California has broken up what it called a ring of law firms that fraudulently induced struggling homeowners nationwide to pay thousands of dollars each to file mass lawsuits against their mortgage lenders.
Kamala Harris, the state's attorney general, said on Thursday she sued three law firms, four lawyers and 14 other companies and individuals who preyed on borrowers desperate to obtain mortgage relief.
She said these defendants took advantage of borrowers' frustration with lenders and servicers in a housing crisis now in its fifth year and which hit California particularly hard.
With the industry's growing reputation for fraud and the legislative ban on advance fees for loan modification services, defendants saw a more profitable opportunity to sell lawsuits rather than loan modifications, the state said in its complaint filed in the Los Angeles County superior court.
According to officials, the defendants solicited homeowners in 17 U.S. states with at least 2 million pieces of mail and extracted retainer fees of up to $10,000 from each of roughly 2,500 borrowers to participate in mass joinder lawsuits.
Harris said these defendants would deceive borrowers into believing their participation would help them avoid foreclosures, reduce their loan balances or interest rates, or even receive clear title to their homes.
Instead, she said borrowers were often provided bad legal advice or unable to get answers to simple questions, including whether they were in fact added to lawsuits. A disproportionate number were black or Hispanic, officials said.
Victims were led to believe the lawsuits would be the way that they could receive justice, Harris said at a news conference monitored via webcast. The only people who paid were those homeowners.
California said its state bar seized the law practices and attorney accounts of the three law firms, which are all based in the state, and the four lawyers.
They are the Calabasas-based firm Kramer & Kaslow and its principal Philip Kramer, who officials called the leader of the scheme; Costa Mesa-based Mesa Law Group Corp and its principal Paul Petersen; Walnut Creek- and Agoura Hills-based Mitchell J Stein & Associates and its principal Mitchell Stein; and the Encino-based lawyer Christopher Van Son.
The lawsuit alleges violations of several laws and seek a halt to the illegal practices, as well as fines and other remedies. Kramer's firm and some other defendants' firms were put into receivership on Monday, Harris said.
A call to the Kramer firm was answered by a recorded message. The Mesa law firm and Van Son did not respond to requests for comment. Stein's office referred a call to the office of U.S. Sen. Dianne Feinstein. A spokesman there declined to comment.
The case is California v. The Law Offices of Kramer and Kaslow et al, California Superior Court, Los Angeles County, No. LC 094571.