COSTA MESA, Calif. — California prosecutors sued several lawyers and call center operators for allegedly duping desperate homeowners across the country into paying thousands of dollars to join dubious lawsuits against big banks.
The complaint unsealed Thursday in Los Angeles County Superior Court accuses prominent foreclosure attorneys Philip Kramer and Mitchell Stein and at least 17 other individuals and businesses of ensnaring borrowers in a scheme that falsely promised a cut of future settlements.
The lawsuit portrays the defendants as the most recent in the chain of mortgage-related scammers who helped fuel the housing bubble and have cashed in on its collapse. The defendants previously worked in the fraud-ridden loan modification industry, in which lawyers offer to negotiate better mortgage terms on behalf of troubled borrowers in exchange for a fee.
They are accused of telling borrowers that they had a solid claim to being victims of predatory lending because courts had already found most lenders to have approved inappropriate mortgages.
"They essentially took advantage of what we know is a growing sentiment out there," California Attorney General Kamala Harris said Thursday. "They suggested that by joining this lawsuit, the banks would have to pay. But the only people who paid were those homeowners who were victimized for the second time."
Investigators are aware of some 2,500 California residents who have been listed as defendants in the lawsuits, but there could be many more who paid fees and were never actually added to the suits or are out of the state.
Up to 2 million official-looking mailers advertising the lawsuits were sent to homes in at least 16 other states, including Arizona, Florida, Nevada, New York and New Jersey, according to the attorney general's office.
Some borrowers had their homes foreclosed on after paying to join the suits filed by Kramer and Stein, according to the complaint.
Defendants in the complaint are all based in California, but the investigation could eventually ensnare associates in other parts of the country.
Florida bar spokeswoman Zannah Lyle confirmed that her organization was looking into allegations of rule violations concerning Tallahassee-based lawyer and lobbyist David Ramba's work with Kramer and Stein to recruit struggling homeowners to join lawsuits against banks. Mr. Ramba did not immediately respond to a message seeking comment.
The attorney general's complaint was unsealed a day after state bar investigators and state Department of Justice agents served defendants with copies of the complaint at 14 locations in Los Angeles and Orange counties.
Officials loaded boxes of seized documents into moving vans Wednesday. Armed police guarded the entrances to emptied offices, which appeared to contain wall-to-wall cubicles for phone center workers. The Orange County raids took place in sprawling office parks with manicured lawns surrounding Irvine's airport.