Calif. AG files mortgage fraud lawsuit

Bryan Cohen Aug. 23, 2011, 9:49am


SAN FRANCISCO (Legal Newsline) - California Attorney General Kamala Harris announced a lawsuit Thursday against multiple entities that allegedly took part in mortgage fraud with thousands of homeowners.

Harris, in conjunction with the State Bar of California, sued Philip Kramer, the Law Offices of Kramer & Kaslow, three other lawyers, two other law firms and 14 other defendants who allegedly worked together to defraud homeowners across the county through the deceptive marketing of "mass joinder" lawsuits. "Mass joinder" lawsuits are lawsuits with many individually named clients.

The lawsuit marks the first action of Harris' Mortgage Fraud Strike Force.

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

Kramer's firm and other defendants were placed into receivership on Aug. 15. The legal actions were designed to shut down the alleged scheme in which attorneys and their marketing partners used false and misleading representations to induce thousands of homeowners into joining the mass joinder lawsuits against their mortgage lenders. The defendants also had their assets seized and were enjoined from continuing their operations.

Harris alleges that at least 2 million pieces of mail were sent out by the defendants to victims in at least 17 states providing the defendants with millions of dollars in revenue.

The defendants allegedly preyed on desperate homeowners facing foreclosure by selling them participation as plaintiffs in mass joinder lawsuits against mortgage lenders. The defendants allegedly led homeowners to believe that by joining these lawsuits, they would stop pending foreclosures, obtain money damages, reduce their loan balances or interest rates, and even receive titled to their homes free and clear of their existing mortgages. The defendants allegedly charged homeowners retainer fees of up to $10,000 to join as plaintiffs to a mass joinder lawsuit against their lender or loan servicer.

Consumers who paid to join the mass joinder lawsuits were allegedly frequently unable to receive answers to simple questions, such as whether they had been added to the lawsuit or even to establish contact with defendants. Some consumers allegedly lost their homes shortly after paying the retainer fees damaged by the defendants.

The alleged scam began with deceptive mass mailers that were designed to appear as official settlement notices or government documents that informed the homeowners they were potential plaintiffs in a "national litigation settlement" against their lender. The settlements did not exist and in many case no lawsuit had even been filed, Harris says.

When consumers contacted the defendants, the consumers were allegedly given legal advice by sales agents, not attorneys, who used deceptive statements and often gave inaccurate legal advice about the supposedly "likely" results of joining the lawsuits. The defendants allegedly paid unlawful commissions to their sales representatives on a per client sign-up basis, which is a practice known as "running and capping."

The lawsuit alleges that the defendants misconduct violated section 17500 of the Business and Professions Code by using false advertising, section 17200 of the Business and Professions Code by using fraudulent, unfair and unlawful business practices, and section 6152, subdivision (a) of the Business and Professions Code by using unlawful running and capping, improper fee splitting and failing to register with Harris as a telephonic seller.

Harris alleges that there are known victims who have either received the mailers or signed on to join the case in 17 states.

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