"Their objective is to collect money, and they're trying to collect as much as they can as fast as they can," said Will Kennedy, a consumer law attorney in Santa Clara, Calif., who is representing Abdelfattah and parties involved in a class-action lawsuit against Heritage Pacific. "They only sue on second mortgages, which range from $70,000 to $150,000. Twenty percent of that is a lot of money. They get these loans very cheap, so they only have to collect a little bit to make money."
Kennedy argues that most of the mortgage applications were legitimate, and that the only reason homeowners stopped paying their debts was because they lost their jobs and had no income. He also maintains that the bulk of the original mortgage applications were signed by brokers who lied.
And he argues that Heritage Pacific's lawsuits against people with second-rate mortgage debts of less than $150,000 are illegal under California law. "Legally, you can only sue for fraud if the amount is more than $300,000," Kennedy said.
(A Santa Clara County Superior Court judge threw out Heritage Pacific's claim against Abdelfattah in March because the alleged fraud involved a loan for less than $150,000.)
Heritage Pacific does send letters to borrowers, offering to stop pestering them if they pay back a portion of the original loan. But it has also filed more than 220 bankruptcy cases in federal courts in California, including a claim against Oscar Trejo, a San Jose resident who invested in properties and later lost them all in foreclosures.
Shortly before he expected to exit bankruptcy in November 2012, Trejo received a letter from Heritage Pacific saying it had asked a bankruptcy judge not to erase its $88,800 claim against him. The company alleged that he had overstated his monthly income. A judge later ruled that that while Trejo didn't make the $9,500 a month he said he did, the lender had "ignored obvious problems" with Trejo's loan application and couldn't block the discharge of his $88,800 debt, CaliforniaWatch.org reported.
Heritage Pacific has appealed that ruling to a Bankruptcy Appellate Panel, arguing that the lender's reliance on Trejo's undocumented assertions reflected "the custom and habit of the mortgage industry at the time."
Trejo's countersuit against Heritage Pacific is scheduled for a jury trial in July.