A Fraud Fighter O.C. Isn’t Using : $2 County Filing Fees Fund Land-Scam Prosecutors

SANTA ANA —  Prosecutors in four California counties are using millions of dollars from a recent state law to fight real estate fraud, and more plan to take advantage of the statute.

Orange County, however, isn’t one of them.

The county could pick up as much as $600,000 under the law, which allows county supervisors to tack a $2 fee on most real estate documents filed with local recorder’s offices. The proceeds are strictly dedicated for combating real estate fraud.

But in Orange County, which emerged last summer from the nation’s biggest municipal bankruptcy, such a fee is tantamount to a tax, and Dist. Atty. Michael R. Capizzi won’t ask for it.

“Pure and simple, I just don’t think that in Orange County, in this post-bankruptcy era, there is an interest or a will on the part of anybody to suggest an increase in fees,” Capizzi said.

Real estate fraud--especially foreclosure scams that are more prevalent in Orange County--is being handled adequately under the major frauds unit, he said.

Several insiders, however, say that Capizzi has another reason for passing up the chance to hire more prosecutors and investigators: the strained relationship between him and the county Board of Supervisors.

Capizzi’s investigation of the board over its role in the county’s bankruptcy led to last December’s grand jury charges of willful misconduct in office against Supervisors Roger Stanton and William G. Steiner and a county manager. Capizzi is prosecuting the case. In turn, the board, at Stanton’s urging, is threatening to launch a financial audit of Capizzi’s office.

“We’re interested in the fee, but there’s concern that it might be perceived as a tax; and there’s concern over the whole situation between the board and Mike,” said Deputy Dist. Atty. John Conley, head of legislative issues and major crimes unit.

Given the current frosty relations between Capizzi and the supervisors, Conley said, “I’m not sure Mike wants to go in front of the board on that issue right now.”

However, Capizzi insists the existing conflict plays no role in his reluctance to ask for the $2 fee.

“I determined last fall when it was signed into law that it was not something that would be looked upon favorably.” Capizzi said. “When I reached that conclusion, I didn’t know we would be bringing any cases against the board.”

At the time the bill was signed, he said, his office was investigating the board but hadn’t formed any opinions yet. The cases weren’t developed until December, he said. The law, signed in September 1995, took effect in January.

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The issue may be clouded further by the passage Tuesday of Proposition 218, which requires voter approval for increases in certain property-related fees, assessments and taxes.

Jonathan Coupal, legal affairs director for the Howard Jarvis Taxpayers Assn., said Proposition 218 probably would apply to the fraud fee, but it was questionable whether the fee qualifies as “an incident of property ownership” as garbage and sewage fees are.

But both the state legislative counsel and the state legislative analyst offices say that Proposition 218 doesn’t apply because the fee depends on the recording of documents, not the ownership of property. If a court determines, though, that the fee is really a tax, Proposition 218 would apply, said Marianne O’Malley, a legislative analyst.

Meanwhile, prosecutors in Los Angeles, San Diego, Santa Clara and Contra Costa counties have hired more prosecutors and investigators to curtail home equity scams and other frauds that prey especially on less sophisticated homeowners.

“We have seen results already in the sense that we now have a higher profile in the community,” said San Diego County Deputy Dist. Atty. Jeffrey Brodrick, who helped to draft the law.

“We hope to be able to prosecute real estate fraud cases more quickly, and hope that that will deter others,” he said.

Real estate fraud in Los Angeles County has been “mushrooming” in the last few years, said Don Tamura, a deputy Los Angeles district attorney who also helped to draft the state law.

Indeed, real estate fraud has become so prevalent statewide that even smaller counties are looking into the $2 levy. “Bakersfield already is beginning to see the same kinds of things that have been going on in Los Angeles,” said Kern County Deputy Dist. Atty. C.M. “Bud” Starr II. “We’re going to have to have a response to that.”

From rent skimming to title stealing, the frauds typically are viewed as a civil matter by local police, who often don’t have the time or the expertise to investigate such cases. But civil lawsuits usually are too expensive and time-consuming for private attorneys to handle.

Victims too often are the elderly, the poor or the uneducated who don’t understand real estate transactions, aren’t sure what happened to them and don’t have the money to find out.

“Real estate fraud has fallen through a law enforcement crack,” Starr said. “It has come to the point that government has to intrude to file charges to stop the frauds.”

At a town hall meeting two years ago, state Sen. Theresa Hughes (D-Inglewood) heard enough stories of people swindled out of their homes that she sponsored the legislation giving each county the option of adding the fee. “We decided that the only recourse we had was to send the perpetrators to jail,” said Joseph Hew Len, her chief of staff.

Three weeks ago, the California District Attorneys Assn. held its first symposium on fighting real estate fraud, and the new state law was a hot topic. The event, held in Anaheim, opened the eyes of a number of prosecutors whose offices had only scratched the surface of problem.

“It was a shock to see how much of it was going on in California,” said Starr of Kern County. The amount of fraud was revealed in speeches by some, like Tamura and Brodrick, who have become experts in the area.

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In poorer sections of Los Angeles, prosecutors say the most prevalent scams involve home improvement frauds in which unscrupulous contractors or others overcharge for such services as installing air conditioners, putting liens on homes and then selling the liens to mortgage companies. When the owners defaulted, the mortgage companies foreclosed.

In the San Fernando Valley, the long-running investigation into developer Marshall Redman’s $20-million real estate empire led to criminal charges last May accusing him of selling undeveloped Antelope Valley parcels that he didn’t own or didn’t have clear title to.

Elsewhere in Southern California, various foreclosure schemes are keeping prosecutors busy.

Residents who think they’re walking away from an upside-down mortgage--they owe more than the property’s worth--turn over title to people who promise to pay the mortgages. Instead, they rent the homes out and never pay the mortgages.

In one case, Robert Irwin Greenberg of Lake Forest was recently indicted by a Riverside County grand jury on 14 counts of rent skimming, filing false real estate documents with the county and conspiracy to trespass with intent to injure property rights.

Greenberg is accused of creating quitclaim deeds aimed at transferring to his company property that was vacated and in foreclosure. He then rented the property and pocketed the money, further delaying foreclosure sales, said Riverside County Deputy Dist. Atty. Edward Kotkin.

Greenberg, who is representing himself, has claimed in court that he had a right to the property under a rarely used state law that allows for so-called adverse possession, the taking of someone else’s property under certain extreme situations. He was unavailable for comment.

In Orange County, white-collar fraud nearly always involves real estate transactions, prosecutors say.

A Bankruptcy Court judge castigated developer Donald Hill Williams for bilking elderly investors of $90 million through land investment schemes. And some 300 mostly elderly Southern Californians lost $45 million to $60 million when Harold Tobin’s real estate company collapsed 18 months ago, leading to civil fraud suits against the former Huntington Beach developer.

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Real estate fraud is “ever-burgeoning, extremely profitable and carries little risk,” Kotkin said. “Authorities have a limited capacity to fight it. Until we had this state law, we had no means to handle real estate fraud specifically.”

Riverside County prosecutors plan to seek approval soon from county supervisors for the $2 fee, said Deputy Dist. Atty. Jay Orr, who heads the office’s special prosecutions unit.

But it first must determine if Proposition 218 applies. “If we think we’ll be facing a Prop. 218 fight, we may not ask for the fee,” said Riverside County Assistant Dist. Atty. Don Inskeep. “The amount of money it would raise wouldn’t be enough to put it on the ballot.”

“This is a type of crime that calls out for additional investigators and prosecutors working only on these cases,” said David Mintz, Los Angeles County deputy district attorney who heads the office’s real estate fraud unit.

Los Angeles County has hired three prosecutors and five investigators with about $1.4 million that it expects to get this year from the levy. The county could raise $3 million altogether.

Under the law, prosecutors receive 60% of the funds raised, after administrative expenses, and other law enforcement agencies with active fraud fighting units, get the rest.

In San Diego, prosecutors hope to get $500,000 to $600,000 a year from the levy. Santa Clara prosecutors expect the fee will generate $328,000 next year. Orange County could collect $400,000 to $600,000 a year, said Clerk-Recorder Gary L. Granville.

“We formed an economic crimes unit in 1989, and it soon became quite evident that real estate fraud of one form or another was quite prevalent,” said Santa Clara County Deputy Dist. Atty. Mark Hames, who supervises the unit. “Once we saw we could get someone dedicated to handling real estate fraud, we jumped at it.”

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Even so, the special funding may not be for everybody, caution some.

“Each D.A. has to decide whether the county has extensive enough real estate fraud and whether funds that could be obtained from the fee would justify setting up a special unit,” said Larry Brown, executive director of the California District Attorneys Assn.

“The threshold is whether you could fund one full-time prosecutor,” he said, “and whether there would be enough of a workload. You don’t go for the money just for the sake of getting the money.”

Starr said that Kern County prosecutors are analyzing the prospects of forming a real estate fraud unit and seeking the $2 levy, which could raise $250,000.

“We’re a small county, so the amount of money coming into this county is limited,” he said. “Even though it goes to a special fund, it’s still a tax. We’re trying to decide if we could put it to good use.”

In Orange County, fee requests are dying at the board level, said Granville, whose recorder operations got a fee increase 20 months ago to bring it in line with fees in neighboring counties--and to raise $2.3 million.

But since then, “our board has been very, very reluctant to approve fee increases,” he said. “There’s great turbulence in Orange County, and higher fees are seen as synonymous with tax increases.”

As far as Capizzi is concerned, that’s precisely why he won’t seek the additional $2 fee to fight real estate fraud, even though the county has.

Prosecutors elsewhere understand the political difficulties that Capizzi and other district attorneys might have in seeking a fee increase, but they consider the levy as so minimal that it hardly makes sense to ignore it.

“It’s only $2, and it only applies when someone sells their home or other real estate,” San Diego’s Brodrick said. “It’s such a small impact on consumers, but the net impact on real estate fraud is great.”

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Common Real Estate Frauds

A selection of some of the more common scams:

* Inflated home equity: Homeowner has an accomplice appraiser value home for more than it is worth; homeowner uses inflated appraisal to obtain home equity loan. Lender is victim, since homeowner committed fraud to obtain loan and in many cases defaults. In another type, homeowner obtains inflated appraisal and sells deed of trust; buyer stuck with home not worth the purchase price.

* Home improvement schemes: Homeowner hires contractor to perform construction or remodeling. Contractor requires an advance before work begins then pockets money and never performs work or leaves work unfinished and never pays subcontractors involved. Homeowner is stung for advance and subcontractors may attempt to collect unpaid fees by placing liens on property. Some owners have ended up losing their homes.

* Loan advance fee scheme: Perpetrator portrays loan broker and agrees to obtain home equity loan for homeowner after advance fee is paid. Loan never materializes. Victims are often elderly individuals.

* Sale of multiple trust deeds: Perpetrator, often with a phony deed of trust for a property, repeatedly sells the deed to numerous individuals.

* Rent skimming: Perpetrator, claiming to be owner, rents empty homes in foreclosure and pockets deposits and rents. Lenders must evict tenants before foreclosure sale. In a variation, perpetrator agrees to take over property from owner, who owes more than it’s worth, and promises to pay any mortgages. Instead, perpetrator rents the home and pockets the money, without making any payments.

Source: Orange County district attorney’s office major crimes unit; Compiled by JANICE L. JONES / Los Angeles Times