Lawyers, call centers accused of scam in bank suits
COSTA MESA, Calif. — California prosecutors filed a major lawsuit against several lawyers and call center operators for allegedly running a nationwide scam to dupe desperate homeowners into paying thousands of dollars to join dubious lawsuits against some of the country’s largest banks.
The complaint to be unsealed today in Los Angeles County Superior Court accuses prominent foreclosure attorneys Philip Kramer and Mitchell Stein and at least 17 other individuals and businesses of luring borrowers into a scheme that falsely promised a cut of future settlements.
The lawsuit portrays the defendants as the most recent in the chain of mortgage-related scammers who helped fuel the housing bubble and have cashed in on its collapse. The defendants previously worked in the fraud-ridden loan modification industry.
Borrowers were lured into the scheme with claims that courts have found most mortgage lenders to have practiced predatory lending or approved inappropriate loans, and that the homeowners’ own banks meet the criteria for having perpetrated such “violations,” the complaint says.
“Defendants use deceptive advertising and telemarketing to recruit consumers to join these lawsuits,” according to the complaint filed by prosecutors.
California Attorney General Kamala Harris was set to announce the case Thursday, a day after state bar investigators and state Department of Justice agents served defendants with copies of the complaint at nine locations in Los Angeles and Orange counties.
Officials loaded boxes of seized documents into moving vans Wednesday. Armed police guarded the entrances to emptied offices, which appeared to contain wall-to-wall cubicles for phone center workers. The Orange County raids took place in sprawling office parks with manicured lawns surrounding Irvine’s airport.
Outside one office, a man in a business suit said he had worked for the raided company but refused to answer any other questions as he carried a stack of framed pictures from the building and oversaw the removal of a small refrigerator by younger apparent employees.
At another office, a manager who would only give his first name, David, said he and his colleagues had been questioned about their connection with Kramer. He said they had done business with the lawyer two years ago but not since.
Prosecutors accuse the defendants of making false representations and three counts of unfair competition. They are seeking an injunction stopping the defendants from continuing with the business in addition to unspecified monetary damages.
No criminal charges have been filed in connection with the case.
Calls to Kramer’s office were being forwarded to a state bar phone number early Thursday. Calls to Stein, who refers to himself on his firm’s website and other communications as “The Doberman,” went straight to a busy signal.
Attorney general’s spokesman Shum Preston declined to discuss the case ahead of Harris’ announcement.
Kramer gloated in an October 2010 e-mail to another defendant about the virtues of their new undertaking compared with the loan modification business, in which lawyers offer to negotiate better mortgage terms on behalf of troubled borrowers in exchange for a fee.
“Only morons would prefer to ‘sell’ mods from this day forward,” Kramer wrote, according the complaint.
In fact, the scheme Kramer and Stein allegedly perpetrated was a new spin on loan modifications.
Prosecutors accuse Kramer and Stein of exploiting an existing lawsuit known as Ronald v. Bank of America NA filed in Los Angeles Superior Court in March 2009. Stein was one of the lawyers who first filed that case, which alleged on behalf of a few dozen clients that the bank committed mortgage-related improprieties. Kramer later joined as counsel to another defendant who was added to the case.
The lawyers used the Ronald case to drum up business and have since filed separate lawsuits against JPMorgan Chase & Co, Wells Fargo Bank NA, Citibank NA and others to broaden their base of clients, the complaint alleges.
The lawyers and their associates sent mailers that looked like official class-action lawsuit notifications to up to 2 million homes nationwide, prosecutors said.
The mailings stated that their recipients were potential plaintiffs in a litigation settlement and claimed they could cut their mortgage to as little as 70 percent of their value, prevent foreclosure and get $75,000 in damages.
They directed people to phone supposed law offices that were actually call centers staffed by operators with no legal expertise.
In addition to using mailers, Stein used his law firm’s Facebook page to make overblown claims about bank behavior and his ability to seek retribution, according to the complaint.
“Look for Patriot Act violations in your mortgage,” Stein wrote in a Jan. 17 posting. “Talk to a lawyer. You might just cancel the mortgage.”
Prosecutors estimated hundreds or even thousands of people paid between $5,000 and $10,000 to join the lawyers’ suits.
In some cases, the lawyers have collected money from borrowers who were told they were being added as plaintiffs to lawsuits that had not even been filed, the complaint alleges. Some borrowers had their homes foreclosed on after paying to join the suits filed by Kramer and Stein, prosecutors said.
Bank records show more than $7 million deposited in three of Kramer’s accounts connected to the investigation, with millions more paid to call centers that provided answers to prospective clients responding to the mailers, the complaint said.
Those workers are accused in the complaint of overstating lawyers’ progress in the lawsuits, all of which are in their earliest stages, and of misrepresenting judges’ apparent disposition toward the banks.
Some salespeople are alleged to have told borrowers that the judge in the Ronald v. Bank of America has told the lender it has “no defense” and that its main argument is “absurd.”
The salespeople also tell homeowners that the case’s lawyers have proven banks have taken money from investors that can’t be accounted for, the complaint says.
Philip Warmanen, a 71-year-old travel agent in Jacksonville, Fla., was among those who joined the lawsuit. Warmanen said he responded to a mailer that turned out to be from Kramer’s law firm early this year after Bank of America failed to offer him a modification on his home that had lost about half its value since he paid $525,000 for it in 2006.
Warmanen was told he should receive a modification and other settlement benefits in just a couple months when he paid $4,000 to join the lawsuit but has heard little of the case since then.
“They said there was a strong likelihood that this would be successful and that they had a few cases where the judgment had come through positively in favor of the complainants,” he said. “They led me to believe that that might be my case.”
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