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State Cracks Down on Unscrupulous Mortgage Lawyers

Law "was designed to be a noble profession"

California Attorney General Kamala Harris stood before a bank of news cameras Thursday morning and declared war on unscrupulous lawyers. 

The occasion: a new lawsuit against three Southern California law firms, who stand accused of taking millions of dollars from homeowners who expected the lawyers to help them get mortgage relief. But the attorneys simply pocketed the money, Harris said.

Law "was designed to be a noble profession," Harris told reporters. Instead, she said, the accused attorney, Philip Kramer, and lawyers at two other firms took advantage of borrowers who were already "deeply disappointed, frustrated and hurt."

According to officials, the defendants extracted retainer fees of up to $10,000 from each of 2,500 homeowners to participate in lawsuits that actually hurt their chance of staying in their homes. Because these homeowners gave their meager savings to Kramer and his associates, they were less able to make their mortgage payments and more likely to lose their home to foreclosure.

Kramer did not return multiple calls to his office number or respond to an e-mail request.

The case marks the first civil suit filed by the Attorney General's Mortgage Fraud Strike Force, which Harris formed in May

Advocates and government officials say it's not surprising that the strike force's first action would be a lawsuit against unscrupulous lawyers.

New state laws require realtors and other businesses that offer mortgage modification services to register with the state attorney general's office and post a $100,000 bond, but no such requirements exist for lawyers. 

Lawyers and realtors alike are barred from accepting up-front fees for mortgage modification work, but unscrupulous lawyers have changed their tactics and have begun charging struggling borrowers for frivolous lawsuits, said Bill Hebert, the President of the State Bar of California.

Hebert said 22 California lawyers have been disbarred or have turned in their license since the State Bar stepped up its own enforcement actions in 2009. But he admitted that represented only a small percentage of the perpetrators.

"The types of fraud are merely limited by the imagination of the criminal," Hebert said.

According to the a report released last week by the FBI, mortgage fraud remains widespread across the country -- up 117 percent nationwide since 2008.

In 2010, the FBI's San Francisco field office received 3,376 reports of suspicious activity in mortgage lending, making it the fifth busiest office in the country. The Los Angeles field office received the most reports, 10,391.

"There is no easy fix to this," said Dustin Hobbs, a spokesman for the California Mortgage Bankers Association. "It's very hard to stay ahead of the curve."

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