In San Bernardino superior court, Carlos Torres pled guilty on June 10, 2010, to forgery and conspiracy to commit felony real estate fraud. He received two years in a state prison. The father, Manuel, pled guilty to the same charges, got 120 days in county jail, and received three years’ felony probation. Oscar Macias, a stout, shaved-head bagman, also pled guilty and received time served.
In October of 2010, prosecutors in San Diego indicted David Zepeda, Carlos Torres, and Patricia Torres on charges of forgery, conspiracy, and filing false documents.
It’s not a stretch to say that San Bernardino deputy district attorney Welch sounds livid, thinking back on five years of the Southland’s big uptick in foreclosure fraud. “Sometimes I feel like I’m standing on a beach holding back a wave,” he says. San Diego has been the “only county” to cooperate in investigating and prosecuting these multijurisdictional crimes. Neither his office nor San Diego’s, he says, has the resources to nail every fraudulent loan modifier. “We will pick and choose where [prosecutions] will make the greatest impact and that will send the message that you don’t do it here.”
Welch says he wishes that more county and state officials would get involved. But, he notes, the “egos are just too big” in Los Angeles, Riverside, and Orange counties for their fraud divisions to collaborate with him. What’s more, recent and current attorneys general — Jerry Brown and Kamala Harris — promised to prosecute these illegal rings but so far they have not. “Everything we referred to the [state] attorney general’s office got sent back.”
The State’s Oversight
The California Department of Real Estate issues a “desist and refrain” order when an investigation reveals that people who do not have a real estate license are acting as real estate brokers. This includes negotiating the sale of real property, soliciting for prospective tenants, and performing services for borrowers in connection with loans secured by liens on real property. Operating without a license is a violation of the California Business and Professions Code. David Zepeda and 34 other people, trusts, and businesses were ordered on January 26, 2012, to desist and refrain from performing acts for which a real estate broker license is required.
The department of real estate investigation found that at least 550 Southern California homeowners have been victimized by the Zepeda brothers. One variation of the loan-modification scheme was called the “caretaker plan.” The homeowner quitclaims their house, bequeathing it to a trust, and pays rent and fees to the trust. They’re told that once the trust collects several deeds, its trustees will pool the “homeowner monies” in order to purchase the notes from the homeowners’ lenders. Eventually, the trust, so the plan goes, sells the property back to the homeowner at a lower cost. The problem is, such packaging, which sounds good to a distressed debtor, is all shine. There is no pool of money to purchase the homes. The money has been spent. Plus there is no modified loan that can be negotiated between lender and homeowner. No bank is involved. The caretaker plan is styled as a way to buy time and to keep the property from foreclosure. Just the opposite occurs. Most homeowners lose their properties to foreclosure and are evicted.
Tom Pool, spokesperson for the department of real estate, says there are several reasons why foreclosure fraud has mushroomed in the past five years. First, lenders have not had the resources to deal with the volume of defaults, late payments, and requests for loan modifications. Second, federal and state laws, some enacted as the crisis developed, require lenders to make mortgage adjustments, though much anecdotal evidence suggests that adjustments are not being made. (SB 1137, a mortgage relief bill passed in 2008, requires that lenders contact delinquent homeowners and negotiate a loan modification 30 days before sending them a notice of default.) Then there are delays the law requires: notice of default, a 90-day waiting period before the foreclosure process begins, and more. Add to that a bankruptcy filing on the part of a homeowner or trust, again to buy time, and one founders in the swamp of delay. With such a bog of rules, the average time it takes a foreclosure to be processed is 260 days.
One Little Fish, One Big Piranha
One of the many curiosities about John Zepeda, who reached a plea agreement with San Diego prosecutors in December of 2011, is that his attorney, deputy public defender Kathleen Coyne, insisted that he was only peripherally involved. John was David’s notary forger — just an employee. In his San Bernardino home office, he made the fake notary stamps, then stamped them on the fake quitclaim deeds and forged the notary’s signature. He was a little fish compared to David, the piranha, so Coyne said. But the judge didn’t buy her defense. After John pled guilty to 13 felony counts — using personal information of another, forging checks and money orders, filing false instruments, and rent skimming — the judge sentenced him to 12 years in state prison, minus the 534 days that he'd already been locked up.
John Zepeda in court
Image by Courtesy of CBS KFMB
The “restitution floor amount” in the Zepeda brothers’ case has been put at $6 million in San Diego. The district attorney’s office has put the number of local victims at 40, with 26 properties involved. And yet the worth of the Zepeda brothers’ ring, which overlaps with the Torres family ring, is estimated at only $200,000 or $300,000, similar to the Macias-Medina ring. As part of John Zepeda’s sentence, the judge ruled that the fine against him be reduced from $10,000 to $200. This ruling makes more money — but not much — available for victims. Whether or not those victims, which includes the lending institutions, will get any money remains to be seen. The court assigns a forensic accountant to cull through those 120 boxes and unravel the web of bank accounts. The restitution hearings won’t occur until after David Zepeda’s trial.