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California State Bar Cracking Down on Lawyers Who Participate in Mortgage-Related Fraud Schemes
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California State Bar Cracking Down on Lawyers Who Participate in Mortgage-Related Fraud Schemes

Since early 2009, the California State Bar has received nearly 12,000 loan modification complaints.  The Managing Director of Investigations for the California State Bar, John Noonen, was recently personally targeted by a persistent salesperson from a company called Realty Group & Consulting after Noonen was erroneously identified as a homeowner in distress.

Realty Group & Consulting allegedly created a sham office in Ontario, California with the help of a local attorney, Gary David Tracy.  According to State Bar investigators, Tracy let multiple people use his credentials to file bogus bankruptcy petitions to temporarily halt the foreclosure process.  Realty Group is accused of filing at least 80 “bad faith” bankruptcy petitions on behalf of clients, many of whom had no idea those documents had been filed in their names.

By promising to help distressed homeowners fight foreclosures, Realty Group bilked consumers out of thousands of dollars in supposed legal fees and the consumers ended up losing their homes anyway.

No formal disciplinary charges have been filed against Tracy yet.  Joe Dunn, CEO/Executive Direction of the State Bar said it is not uncommon for lawyers to be drawn into similar schemes.  “Some lawyers don’t know they’re being used.”  Tracy’s involvement with Realty Group’s clients appears to have been minimal, if any, according to investigator Noonen.

Other known schemes involve filing bankruptcy petitions using fake names to stall foreclosure, or to piggyback onto another person’s bankruptcy. If the deception was discovered, the scammers simply moved on to another fake petitioner.

Banks and other mortgage lenders are cautioned that a fraudulent or bad faith bankruptcy filing can prevent a rightful foreclosure for months or even years if the lender is not diligently involved in the bankruptcy case.   This is a matter that will require strict attention by lenders for years to come, because the housing market in California will likely take years to recover.

If you are a mortgage lender or servicer for a lender, be certain you have a protocol in place to assert a secured creditor’s rights related to a bankruptcy petition.  The attorneys at Glass & Goldberg provide high quality and cost-effective legal services and advice for clients in all aspects of bankruptcy, business litigation and transactional law.  Call us at (818) 888-2220, email us at info@glassgoldberg.com, or visit us on the web at www.glassgoldberg.com to learn more about the firm and to sign up for future newsletters.

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