The Strike Force That Never Struck 

Despite pledging to crack down on foreclosure scam artists three years ago, Attorney General Kamala Harris has allowed an industry of fraud to flourish.

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There are only a few clues about who is behind Direct Loan Counseling. An Irene Smith registered Direct Loan Counseling's website domain name in May 2013. In 2011, someone also named Irene Smith registered two fictitious business names with the County of Los Angeles — Direct Mortgage Counseling and Mortgage Counseling Center. The mail drop Irene Smith used for Direct Mortgage Counseling was a second-floor office above a Thai restaurant and a wig shop just a few blocks away from Direct Loan Counseling's current office on Santa Monica Boulevard.

Three recent consumer complaints against Direct Loan Counseling, filed with the Business Consumer Alliance, a nonprofit watchdog, identified a Charles Smith as the company's primary representative, along with Irene Smith, and several other employees. The complaints allege that the Smiths and Rose broke several state laws and stole thousands of dollars from homeowners in distress.

In February 2013, Irene and Charles Smith were busted by the California Department of Real Estate for operating their previous company, Direct Mortgage Counseling, in violation of state law. In a published Desist and Refrain Order, Bureau of Real Estate Commissioner Wayne Bell cited the Smiths for posing as real estate brokers (neither is licensed) and for collecting advanced fees in the performance of loan modification services, a direct violation of California's foreclosure consultant law, punishable by a fine of $10,000 and up to a year in jail.

But just like hundreds of other fly-by-night, unlicensed and unregistered foreclosure consultants identified by the Bureau of Real Estate, neither Irene nor Charles Smith appears to have ever been prosecuted by any California law enforcement agency for running Direct Mortgage Counseling. Shortly after the BRE issued its order to the Smiths, they closed down Direct Mortgage Counseling, and are now doing business as Direct Loan Counseling.

California law requires foreclosure consultants to register with the state Department of Justice, and to post a $100,000 bond as a precondition of doing business. The law was designed to drive most foreclosure consultants out of business, and to make it easier for authorities and consumers to spot frauds. But Direct Loan Counseling isn't registered with the DOJ, and has never posted a bond to act as a foreclosure consultant.

Neither have a half-dozen other foreclosure consultants I called up and received offers from during the past few weeks. Several of these companies and the people I spoke with were also previously cited by the California Bureau of Real Estate for breaking various state laws in pursuit of their fraudulent schemes.


During the depths of the foreclosure crisis, Ofra Pleban was the staff attorney of Central California Legal Services, a nonprofit legal aid group serving Fresno. "It's like a mushroom after the rain," she said of foreclosure rescue scam operations in the Central Valley. "You close one down, another opens, pops up."

As if counseling homeowners on how to navigate the Kafkaesque banking negotiation system wasn't difficult enough, Pleban found herself forced to investigate and sue foreclosure consultant scammers who preyed on the Central Valley's working-class and heavily Latino communities. "We were involved in litigation with one of the most prolific loan modification schemers in Fresno County who defrauded hundreds of homeowners of thousands of dollars each, with promises to obtain for them a loan modification," she said.

"Unfortunately, despite the extensive evidence against this entity [Legal Foreclosure Services] and its operators, and the scope of their activities in Fresno and Merced counties, law enforcement, including the District Attorney's Office, the Attorney General's Office, and the US Attorney's Office, failed to prosecute."

So why did some local district attorneys in the Central Valley fail to prosecute some of the most egregious foreclosure rescue scammers?

"Locals, of course, claim limited resources and the need to allocate, or prioritize them," said William Krieg, a private attorney in Fresno.

Krieg is suing multiple foreclosure consultant companies and law offices for fraud, but few private attorneys are following his lead. "You might get an injunction and they close, but then there's no assets to collect," explained Pleban, referring to the problems of going after foreclosure rescue fraudsters. "It's not that easy for the private bar to prosecute these cases."

And what about Attorney General Harris' office? "Generally, I am not aware of California Attorney General efforts in the Central Valley, or elsewhere, to actively prosecute these scams," Krieg said. "More often this is left to local the district attorney, or to the California Bureau of Real Estate to seek real estate license revocations."

This patchwork system of prosecution has numerous drawbacks. "One problem for local district attorneys," explained Krieg, "is that scammers are often located out of state, or out of county, and the district attorney defers to the attorney general or must join with other district attorneys if the problem is extensive enough. "Our local DA has confirmed the very limited resources available for this."

Official budget records show that the Fresno County District Attorney's Office had only one attorney and one investigator in its Real Estate Fraud Unit during 2010 and 2011, probably the most active years for foreclosure consultant scams in an area that was hit especially hard by the foreclosure crisis. And like in other real estate fraud units in county district attorneys' offices, prosecuting foreclosure-related frauds was just one of the staffers' responsibilities in the Fresno County DA's office, meaning that only a fraction of their time was spent chasing foreclosure consultants.

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