If you've recently received a mailer from a company that touts that it can pay off your home in five days, don't get too excited.

The potential for real estate fraud has soared, driven by a surge in default notices sent to thousands of struggling California homeowners during the past several months.

There are an increased number of scammers posing as "foreclosure consultants," said Phillip Ihde, manager of the southern region of the state Department of Real Estate, in charge of investigative operations.

Real estate scams prey on the trust of people in desperate situations. These so-called foreclosure consultants make false promises, giving homeowners the impression that they can improve their credit or pay off their properties in full, with the intent to swindle homeowners out of large amounts of money or, in some cases, their homes.

It happened to Maria Pastor in November 2002. When she met Edgar Berrazueta, she thought that "he was a decent person, a kind person," she said in Spanish on a video "Predatory Practices," created by Walk Your Talk Productions.

Pastor was told that after refinancing, her mortgage payments would be $650 per month on her Oxnard residence. She realized that something was wrong when she and her daughter began looking over the loan documents. She couldn't figure out the new monthly payment — if it would be lowered or if it would adjust each month.

"The next thing I knew, I received the letter from the loan company that I was going to leave my house ... that I could no longer stay here," Pastor says on the video. "He took $23,000 out of my home and didn't give me one penny."

In this instance and others, Berrazueta arranged "cash-out" refinance loans, but concealed it from his clients, intercepted the cash-out checks and deposited them into his bank account, according to the Ventura County District Attorney's Office. In August 2005, he was sentenced to three years and eight months in prison.

As the market slows, dozens of Internet-based companies have launched to capitalize on homeowners' inability to pay their mortgages. Companies advertise that they can provide cash for homes, within days or even hours of when an applicant submits an online form.

Some companies offer a completely lawful transaction; others do not, said Miles Weiss, senior deputy district attorney for Ventura County.

"With any Internet-based promotion, you should be extremely cautious," he said. "That level of caution should rise if you're in a precarious position financially. If you're on the edge of losing your home, you have to realize there are shady operations and there are legitimate (ones)."

Even if it's a legitimate cash offer, investors who make these purchases are seeking to buy at least 20 percent below market value, Weiss said.

Making a profit is a factor

Profit is obviously a driving factor, said Ira Friedman, president of FastPropertyBuyer.com, a Woodland Hills real estate investment company. If the company cannot make a profit on the purchase, it isn't interested.

Not all real estate investment firms that advertise to pay cash for homes are in it for a quick con. At FastPropertyBuyer.com, Friedman emphasizes that the purchase price will be fair and sufficient, and that the company does not make false promises. The company's investors have made at least 1,200 real estate purchases in California in the past 30 years, in excess of $250 million, he said.

"The difference between us and the other companies out there is that we have the actual cash to buy the property," Friedman said. "Ninety-nine percent of the companies out there take the leads and sell them to little investors around the country."

The firm doesn't claim to hand out cash hours after an online form is submitted, either. Friedman says a typical transaction takes about two to three weeks to close.

In the past two months, the site's inquiries have doubled, Friedman said. The company follows through on purchases on about 5 percent to 10 percent of the inquiries. Many are from owners who owe more on their homes than what they're worth, and are sometimes as much as six months behind on their payments. The firm buys real estate worth millions of dollars every month. Many recent transactions have been short sales, which are becoming more prevalent, Friedman said.

A short sale is when the buyer pays less than what the homeowner owes on the mortgage.

When dealing with a drastic, life-altering decision, Weiss says it's worth it for homeowners to pay an attorney $200 an hour for a consultation.

"People are so leery to pay a couple of hundred bucks, but I think it's just foolhardy not to get a qualified attorney to help with the transaction," he said. "An attorney will have only one allegiance, and that's to his client. You need to have someone just in your corner."

Fraud in Ventura County has always existed; now, it's a matter of how much it bubbles to the surface, Weiss said.

"It's definitely a growing problem," he said. "Unfortunately, I think it's going to get worse as the market toughens up, because of the lack of ability to refinance or sell, and with homeowners being upside down on their mortgages."

There were 102 complaints of real estate fraud filed by Ventura County residents in 2006, Weiss said. Of those cases, 54 were rejected as "not constituting of criminal conduct."

The unit documented 113 victims in 2006 and filed charges against eight defendants accused of real estate fraud. The dollar losses for those cases were in excess of $4 million.

The District Attorney's Office now has at least 38 cases pending criminal investigation.

Many scams not reported

While the number of complaints are rising, there are still uncountable scams that go unreported.

"There is a definite hesitation by people to not report misconduct that can be due to ignorance or cultural fears, related to legal consequences," Weiss said. "For example, an undocumented person may believe all that will happen if they complain is them being deported. We see suspects using that type of fear to intimidate these types of victims from not coming forward."

Once a notice of default is filed, it becomes public record and recipients become easy targets.

In Ventura County, notices of default on houses and condominiums jumped to 965 in the first quarter, up 123 percent from 433 over the same period a year ago. Defaults are the first step in a lengthy process leading to foreclosure.

During the first quarter this year, there were 203 foreclosures in Ventura County, up from 17 over the same period a year ago, according to DataQuick Information Systems, a La Jolla marketing information firm that tracks real estate.

"Now everyone under the sun has a rescue plan for the person facing foreclosure," Weiss said. "The borrower is in a potentially precarious situation, probably financially strapped, looking for any type of relief."

Meanwhile, there aren't a lot of rescue options — a homeowner facing foreclosure can either sell or refinance if there's equity. But in many cases, those bailout steps aren't possible. It leaves some struggling homeowners vulnerable to anyone who comes up with a different plan.

"If it sounds too good to be true, it is," Ihde told a crowd of 300 mostly real estate professionals during a fraud awareness forum at the Residence Inn by Marriott in Oxnard on April 20.

Qualifications checked out

The market slowdown is a precursor to reports of real estate fraud, Ihde said. When lenders see loans come back to them, they scrutinize the borrower's qualifications.

On the flip side, buyers, anxious to blame someone for a poor decision on a loan, are more apt to tell on the bad banks if the situation turns ugly.

"When they're making money, they don't report it, but when they're in a bad situation, they report it," Ihde said.

Some buyers attempting to get as much house as possible got a loan with the lowest payment possible, Ihde said. Reporting false income on loan documents has become a major concern as defaults rise.

Borrowers who had reported an artificially inflated income to qualify for a loan said they were told that banks don't care — that everyone does it, and that it's the only way to get approved for a loan, Ihde said.

"Well, I'm here to tell you that banks do care, especially when they're being investigated," Ihde said.

Unusual insights

Retailers use price-optimization software to assess tricky issues and often uncover results no human would likely find on a spreadsheet. A sampling, gathered from interviews with retailers and software vendors:

- A few years ago, 7-Eleven Inc. noticed that when it fought to "beat down" certain costs, so its convenience stores could reduce some of the prices they charged consumers, the effort wasn't always worthwhile, says Kay Trapp, manager for merchandise pricing. It turned out that several items with newly lowered prices saw no change in sales. The chain bought price-optimization software to get such insights in advance. "We decided it made us smarter," Trapp says.

- Like many national companies, an electronics retailer priced batteries the same all over. Until SAP's Khimetrics software showed that consumers in Dallas were generally willing to pay more for batteries than people in Boston. The data revealed another strange twist: The battery that had the highest "price sensitivity" in Dallas had the lowest price sensitivity in Boston. In other words, while Texans would buy this particular battery only within a narrow price range, Bostonians were far less picky about it. The store altered its prices accordingly, sold more batteries and made more money at it.

- A grocery retailer charged high prices for ice cream, but frequently offered deep discounts. Consumers largely bought ice cream only during the promotions. Khimetrics advised reducing the regular price of ice cream and running fewer sales. Eventually revenue and profits rose and presumably pleased consumers who stopped trying to stock their freezers whenever a sale was on.

- In a store with an array of paintbrushes, the best-seller was its cheapest one, at $1. But DemandTec suggested that the store stop selling the item altogether. The software showed that would help the store sell more of its higher-priced (and more profitable) paintbrushes because the key factor in paintbrush sales was whether a customer was buying paint, not the price of a brush.

The Associated Press