Suit against law firm could signal next wave of mortgage modification fraud

Cotchett, Pitre & McCarthy on Thursday sued a Los Angeles-area law firm for allegedly collecting illegal fees for a "forensic loan audit" from a San Francisco Bay Area couple promising to stop the foreclosure of their property -- which they quickly lost.

The lawsuit, filed on behalf of Orlando and Mercedes Erazo in San Mateo County Superior Court, accuses attorney Francisco Nogales of promising the audit would induce the Erazos' lender to modify their loans, but of not actually doing any work to prevent foreclosure. After the homes were sold in foreclosure, Nogales collected thousands of dollars more in fees for a lawsuit he said would reclaim the properties but was never filed. Nogales and an employee linked to the firm have a history of suspect business ventures, the Cotchett firm said.

Nogales, who earned his J.D. from the University of West Los Angeles in 2000, has no prior record of public discipline, but was suspended from practicing law by the State Bar of California in September for not paying membership fees.

Cotchett attorney Matthew Edling said he sees the case as part of the next wave of mortgage modification fraud. Nogales and other lawyers preying on underwater borrowers are flouting a law passed in California last year barring attorneys from charging advance fees for loan modification services , Edling said. "So what these guys did was just call it something else," Edling said.

The Cotchett complaint comes on the heels of a sizable forensic loan audit suit filed by the California attorney general's office this month. AG Jerry Brown sued three lawyers accused of helping to file predatory lender lawsuits for homeowners struggling to make their mortgage payments. Brown seeks to recover $60 million in civil penalties in the action he filed on Wednesday in Sacramento County Superior Court.

Cotchett's Edling said the Erazo case comes with challenges. "I think that proving that a lawyer had no intention of doing what he was saying he was going to do is always a difficult argument to make," he said. He says it helps that there's little evidence in Nogales' files that he ever intended to file any actions on behalf of the Erazos. "It's displayed in spades by the fact of how bare his file is."

The Erazo complaint doesn't specify damages, but Edling said the couple paid almost $35,000 for review of their mortgages and the audit, and lost hundreds of thousands more in equity in their two homes.

Nogales didn't respond to an email message Thursday afternoon.

(Published by - October 18, 2010)

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