Health & Welfare | Daily Report

Flickr photo by Jeff Turner

Amid the downturn in California's real estate market, the state has disciplined a record number of real estate licensees and is investigating thousands of attorneys involved in loan modification and short-sale scams.

California's foreclosure rate remains among the nation's highest, but it has been falling for seven straight months, said Daren Blomquist, spokesman for RealtyTrac Inc., an Irvine-based firm that tracks foreclosures nationwide. Still, officials say fraudulent activity is on the rise.

"You have a lot of financially stressed borrowers, a lot of potential victims," said Tom Pool, a spokesman for the California Department of Real Estate.

The department revoked, suspended or accepted the surrender of 886 real estate licenses from July 2009 through June 30, 2010. That's a 60 percent jump during the past three years. 

The department has nearly 5,400 open investigations, many for scams involving loan-modification scams and, increasingly, short sales. It has also issued nearly 600 desist and refrain orders to unlicensed firms and individuals since July 2006.

Similarly, the State Bar of California is investigating more than 2,000 of its members for involvement in foreclosure fraud. Twelve attorneys have resigned, three have been disbarred, and five have trials pending, said Suzan Anderson, supervising trial counsel of the bar's special team on loan modification.

"I can't remember a time, not to this extent," when so many attorneys were being disciplined for misconduct, Anderson said.

Records show fraud has occurred in every region of the state, not just areas with the highest foreclosure rates. Downturns in both the real estate and legal industries could be driving some of the misconduct.

"Basically you have 480,000 (real estate) licensees out there in the state and only a limited number of transactions occurring," Pool said. "If you do the math, it's not a lot of business to be had per licensee."

Real estate licensees involved in scams have been based all over the state, from San Jose to Beverly Hills to Yucca Valley. In loan modification cases, people "set up shop wherever … but they would canvas statewide," Pool said.

In the legal industry, all the lawyers disciplined or under investigation have been practicing in Southern California. Anderson said the bar does not know why the problem is prevalent only in that region. The attorneys tend to join companies that want to purport being a law firm, she said. 

"The attorney is pretty much renting and leasing his bar number to the loan modification company," she said.

Anderson and Pool said it's difficult to find common threads among the scammers. Those involved come from different professional backgrounds; some have had disciplinary problems in the past, others have not. The number of complaints against individuals or firms range from a couple to dozens.

But there are some common practices among scammers. Many of the attorneys have advertised on Craigslist, Anderson said. Typical mediums for real estate fraud are TV, radio or direct mail advertisements, Pool said. 

"Public records allow these folks to know when a notice of default's been filed, so it becomes relatively easy to identify people who are financially stressed and may need the service," Pool said.

Here's what consumers should watch out for:

• Advance fees. California law prohibits the collection of advance or "retainer" fees, regardless of amount, in loan modifications.
• No questions asked. If someone signs you up as a client before knowing your financial situation, "they don't really know if they can help you or not," Anderson said.
• Guaranteed success. "Those things just aren't true," Anderson said.
• License. Make sure the attorney or real estate firm or broker you're dealing with is licensed. You can look up attorneys at the state bar website and check real estate licensees at the real estate department's website.