DA to battle real estate fraud

BY COLBY FRAZIER
DAILY SOUND STAFF WRITER

In an effort to battle real estate fraud throughout Santa Barbara County, District Attorney Christie Stanley established a task force to investigate and prosecute offenders on several levels.
Facing a rampant increase in real estate fraud throughout the system, Stanley plans to launch the Real Estate Fraud Prosecution Unit that will focus solely on investigating and prosecuting such fraud.
Stanley said the fraud unit will include the addition of one full-time investigator who’s role will not only be to investigate possible fraud, but will also conduct 12 public outreach presentations each year.


“The best thing to prevent these cases from happening is to make sure the potential victims are educated,” Stanley told the Daily Sound yesterday. “We’re going to try and reach as many potential victims, and the ones that are the most vulnerable out there as we can.”
The fraud unit’s estimated annual cost to the county is $81,000. In order to come up with this amount of cash, the County Board of Supervisors voted 4-0 (board member Brooks Firestone was absent) yesterday, to implement section 27388 of the California Government Code, which mandates a $2 fee be paid by homeowners when filing certain legal real estate documents.
The $2 fee was signed into law in 1995 and was called Senate Bill 537. According to Stanley’s presentation to the board, it’s purpose was to provide a fund for prosecuting, investigating and deterring real estate fraud.
Beginning on Aug. 1 the fee will be applied when filing a deed of trust, assignment of deed of trust, notice of default, a reconveyance and a request for notice.
The $2 fees, which are estimated by the county Clerk-Recorder-Assessor’s Office to total about $90,000 this year, will be pooled in a designated fund that is controlled by newly formed a Real Estate Fraud Prosecution Committee. This committee will be comprised of the district attorney, the county executive officer and the auditor-controller.
According to Stanley, the DA’s office prosecutes very few real estate fraud cases each year, but the need for a fraud unit has grown exponentially over the years.
Stanley said examples of the fraud are wide reaching and include investment scams, phony loan documents and “Foreclosure Specialists.”
“It occurs at just about every level, or can occur at just about every level,” Stanley said.
In her presentation to the board Stanley cited statistics that show the number of homeowners in the county who have fallen behind in their house payments has quadrupled over the past two years and.
She said an estimated 1,700 homes may go into default this year -- 450 of which could be taken by lenders. According to the board agenda letter, 400 notices of default were issued in 2005 within the county.
Stanley said the fraud unit plans to send letters with information about their possible options and rights to all of those residents who have drifted into foreclosure.
Though many of these defaults aren’t the result of fraud, they create a ripe situation for fraudulent activity to occur, and often targets the elderly or those who speak little or no English.
“In some cases, these victims have lost thousands of dollars to unethical and often unlicensed ‘real estate professionals,’ ‘mortgage sales associates,’ and others,” said District Attorney Chief Investigator Dave Saunders in the agenda letter. “Real estate fraud strikes at the heart of the American dream, where a sophisticated criminal can victimize dozens of people at a time by stealing their life savings and their most valuable asset -- their homes.”
In the case of foreclosures, Stanley said foreclosure specialists will tell homeowners that for a certain amount of money, they will help the owner hold onto their property.
“They make promises that they can’t keep and never intend to keep, and just extract money,” Stanley said.
Also prevalent in real estate are “predatory loans,” which local realtor Toby Bradley said are at the heart of most real estate scandals.
When getting a loan, Bradley said the interest rate has to be presented to the person receiving the loan. If the interest rate on a loan is 6 percent and fees total another 6 percent, then the person receiving the loan should be told of the 12 percent rate.
Bradley said such high rates often leave people unable to make the payments.
She said these high fees are what distinguishes a normal loan from a predatory loan, which many people can’t pay.
Compounding the problem is the fact that these loans target segments of the population who are inexperienced in financial matters, Bradley said.
She said the onslaught of subprime loans, which generally carry higher interest rates and have allowed droves of people with less than perfect credit to purchase homes without a significant down payment, created a market of people who don’t automatically contact a realtor or an attorney to seek out advice.
“Most of the predatory loans are done by complete frauds [who] don’t have a real estate license or aren’t realtors,” Bradley said. “We know there’s a problem. We don’t want people to lose their houses and be ill advised.”
When the person who received a predatory loan fails to make the payments, the person who issued the loan simply repossesses the property, Bradley said.
“[A] predatory lender takes the old lady on social security, and gives a loan,” Bradley said. “They do it because they want the property.”
Bradley said subprime loans have gotten a bad rap due to a few bad apples. She said many people who have been issued subrpime loans purchased homes and are doing well.
Both Bradley and Pat Kistler, government affairs director for the more than 1,000 member strong Santa Barbara Association of Realtors, said they support the new fraud unit and hope to play a role in it.
“I’m really glad this is being explored,” Bradley said. “We hope that the county will come to us and recognize the vast majority of us can be part of the solution.”
The only part of Stanley’s proposal Kistler and Bradley said they weren’t on board with, is the $2 fee.
By her count, Kistler said real estate transactions pumped $17 million into the county’s pockets between 2005 and 2006 -- a source of funding she thinks would be more appropriate to use to pay for the fraud unit.
“We feel that the document fee is just another strike on the shoulders of the homeowner,” Kistler said. “We just felt like as realtors we’d like to be part of the solution and help out funding it with the money coming in with real estate transactions.”
Bradley said she doesn’t think its fair to make all homeowners pay for the litigation and prosecution of a few bad apples.
“As an industry we are never happy when something like this is simply paid for by a tax on real estate,” Bradley said.
Regardless of how it’s paid for, Stanley is just anxious to join other counties in California, including Ventura, that have fraud units.
“We want to start and really hit hard with the education and prevention part of it,” Stanley said. “We all get a sense that the biggest damage is done at the front end.”