FTC Seeks to Permanently Discontinue California Mortgage Relief Scam

A federal court has temporarily halted the scheme, and the agency will seek to permanently stop the alleged illegal practices

FTC Seeks to Permanently Discontinue California Mortgage Relief Scam
Image: Pixabay
June 20, 2016

A phony lawsuit designed to take advantage of struggling California homeowners has been targeted and shut down by the Federal Trade Commission (FTC).

According to the FTC's complaint, a group of operators falsely told homeowners that they could join a so-called "mass joinder" lawsuit that would save them from foreclosure and provide additional financial awards. A federal court has temporarily halted the scheme, and the agency will seek to permanently stop the alleged illegal practices and obtain refunds for consumers.

"Preying on homeowners who already are financially distressed and struggling to pay their mortgages is appalling," said Jessica Rich, in a written statement. Rich is the Director of the FTC's Bureau of Consumer Protection. "That's why stopping phony mortgage relief operations, like this one, is a priority at the FTC."

The alleged operators of the scam are Damian Kutzner and four attorneys using a set of law firms under the names Brookstone Law and Advantis Law. The group claimed they would bring lawsuits against lenders for mortgage fraud and void consumers' mortgage notes "to give you your home free and clear, and/or to award you relief and monetary damages."

The promise of a mass joinder lawsuit, according to the FTC, is a common tactic employed in mortgage relief cons. Unlike class-action lawsuits, in the event of trial each plaintiff would have to prove his or her case separately. Although the defendant attorneys have sued several well-known banks, the FTC has alleged that they have not won any cases and that most were dismissed because they never pursued them. According to the FTC's complaint, the defendants' operation did not have attorneys who could litigate hundreds or thousands of cases.

According to the complaint, the defendants mailed marketing materials to consumers with the homeowner's name, loan amount, and property identification number, with statements such as, "Your home will be sold at Auction unless you take immediate action." People who responded to the solicitations were told they could join a lawsuit by paying $895 or more in advance for a "legal analysis," and that they were likely or certain to prevail in a lawsuit against their lender. After claiming the analysis showed that a consumer had a good case, the defendants charged thousands of dollars in recurring monthly fees through the law firms and failed to deposit the fees in client trust accounts as required by law.

Clients' requests for information were habitually ignored by the defendants. In addition, the defendants did not tell people when their lawsuits had been dismissed and kept collecting fees from those clients. Subsequent refund requests were often ignored.

One of the defendants, Vito Torchia, was disbarred by the State Bar of California for misconduct. During his ethics trial, he conceded that Brookstone failed to provide the most basic elements of legal representation.