California says law firms scammed homeowners

California's attorney general has sued four lawyers, three law firms and others, saying they collected millions of dollars from homeowners in at least 17 states by falsely claiming to help them avoid foreclosure.

The action was the first by California's Mortgage Fraud Strike Force. The assets of those named in the suits were seized by either the California Department of Justice or the California Bar.

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"The defendants in this case fraudulently promised to win prompt mortgage relief for millions of vulnerable homeowners across the country," Attorney General Kamala Harris said in a news release. "Innocent people, already battered by the housing crisis, were targeted for fraud in their moment of distress." 

According to the California attorney general's office, the lawyers and others representing them – in some cases, paid salespeople -- sent more than 2 million advertisements to borrowers in at least 17 states, asking homeowners to join their lawsuits against the big banks. In exchange, the solicitations claimed, the homeowners would avoid foreclosure and perhaps even have their mortgages thrown out and be able to keep their homes.

That was not the case, however. Some homeowners lost their homes shortly after joining the suits, the California attorney general said.

Normally, in a class-action suit, the law firms bring the suits at their own expense. If they win, they take their fee off the top and the rest of the money is divided among the plaintiffs and others in a similar position.

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In this case, however, the lawyers solicited fees from homeowners ranging from $3,500 to $10,000, but did nothing to help those homeowners, California officials said.

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The California Bar seized the assets of the Law Offices of Kramer & Kaslow; Philip Kramer; Mitchell J. Stein & Associates; Mitchell Stein; Christopher Van Son; Mesa Law Group Corp.; and Paul Petersen.

The state seized the assets of Attorneys Processing Center; Data Management; Gary DiGirolamo; Bill Stephenson; Mitigation Professionals Glen Reneau; Pate Marier & Associates; James Pate; Ryan Marier; Home Retention Division; Michael Tapia; Lewis Marketing Corp.; Clarence Butt; and Thomas Phanco. 

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The "mass joinder" lawsuits brought by these law firms – and the way they are "marketed" to consumers -- have long been controversial. Krista Railey at LoanSafe.org has some details. She writes:

The marketing of the lawsuits, typically handled by nonattorney “intake ambassadors,” preyed on desperate borrowers' hopes via high-pressure sales tactics and lofty promises regarding potential case outcomes. … The nonattorney ambassadors were paid high commissions, and were often allowed to charge as much as they wished to prospective clients and pocket the difference. The average fee to join the suits ranged between $3,500 to $7,000, but could be as high as tens of thousands of dollars. 

None of these defendants has made any public comments. The websites of both Kramer and Stein accuse people not affiliated with the firms of making unauthorized solicitations.

The California attorney general has published advice on how to avoid scams, and the California Department of Real Estate had previously issued a warning.

"Mortgage rescue frauds are extremely good at selling false hope to consumers in trouble with regard to home loans," the real-estate department wrote. "The scammers continue to adapt and to modify their schemes as soon as their last ones became ineffective. Promises of successes through mass joinder or class litigation are now being marketed."