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California Foreclosure ‘Rescue’ Defendants Rounded Up

Feds, state squash scams that preyed on troubled homeowners

May 4, 2009

In a separate case, California Attorney General Edmund G. Brown Jr. won a guilty plea from 22-year old Anna Santos, who conned thousands of dollars from homeowners in a "cruel and sophisticated" loan scam. Santos will be formally sentenced on May 20 in Los Angeles Superior Court. She is expected to receive 2 years in prison.

In the FTC case, the defendants allegedly violated the Home Ownership and Equity Protection Act by extending credit based on the value of consumers’ collateral without regard to their repayment ability, by requiring balloon payments after only six months, by providing negatively amortized loans that cause consumers to owe more at the end of the loan than at the beginning, and by failing to make required disclosures.

The defendants also allegedly violated the Truth in Lending Act (TILA) by grossly understating the loans’ annual percent rate (APR) and finance charges. They also were charged with violating TILA and its implementing Regulation Z by failing to make timely written disclosures and by failing to disclose accurately the amount being financed, the finance charge, the APR, the payment schedule, the total payment amount, and the fact that the creditor has or will acquire a security interest in the consumer’s home. In addition, they allegedly violated the FTC Act by understating the APR for the loans.

The settlements with Christopher Tomasulo and Bonnie Werner (formerly Bonnie A. Harris) resolve these charges and impose judgments of $2,791,040.40 each, which will be suspended based on their inability to pay. The full judgments against them will become due immediately if they are found to have misrepresented their financial condition. The settlements also resolve charges that Tomasulo’s and Werner’s conduct was in contempt of orders entered against them in an earlier case brought by the Commission, FTC v. Bay Area Business Council, Inc. Those orders prohibit them from marketing credit-related products to consumers and ban Werner from telemarketing.

The settlements bar Tomasulo and Werner from trying to collect payments from any consumers for any credit-related product sold by any of the defendants, and from disclosing or benefitting from consumers’ personal information obtained by any of the defendants. Regarding any business Tomasulo and Werner own or manage, they must promptly investigate consumer complaints, monitor their sales personnel, and take corrective action when sales personnel engage in conduct prohibited by the orders. The orders also extend the period that Tomasulo and Werner must comply with provisions requiring them to report their employment status to the Commission and allow the agency to monitor their business practices.

The settlement with Thomas C. Little, an attorney who assisted the defendants, requires him to give up his earnings from the scam, $16,105. Little was named in the related civil contempt action, FTC v. Bay Area Business Council, Inc. He was legal counsel to some of the Bay Area Business Council defendants, including filing and arguing their appeals to the U.S. Court of Appeals for the Seventh Circuit in 2005.

California scams

Santos was arrested on March 12, 2009 after she used forged documents to convince victims to hand over thousands of dollars for non-existent loan modification services.

"Santos conned thousands of dollars from homeowners trying to save their homes through a cruel and sophisticated scam," Brown said. "She held out hope, but in reality did not provide an ounce of loan modification, leaving her victims unprotected and in far worse straits."

Santos obtained a fictitious business permit through the City of Los Angeles for "Payment Processing Department." She opened several bank accounts and two post office boxes under that name. She mailed flyers to vulnerable homeowners that appeared to be from victims' lenders or a government agency. The flyer used a large, bold header that read "Final Notice" and advised homeowners that they qualified for a special program to save their home from foreclosure.

After signing up for "loan modification services," homeowners then received what appeared to be "confirmation" that their lender had been notified. Many victims also received loan modification documents that appeared to be from their lender. These documents were all forgeries.

The victims were informed they had been placed in a "probationary" program and their mortgage payments should be submitted to "Payment Processing Department" and sent to a given post office box address. None of the payments were credited to the victims' home loans.

Payments sent to the post office box were retrieved by Ms. Santos and deposited into the bank accounts she had opened.

Santos targeted seniors and homeowners on the verge of foreclosure. It is believed that she scammed more than 100 victims. On average, victims lost approximately $3,000, at a time when they could not afford their mortgage, let alone additional fraudulent expenses.

Since taking office, Attorney General Brown has shut down loan modification and foreclosure rescue scams and fought companies that have misled vulnerable borrowers:

• In March 2009, Brown shut down Foreclosure Freedom, a fraudulent loan modification company that continued to collect fees and mortgage payments from dozens of homeowners without ever providing any loan modification services.

• In November 2008, Brown arrested three members of First Gov after the company demanded an up-front fee, ranging from $1,500 to $5,000, to participate in a loan-modification program and never renegotiated the loans.

• In October 2008, Brown announced an $8.68 billion settlement with Countrywide Home Loans after the company deceived borrowers by misrepresenting loan terms, loan payment increases, and borrowers' ability to afford loans.

• In May 2008, Brown shut down a team of scam artists that acquired deeds to hundreds of homes in foreclosure by convincing desperate consumers to pay $10,000 to place their property in a land grant, a phony and worthless real estate document, and then tricked homeowners into signing over the deed to their home and paying the company rent.

• In March 2008, Brown shut down Lifetime Financial, Nations Mortgage, Greenleaf Lending, Virtual Escrow, Olympic Escrow and Direct Credit Solutions after the companies ran a complex predatory lending scheme using bait and switch tactics to victimize thousands of homeowners, many of whom lost their homes.

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