Three California attorneys this week were indicted for conducting an illegal loan modification scam where troubled borrowers paid thousands of dollars in upfront fees but no meaningful services were provided. Eventually, the mortgagors lost their properties to foreclosure.
The state accused Gregory and Cynthia Flahive, ex-spouses and owners of Flahive Law Corporation, and Mike Johnson, the managing attorney of the Folsom, Calif.-based firm, of taking fees of up to $2,500 from homeowners in Placer, Sacramento, Butte and Yuba counties for loan modification services that they failed to conduct.
In California, it is illegal for foreclosure consultants to collect money for services before they are performed.
The three defendants were charged with 19 felony counts, including grand theft by false pretense, conspiracy and false advertising.
According to California Attorney General Kamala Harris, the law firm advertised its services on flyers, radio and televised infomercials offering to provide loan modification services and help clients with bankruptcy, IRS tax relief and credit card modification.
In a 2010 infomercial, the Flahives said that as a law firm, they had "extra leverage" with the banks. They described one of their unique services as a "mortgage violation audit" in which they reviewed a client's loan documents to find bank violations that could be used as leverage to modify a client's home loan, the AG said.
However, an investigation launched last summer by the AG's Mortgage Fraud Strike Force found out that in some instances, the client's lender had no record of contact with the Flahive Law Corporation.
In one example of the firm's deceptive practices, a victim who sought to lower his mortgage payments was told by the firm to reject his lender's offer of modification. The homeowner was told that the Flahive Law Corporation could secure a better interest rate, reduce his principal, and possibly get his second mortgage eliminated. Four months later, the victim lost his home to foreclosure.
"Homeowners facing foreclosure are being targeted by predators, including those who use their law license to gain credibility and scam innocent Californians," Harris said. "My office's Mortgage Fraud Strike Force is dedicated full-time to cracking down on these deceptive practices and protecting homeowners from fraud like this."
