California AG clamps down on foreclosure consultants

LOS ANGELES (Reuters) - As mortgage-related fraud claims skyrocket in one of the hardest-hit U.S. real estate markets, California authorities on Wednesday ordered so-called foreclosure consultants to register with the state and unveiled new efforts to put scammers out of business.

U.S. mortgage fraud reports jumped 36 percent last year as desperate homeowners and mortgage industry professionals tried to maintain their standard of living from the boom years. U.S. authorities have described the resulting fraud as rampant and growing.

California, which saw home values soar during the boom and now has one of the nation's top foreclosure rates, is struggling with an explosion of scams by fraudsters who take upfront fees and promise to work with lenders to modify home loans but do little or nothing.

California Attorney General Jerry Brown said on Wednesday the fraud was so rampant that he had ordered nearly 400 foreclosure consultants to register with the state and post $100,000 bonds within 10 days. Two dozen companies were ordered to prove "suspicious" claims made in advertising.

"It's out of control. It's huge. It's unprecedented," Brown told reporters at a news conference in Los Angeles.

The regulatory action comes a month after Brown and other states attorneys general and the U.S. government filed dozens of lawsuits against dozens of individuals and companies in nationwide crackdown on loan modification scams.

He said then that the growth of the scams was outpacing the state's resources to combat them all.

The state Department of Real Estate and the State Bar of California also announced efforts on Wednesday to pursue real estate agents and lawyers caught scamming homeowners.

Loan modification complaints to the state Department of Real Estate have increased 10-fold over the past year -- more than half originating in Los Angeles county. Complaints against lawyers have spiked to 400 so far this year, from seven last year, authorities said.

The agencies have begun a public service campaign to urge homeowners to try free, government sponsored options, such as the Hope Now Alliance, at hopenow.com, and have unveiled a web site to field complaints and verify licenses. (Reporting by Gina Keating; Editing Bernard Orr)