Attorney General Kamala D. Harris announced the arrests of Sacramento attorneys that took thousands of dollars in up-front loan modification fees for services that were never performed for homeowners, many of whom ended up losing their homes.
Attorneys Gregory Flahive of El Dorado Hills, 39, Cynthia Flahive of Folsom, 41, and Mike Johnson of Elk Grove, 42, were arrested on 19 felony counts, including grand theft by false pretense, conspiracy and false advertising. They were booked at the Sacramento County Jail with bail set at $50,000 bail each.
“Homeowners facing foreclosure are being targeted by predators, including those who use their law license to gain credibility and scam innocent Californians,” Attorney General Harris said. “My office’s Mortgage Fraud Strike Force is dedicated full-time to cracking down on these deceptive practices and protecting homeowners from fraud like this.”
Gregory and Cynthia Flahive, ex-spouses and owners of Flahive Law Corporation, and Johnson, the firm’s managing attorney, took up-front fees of up to $2,500 from homeowners in Placer, Sacramento, Butte and Yuba counties for loan modification services that were never performed. In California, it is illegal for foreclosure consultants to collect money for services before they are performed.
The Folsom-based law firm advertised their services on flyers, radio and televised infomercials, offering to provide loan modification services and help clients with bankruptcy, IRS tax relief and credit card modification.
In a 2010 infomercial, the Flahives said that, as a law firm, they had “extra leverage” with the banks. They described one of their unique services as a “mortgage violation audit” in which they reviewed a client’s loan documents to find bank violations that could be used as leverage to modify a client’s home loan.
In fact, the investigation revealed that, in some instances, the client’s lender had no record of contact with the Flahive Law Corporation.
Former clients of the Flahive Law Corporation filed complaints with the Attorney General’s office, as well as with the Better Business Bureau and the State Bar of California.
The State Bar of California launched an investigation, which was turned over to the Attorney General’s Mortgage Fraud Strike Force in summer 2011.
In one example of the firm’s deceptive practices, a victim who sought to lower his mortgage payments was told by Gregory Flahive to reject his lender’s offer of modification. The homeowner was told the Flahive Law Corporation could secure a better interest rate, reduce his principal, and possibly get his second mortgage eliminated. Four months later, the victim lost his home to foreclosure.
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