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Attorney General Kamala D. Harris Announces Arrests of Three Attorneys in Sacramento-area Loan Modification Scam

Thursday, March 8, 2012
Contact: (415) 703-5837

SACRAMENTO -- Attorney General Kamala D. Harris today announced the arrests of the owners and managing attorney of a law firm 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.

Gregory Flahive of El Dorado Hills, 39, Cynthia Flahive of Folsom, 41, and Mike Johnson of Elk Grove, 42, were arrested today 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.

Agencies that assisted in serving today’s search and arrest warrants include the Office of the Special Inspector General for the Troubled Asset Relief Program (SIGTARP), the Folsom Police Department, the Rancho Cordova Police Department and the El Dorado Sheriff’s Department.

“SIGTARP and its law enforcement partners are shutting down mortgage modification fraud, and holding a degree in law will not be a sufficient defense against prosecution,” said Christy Romero, Deputy Special Inspector General for SIGTARP.

Attorney General Harris formed a Mortgage Fraud Strike Force in May 2011 to investigate and prosecute mortgage fraud. In August, the Strike Force filed its first suit against a law firm that took millions from desperate homeowners: http://oag.ca.gov/news/press_release?id=2552&y=&m=. In December, a Strike Force investigation led to the arrests of three officers of a Stockton real estate company who ran a scam similar to that of Flahive Law Corporation. http://oag.ca.gov/news/press_release?id=2586&y=2011&m=

The investigation showed that the Flahive Law Corporation processed loan modifications for hundreds of Californians – and investigators believe there may be more victims in this case. If you are a former client of the Flahive Law Corporation, or if you want to report fraud or file a complaint, visit http://oag.ca.gov/consumers/loan-modification.

Photos are available from the Press Office. Please contact (415) 703-5837.

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