Two defendants have pleaded guilty and a third is awaiting trial for his alleged role in a mortgage rescue scheme that relied on fraudulent bankruptcy petitions to delay foreclosures on more than 1,400 homes in Southern California.

"The defendants in this case exploited bankruptcy rules as they methodically victimized lenders" in a foreclosure rescue scheme that netted nearly $550,000 in advance fees from homeowners, said U.S. Attorney André Birotte Jr. in a press release.

Once a homeowner paid a fee, typically $1,500 per month, the scheme’s perpetrators had them sign a deed granting a one-eighth interest in the house to a fictitious person, according to court documents. Without the knowledge of the homeowner, the perpetrators would then file a bankruptcy petition in the name of the fictitious person.

Filing a bankruptcy petition creates an automatic stay that protects a debtor’s property, forcing lenders to cancel foreclosure sales and wait for the bankruptcy petition to be dismissed, prosecutors said.

The lenders — small businesses, as well as large banks — had to pay lawyers to file motions to dismiss the bankruptcies in order to move forward and continue foreclosure proceedings on $725 million in mortgages. Some lenders lost interest payments on the mortgages for up to three years.

Two defendants — Irving Cohen, 74, of Van Nuys, and Robin Phillips, 53, of Claremont — have pleaded guilty in the case.

Cohen was charged Friday with two counts of bankruptcy fraud, and filed a plea agreement the same day admitting his role in the scheme, prosecutors said. Cohen is scheduled to make a court appearance on Dec. 20.

Phillips pleaded guilty on Nov. 29 to one count of bankruptcy fraud, and admitted filing bankruptcies that delayed foreclosure on nearly 500 properties. He is scheduled to be sentenced April 4.

A third defendant, Darwin Bowman, 74, of Van Nuys, was indicted in September on two counts of bankruptcy fraud and is currently scheduled to go on trial Feb. 8.

The crime of bankruptcy fraud carries a statutory maximum sentence of five years in federal prison.

Prosecutors allege Cohen started the scheme in late 2006, and that Bowman allegedly took it over for a time in 2008 while Cohen was serving a jail sentence for a fraud conviction in state court. The scheme wasn’t shut down until July 28, when FBI agents executed a series of search warrants.

The Federal Trade Commission last month issued new rules that take effect Jan. 31 banning for-profit companies that provide "foreclosure rescue" and loan modification services from collecting fees in advance.

In announcing the rule, the FTC said at least 30 states and Washington, D.C., already have similar laws or regulations on the books, including Arizona, California, Colorado, Florida, Illinois, Massachusetts, Michigan, Minnesota, Nevada, North Carolina, Virginia, Washington and Wisconsin.

California enacted a law banning the collection of advance fees from consumers for loan modification or mortgage loan forbearance services in October 2009.

Before the law was enacted, California licensed real estate brokers and their agents were allowed to collect advance fees for negotiating with lenders on behalf of borrowers if they first entered into written agreements with their clients, using forms and procedures that had been reviewed by the Department of Real Estate.

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