in a year. He was desperate.
"They made it seem so simple," he said of the telephone solicitations that began late last year. "They said they were given my information from the bank and that I just had to pay the money upfront and they'd do all the footwork."
Ruelas said he paid about $4,000 over five weeks to a company that never even contacted his lender to modify his home loan.
Now Ruelas and his family are on the cover of a DVD the Federal Trade Commission is sending out in an effort to curb the calls and mailers that have helped dupe hundreds of thousands of homeowners out of hundreds of millions of dollars.
The DVD -- along with a flurry of lawsuits -- was unveiled Wednesday as a part of Operation Loan Lies, a nationwide crackdown by federal, state and local authorities on those who prey on homeowners desperate for mortgage relief.
"At the moment, there are more scammers than there are government officials going after them," California Atty. Gen. Jerry Brown said at a news conference in downtown Los Angeles. "There are more of these rats coming out of these holes than we can stomp on, but we'll keep doing the best we can."
Although the announcement was made Wednesday, the operation has been underway for weeks, FTC Chairman Jon Leibowitz said.
So far, 189 lawsuits, cease-and-desist orders and other legal actions have been filed in 20 states as a result of Operation Loan Lies, officials said.
In Southern California, prosecutors have taken legal action against 14 companies and 21 people accused of running loan-modification scams that ripped off thousands of struggling homeowners looking to avoid foreclosure.
In documents filed in U.S. District Court in Los Angeles and Orange counties, Brown and the FTC alleged that the California firms charged $500 to $5,500 in upfront fees, often promising to get lenders to modify mortgages to make payments more affordable -- and never delivered.
For a upfront fee of $3,500, one alleged victim was promised a 40% reduction in her mortgage principal and a $2,000 reduction in her monthly payment by U.S. Homeowners Assistance, one of the lawsuits said. After learning in April 2008 that her loan modification request had been denied, the woman discovered that the Irvine company had forged her signature and falsified her financial information, the suit said.
Leibowitz said that homeowners should be wary of loan consultants requiring payment before services are performed. Federal and California lawmakers are working on rules to block loan modification services from demanding upfront payments.
Hundreds of thousands of homeowners have been victimized by loan modification scams, Leibowitz said, estimating monetary losses in the hundreds of millions of dollars. And the fraudulent schemes are more rampant in Southern California than in any other part of the U.S., he said.
"Part of the reason why we're out here today is because California consumers have been among the most hard hit and also because a lot of these malefactors are based in Orange County," Leibowitz said. "It's one of the hotbeds of mortgage scam activity."
Brown and the FTC are demanding millions in civil penalties and restitution for homeowners as well as permanent injunctions to prevent the defendants and companies from offering mortgage-relief programs.
Firms named in the California suits included U.S. Homeowners Assistance (also known as Statewide Financial Group Inc.); We Beat All Rates; U.S. Homeowners Preservation Center; U.S. Foreclosure Relief Corp. (also known as Lighthouse Services and California Foreclosure Specialists), based in Orange; Home Relief Services, with offices in Irvine, Newport Beach and Anaheim; RMR Group Loss Mitigation, with offices in Newport Beach, Orange, Huntington Beach, Corona and Fresno, and its lawyers at Shippey & Associates and Arthur Aldridge; United First Inc., based in Los Angeles; Payment Relief Services Inc. of Costa Mesa (also known as Mercury Financial Services Corp.); and Living Water Lending of Newport Beach.
Representatives for the accused companies and individuals did not return requests for comment.
Twenty-three state and local agencies from 18 states are working with the FTC under the effort, and that number is expected to grow dramatically by the end of the year, Leibowitz said.
The Ruelas family was lucky. The FTC directed them to free counseling offered by the U.S. Department of Housing and Urban Development, which helped save their home of 13 years.
"The only thing real in that deal was my money on the table," Ruelas said. "Everything else was a lie. What matters is that we still have our house and hopefully I'll return back to work next month."