Foreclosure scam artists rarely face jail time

updated 7:49 p.m. ET March 11, 2009

LAS VEGAS - They call themselves loan modification consultants, negotiators or specialists. Some are legitimate, but many are simple con artists looking for desperate marks facing foreclosure amid the wreckage of the nation's housing market.

It's a good business, too, since in most states, there's not much of a chance they'll ever end up before a judge facing any time in jail.

"It's difficult for us to get prosecutors to do the investigations on misdemeanors," said North Carolina Attorney General Roy Cooper.

While some states have recently toughened penalties for perpetrating the booming business of foreclosure scams, and some prosecutors have used existing fraud statutes to bring criminal charges, the reaction of many state prosecutors in places where foreclosure scams are common are civil actions designed to recover a victim's money.

Only in a few states are attorneys general offices — which tend to be a focal point of consumer protection efforts — willing and able to seek criminal charges and jail time against such con artists. While consumers might be helped financially by the civil cases, advocates say criminal prosecutions would do more to stop these scams.

"You've got to do something to get their attention," said Tom Bartholemy, president of a Better Business Bureau office in southern North Carolina. "Because what's being done — these civil actions — isn't."

The fake foreclosure fixers are operating in a target-rich environment. More than 2 million homeowners faced foreclosure proceedings last year, and the number is expected to rise this year.

That's the audience for roadside billboards around places like Las Vegas that scream "Save my property!" and radio ads that promise "expert help." Some companies comb property records and send mail designed to look like it's from the homeowner's lender: "We have reviewed your property information and determined that you may be eligible for a loan modification."

After Hugo Malara lost his job at a neon sign company and fell behind on his home loan, he called Derric Robinson, a loan modification specialist who advertises a "money back guarantee."

Malara and his fiancee Maria Sorto paid Robinson an $800 fee, but say they rarely heard from Robinson again. In fact, the bank had already sold their neat stucco bungalow when they handed Robinson the check.

"He was recommended by a friend. He said he could fix the problem," said Malara, a 48-year-old immigrant from El Salvador, who said he does not plan file a lawsuit.

Robinson said he made calls to the home's new owners on Malara's behalf. And he blamed Malara for not cooperating and said the fee was compensation for his time.

"That's how much my time was worth," he said, adding that the work was done outside his job as a loan modification specialist for a California company.

Some of those making the offers to help are former brokers, agents and appraisers who've seen their previous business evaporate. But it's difficult to gauge if even the legitimate offers to help are more effective than nonprofit credit counselors who also work with lenders at no charge.

"There are plenty of HUD-approved nonprofits who will do this work for free and that's what we recommend," said Rick Simon, a spokesman for Calabasas, Calif.-based Countrywide Financial Corp., once the nation's largest mortgage lender.

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