Predatory lenders scheme to destroy the lives of homeowners nationwide

 

By Kevin Woo | California Lawyer

 

Jered and Sandra Crump never imagined they would be swept up in California’s financial storm. But in August 2008 Jered, a maintenance worker at Fresno City College, and Sandra, who is disabled, faced foreclosure on their modest Clovis home. Jered had been forced to take a pay cut as a consequence of the state’s budget crisis, and Sandra’s monthly disability checks were reduced. That left the Crumps unable to pay their mortgage.

 

As the couple fell further behind on their payments and were rejected for loan modification, they received a telephone call from Pope & Associates, a foreclosure consulting company. The timing of the call led the Crumps to believe that the firm was legitimate. The representative said that for a retainer fee of $2,895 Pope & Associates would renegotiate the existing mortgage, and that the fee would be refunded in full if the modification effort failed.

 

The modification scam

 

The Crumps paid the retainer and quickly joined the more than 8,300 other reported victims of home loan modification scams in California since 2009. As the crisis continues to unfold, these defrauded clients are seeking compensation for their losses. Courts may order crooked lawyers to pay restitution, but if the attorneys don’t comply, victims can turn to the State Bar’s Client Security Fund (CSF). Currently more than 5,200 victims are waiting for security fund compensation. That’s up from 1,161 people in 2007, and represents about 80 percent of all CSF cases in the state.

 

Established in 1972, the CSF uses 10 percent of State Bar dues to reimburse clients of dishonest lawyers up to $100,000. Victims are reimbursed no more than the amount by which they were defrauded, and they may wait as long as a year for restitution. In 2010 the CSF coffers contained $15.5 million, but that reserve will take a hit: Outstanding claims total $34.5 million, and the fund expects to pay out at least a third of that amount.

 

Disbarred lawyers whose clients are compensated by the CSF must repay the fund before they are readmitted to the bar. If the fund gets depleted, the bar could seek an increase in annual membership fees, says Colin Wong, chief administrative officer of the State Bar Court.

 

In early 2009, to investigate the growing number of scam artists, the State Bar formed a loan modification task force. The task force is currently investigating more than 1,700 cases involving 344 attorneys. Since its inception, 22 attorneys have resigned with charges pending or been disbarred; at least 20 more have been suspended for related misconduct.

 

Supervising trial counsel Suzan J. Anderson says that attorneys initially involved in the rush of loan modification misconduct tended to be either new lawyers or those near retirement. Green attorneys were roped into scams as they struggled to find jobs, while more experienced lawyers, she speculates, may have been hoping for a last big payday before retiring.

 

In an effort to protect homeowners, the Legislature passed Senate Bill 94 in October 2009, prohibiting anyone involved in loan modification services from receiving fees until the services have been performed. “I believe [SB 94] has helped stem the tide of the traditional loan modification scams,” Anderson says. “This is not to say that there are not any attorneys out there collecting advance fees.”

 

In April the State Bar Court suspended Ramon M. Gonzalez, the former general counsel for Pope & Associates, for six months and ordered him to pay $42,000 in restitution, plus interest, to eleven plaintiffs, including the Crumps.

 

Meanwhile, the Crumps have applied for CSF compensation and hope to bring a civil suit against Gonzales. They managed to keep their home, but the family’s savings were destroyed. Their son was to start nursing studies this fall at Fresno City College, but the family can no longer afford the tuition. “We only have a limited education, and this [experience] caused a lot of tension,” says Sandra Crump. “I’m sad I believed these people and took them at their word.”