Desperation has led some of these homeowners to pay thousands of dollars to people who are not lawyers to help prepare their cases. Others hire attorneys in lawsuit mills that aggressively solicit for clients.

“It’s the new scam,” said Tom Layton, an investigator for the State Bar of California.

The number of lawsuits filed by individuals against banks and mortgage companies in the Sacramento region has more than doubled, rising to about 250 in the last six months, up from about 115 from the same period two years ago, according to a Bee review of court records in Sacramento and Placer counties.

Many of the lawsuits are filed by frustrated owners tired of dealing with banks that repeatedly transfer calls or reject loan modifications after a successful trial.

But homeowners don’t always know what they’re getting into when they go to court. Some unscrupulous operators, Layton said, are charging large fees for little work.

The Legislature barred lawyers and non-lawyers alike from charging upfront fees to file a loan modification; however, there is no ban on collecting such fees for preparing a lawsuit.

“Now we’re seeing the loan mod people morph into the sue-your-bank people,” Layton said.

Stephen C. Ruehmann, a Folsom lawyer who has filed dozens of recent lawsuits against lenders, agreed that some people are taking advantage of homeowner desperation. Others, though, are fighting for homeowners who have no other recourse.

“(Banks) don’t have any motivation to change; they’ve already been bailed out,” Ruehmann said.

Local judges, though, have traditionally been resistant to these types of fraud claims. In Sacramento County, 20 of the 24 homeowners who sued their lenders in Superior Court during a six-month period exactly two years ago have since lost their homes, according to court records and Foreclosures.com, a tracking firm.

Thirteen of those homeowners represented themselves in court; twelve of the 13 have lost their homes.

Despite that record, the trend of homeowners representing themselves has accelerated. More than 50 local residents who filed lawsuits during the past six months don’t have counsel.

“It’s a sad situation,” said Lawrence Green, professor of law at the University of California, Davis. “People not represented by a lawyer face a much harder time prevailing.”

Man paid paralegal $5,500

Sacramento resident Charles Ratliff is among those going it alone. He paid a Southern California paralegal $5,500 to prepare a complaint against IndyMac and others.

He filed his complaint in January. A judge denied his request for an order to stop the foreclosure, saying he was unlikely to win his case. The bank repossessed his house in March.

Ratliff said he regrets filing his lawsuit, which has sat dormant since he lost his home. “I fault myself,” he said.

He said he was introduced to the paralegal, Camilla Williams, by Sacramento real estate agent Kathleen Petroff, who was working with him on a short sale.

Petroff said she also introduced another one of her clients, Bay Area resident Clifton Constantine, to Williams, but never vouched for the paralegal’s services. She said she took a one-time payment of $200 from Williams but turned down an offer from Williams to pay her $500 per referral.

“I told them all, ‘It’s your own choice,’ ” Petroff said of her clients.

Reached by phone, Constantine said Williams wanted more than he could afford to prepare a lawsuit against American Home Mortgage Servicing and North American Title Co.

“She said, ‘Cliff, I’ve been praying about this and I want to help you guys,’ ” he said.

Even with an initial discount, Constantine said he wound up paying Williams more than $20,000 for his case in San Francisco Superior Court. The judge issued a preliminary ruling for Constantine’s lenders, but has given him a chance to amend his complaint.

Jim Towery, the State Bar’s chief trial counsel, said people without a law license should not be preparing lawsuits. “It is illegal,” he said. “It falls under the category of the unlicensed practice of law.”

In a brief phone interview, Williams declined to answer questions about her business, including how many clients she has or where she received paralegal training.

“I haven’t done anything illegal,” she said.

When informed of Towery’s comments, Williams said, “I’m not even aware of any law like that.”

While homeowners such as Ratliff and Constantine have tried to fight the banks on their own in court, others have turned to law firms that specialize in such cases.

Sacramento resident Maria Montoya-Cano, for instance, has been paying $1,500 a month to the Roseville-based United Law Center to pursue a fraud case against her lender.

Montoya-Cano, who filed her case in late October, alleges her mortgage officer and bank incorrectly told her the only loan she could get had an adjustable rate. That rate has since reset to an untenable level, she said.

The bank that gave her the loan went under in 2008. Her original mortgage broker said her case lacks merit.

A judge recently ruled against her request for an injunction against the current holders of her loan, saying Montoya-Cano’s case has little chance of success.

So Montoya-Cano has filed for bankruptcy protection to save her home. She’s selling a few rental properties she owns at rock-bottom prices to help pay her legal bills and other debts. She’s also taking care of her ailing mother and preparing for the return of her Marine son from Afghanistan.

“He told me not to worry – that he would find a job and help me out,” she said.

Montoya-Cano said she is happy with United Law Center’s representation. Her lawyer did not return a call for comment. Asked why she continues to pursue her case, Montoya-Cano said, “I’m just not through fighting. We can’t let the banks get away with this.”

False claims usually alleged

Lawsuits against lenders generally are based on the same argument: Banks and mortgage brokers made false claims during the boom, telling borrowers they could easily refinance their loans before interest rates reset, or didn’t disclose the true terms of loans.

The lawsuits often allege that lenders knew these statements were untrue, but were interested in making a quick buck by selling the mortgage on the secondary market.

Some of the lawsuits also allege that banks set conditions for trial loan modifications, then denied those modifications even after borrowers met the conditions.

Legal experts contacted by The Bee said it’s hard to prove fraud claims, even though dubious lending practices were widespread during the real estate boom.

“After all, borrowers typically did sign loan applications, escrow instructions, promissory notes, trust deeds and disclosures,” said Green, the UC Davis law professor.

Another obstacle facing borrowers is that it’s tough to prove a fraud conspiracy between the mortgage brokers, banks and investors.

Even if a bank committed fraud while giving a loan, the investors who bought that loan on the secondary market aren’t liable if they didn’t have direct knowledge of the fraud, said John Sprankling, a professor at the University of the Pacific’s McGeorge School of Law.

And if the loan holders aren’t liable, the homeowner likely doesn’t have a shot of keeping the house.

The response of banks to these lawsuits is often uniform. They say that even if everything in the complaint is true, it doesn’t constitute fraud. They file a request, usually successful, to dismiss the case or deny an injunction keeping the bank from taking a home.

Michael P. Malloy, a McGeorge professor, said judges may be more amenable to fraud lawsuits after a spate of “robo-signing” scandals revealed some lenders’ shoddy foreclosure practices.

“The courts are going to take their time and not treat these cases as routine,” Malloy said.

But, like other legal experts, Malloy cautioned that proving mortgage fraud takes a lot of work, and is tough to do without records outlining false promises.

“If all you have is a batch of paperwork and a vague recollection of what someone said to you, you have a real tough road ahead,” he said.

For once California’s economy looks good compared to that of some other states.

A foreclosure crisis that has dimmed the state’s golden glow with images of financial ruin and broken government is beginning to wane, says a leading trade group for the U.S. mortgage industry.

The Mortgage Bankers Association said Wednesday that California foreclosure starts have fallen from a year ago – even as problems grow in Midwestern Rust Belt states such as Ohio, Michigan, Indiana and Illinois.

“California is showing signs of improvement. We are seeing it on a quarter-to-quarter basis and year-over-year basis,” MBA Chief Economist Jay Brinkmann said.

Consider:

• In the past year California moved from fourth place among U.S. states for foreclosure starts to seventh.

• Mortgage delinquencies, while up from early 2009, fell slightly in early 2010.

• The percentage of California mortgages in the foreclosure process fell, too, during the past year.

California’s fragile improvements come as the national picture is less clear. Collectively, the longtime mortgage disaster areas – Florida, California, Arizona and Nevada – are becoming less of a problem nationally, MBA data showed.

“A year ago they had 45.3 percent of the problem loans,” said Brinkmann. “That’s down to 37.9 percent.

“We’re looking now at Illinois, Ohio, Michigan and Indiana. They’re climbing back into the list of problems,” he said. Those states have longer-term structural problems as their manufacturing economies continue to decline.

The new data confirmed improvements in California and the Sacramento area recently cited by researcher MDA DataQuick. Last month the firm said mortgage defaults have fallen for a year straight in the state and region, with foreclosures dropping now as well.

In hard-hit Sacramento suburbs such as Natomas, Lincoln and Elk Grove, residents see dwindling evidence of the crisis.

“All those houses that were vacant before were sold in the last year or two,” said Tyler Smith, a Keller Williams agent in Sacramento “A year ago it seemed every other house on some of those streets were vacant.”

Homeowners in distress are increasingly using short sales to unload their properties rather than losing them to foreclosure.

That’s helping preserve neighborhoods, because these owners stay in the homes until they’re sold rather being evicted and leaving an empty house behind.

Make no mistake: California’s long journey into a financial meltdown is nowhere near its conclusion, economists say.

They foresee prolonged trouble for the state economy and government revenues. At best, said Los Angeles economist Chris Thornberg, “The worst is behind us.” He added, “We have years yet of dealing with this.”

Like everything about the foreclosure crisis, even explaining a sense of improvement is open to interpretation. Thornberg said a fall in California foreclosure starts shows only that banks are taking longer to deal with late mortgage payments.

Jeff Michael, director of the Business Forecasting Center at the University of the Pacific, said simply, “This suggests we’ve reached the point where the number moving into delinquency equals the number moving out.”

Even that might be declared victory. More people are moving out of delinquency through short sales – selling their homes for less than they owe. And despite criticism of government loan modification efforts, the U.S. Treasury Department reported this week that 5,400 homeowners in the eight-county Sacramento region received permanent loan modifications since December 2009. Regionally, banks foreclosed on 4,300 more in the first quarter of 2010.

Any slowdown of last year’s frightful rise in delinquencies, said Michael, “indicates we’re close to a peak.”

The state still has a long way to go before it regains a healthy economy, 6 percent unemployment and a budget in the black, Thornberg and Michael agreed Wednesday. But for once, California is falling off lists of the worst performers.

Eventually, the supply of distressed properties will simply be exhausted, Michael said, adding, “The fire will burn itself out for lack of fuel.”

More people bought pricier houses in April, signaling the end of Sacramento’s bargain basement-only sales scene.

Buyers picked up the pace from last year in Granite Bay, El Dorado Hills and older neighborhoods near downtown Sacramento, researcher MDA DataQuick reported Thursday. Simultaneously, buyers dwindled in Oak Park, North Highlands and other repo zones of the past two years.

What gives?

There are fewer available repos after a long blowout sale, market trackers say. There’s also a sense at the higher end that this market is as good as it’s going to get for a while.

He said he sold three houses this week valued between $350,000 and $800,000.

The shifting sales mix tugged Sacramento County’s median sales price for resale houses nearly 10 percent higher than the same time last year, DataQuick reported. The median, where half cost more and half less, was $175,000.

Resale home prices also beat April 2009 levels in Placer, Sutter, Yolo and Yuba counties.

Less than half of Sacramento County’s April sales were cheap bank repos – compared with two-thirds a year earlier. With fewer repos this year, sales in the $200,000 to $400,000 range grabbed a larger market share.

“We’ve had 70 people coming through open houses in the $300,000 to $400,000 range,” said Bob Bronswick, president of Coldwell Banker Residential Brokerage in Sacramento and Lake Tahoe.

“That’s the trend across the state,” said DataQuick analyst Andrew LePage. He said sellers are cutting prices and buyers are still getting low interest rates to make deals work.

Sellers are not thinking about 2005. They’re thinking: ‘We might have to take it back to 2003 or 2002 prices and sell it at that.’

This doesn’t mean expensive is back. LePage said homes priced above $400,000 are only a tiny percentage of Sacramento-area sales.

But the shift is part of restoring balance to a market where repos accounted for a majority of sales for much of 2008 and 2009. Banks have cut repossessed homes on the market.

“The way banks are managing it now will probably keep prices from falling much further,” said Rick Sharga of Orange County foreclosure analyst RealtyTrac.

Overall, 3,255 homes changed hands during April in Amador, El Dorado, Nevada, Placer, Sacramento, Sutter, Yolo and Yuba counties, DataQuick reported. That was down slightly from March – and fewer than April 2009.

Analysts attributed the slight drop to fewer repo listings for first-time buyers and people delaying escrow closings until May. The state began offering homebuyer tax credits of up to $10,000 May 1.

New homes accounted for 5 percent of sales in the region.

Sales prices are lower. There’s less home equity to tap into. Local services have been shredded by falling property tax revenue.

Such repo collateral damage is why so many owners who pay their mortgages on time are so grouchy.

Rob Wassmer hasn’t been affected so much. Fourteen years ago he bought an east Sacramento house – in the Fab 40s – cheaply at the very bottom of the last housing bust. His older neighborhood has largely escaped the brunt of 52,000 foreclosures across the Sacramento region since 2007.

But Wassmer knows the financial whipping people have taken in Lincoln, Elk Grove, North Highlands and Yuba City. Being an academic, he knew there had to be a number for the carnage.

“I knew this kind of research had been done. I wanted to do a study of Sacramento,” said Wassmer, chairman of California State University, Sacramento’s department of public policy and administration.

Wassmer analyzed $9 billion in sales prices from 36,822 home sales in Sacramento, Yolo, Yuba, Sutter, Placer and El Dorado counties between January 2008 and June 2009. Almost half were homes sold by banks. The other half were sold by regular folks.

He concluded that the foreclosed homes cost this one region of America $2.7 billion in price cuts and lost equity over just 18 months.

• The repos sold for $659 million less simply because they were bank-owned and differed from normal sales. They took $1 billion more in price cuts because they were near other repos.

• Both reductions then stripped $1 billion from sale prices of nearby homes never in foreclosure danger.

Collectively, these foreclosures cost local governments $27.1 million in property taxes. Reassessments will likely take more.

Said Wassmer, “This is a call for regulation.” He suggests a federal law to make lenders and borrowers meet in “structured mediation” at least once before foreclosure.

Few ideas have proved so far to be the solution. See the research directly at: >www.csus.edu/indiv/w/wassmerr/ResForeclosure.pdf

But wait. That’s the lower end, houses priced at roughly $300,000 and under, the zone of repos and bidding wars between investors and first-time buyers.

The higher end of the Sacramento-area market – say anywhere from $500,000 to $1 million or more – still has ample room to fall unless this economy surprisingly rebounds. So owners are whacking harder now on initial asking prices.

You can see that in new statistics from home search firm Trulia.com. The company says homeowners with listings in El Dorado, Placer, Sacramento and Yolo County have collectively reduced asking prices by $156 million since putting out for-sale signs.

About 40 percent of that markdown is from homes priced at $1 million or more. On average, these richest owners have cut their prices by $271,000 in El Dorado County, and $334,000 in Placer County.

Up in the real estate heights, it remains more expensive for buyers to get financing. The move-up buyer pool is smaller than ever as thousands at the lower- and mid-market have seen their equity shredded.

Those who can buy at higher prices are savvy and watching for capitulation, meaning “price reductions and opportunity,” said Bob Bronswick, head of Coldwell Banker’s residential brokerage for the Sacramento and Lake Tahoe region. For owners, it’s all about what Bronswick and others in the trade call “getting a little more realistic.”

Bronswick said the higher end is a little stronger than a year ago. Yet numbers from the Sacramento Association of Realtors show just 2.9 percent of October’s buyers paid $500,000 or more in Sacramento County and West Sacramento. At today’s pace, it would take two years to sell the houses in SAR’s territory priced at $650,000 or more, said association President Charlene Singley. The market as a whole has a much smaller inventory of unsold homes – just 3.2 months worth.

This story is repeated all over California. There’s a market for it still,” Bronswick said of higher-end homes. “But it’s a little bit softer.” In a business where no one likes to be negative, and inside an economy that hasn’t got its act together yet, that’s probably putting it – well, softly.

Rents headed down again

While we’re speaking of deflationary real estate, area apartment rents have returned to late 2006 levels. That’s after a yearlong slide that continued in July, August and September, Novato-based industry tracker RealFacts reported this week.

No wonder capital apartment complexes are offering “two-bedroom blowouts” or a four-bedroom lease for the price of two bedrooms.

RealFacts pegged average third-quarter rent at $946 for 76,000 apartment units in El Dorado, Placer, Sacramento and Yolo counties. That’s down from $974 a year ago. The average two-bedroom, two-bath unit goes for $1,062, said the firm.

Rents at large apartment communities are falling in tandem with higher vacancies as more people who have lost their jobs double up, live at home or rent houses from people unable to sell them.

Average monthly apartment rents and occupancy rates in capital-area cities:

• Davis: $1,354; 96.4 percent.

• Elk Grove: $1,098; 88.9 percent.

• Folsom: $1,138; 90.4 percent.

• Rancho Cordova: $814; 93.5 percent.

• Rocklin: $1,047; 93 percent.

• Roseville: $1,066; 92.9 percent.

• Sacramento: $929; 92.4 percent.

Jim Bayless bought the 1983 ranch-style home on the brink of foreclosure last May and spent about $42,000 for energy efficiency improvements. “This house is more efficient than most new homes being built today,” he said.

Bayless works with a company called GreenBuilt, which specializes in energy improvements in older homes. SMUD offered Bayless incentives to create a demonstration home to show other homeowners how to do the same thing.

SMUD Project Manager Mike Keesee said the wave of foreclosures in the Sacramento area offers an opportunity to upgrade thousands of older homes that would be remodeled anyway.

“If you built (energy improvements) into a 30-year mortgage, we estimate you could be cash positive from day one,” Keesee said.

Energy improvements on Bayless’ home include new insulation in the attic and one outer wall, solar hot water, solar electric panels, a heat pump for the electric water heater, retractable window shades, and a rooftop solar tube to provide natural lighting indoors.

Bayless expects the annual $3,000 SMUD bill to drop to $1,000.

The demonstration house is located at 8901 Quail Hill Way in Fair Oaks and will be open to the public Saturday Oct. 24 from 11 a.m. to 3 p.m.

SACRAMENTO, CA – Sacramento’s home prices are projected to drop 15.7 percent for the year, but that’s good news. Other counties are expected to fall 19 percent to 20 percent.

Much of Sacramento’s good fortune is due to the lack of foreclosures actually hitting the market. Banks are holding on to thousands of foreclosed properties in the Sacramento region. But, they are coming on the market in dribbles. So slowly, they are snatched up in a few days. That kind of demand is pushing up the price of homes that are $300,000 and under.

What was expected to be a flood of foreclosures is turning out to be a trickle. Michael Lyon of Lyon Real Estate agreed.

“Now that we’ve talked to the banks and found out what’s going on, they don’t have the personnel to do the processing to get it out,” Lyon said.

Lyon said the federal government has put heavy restrictions on banks that took bailout money when it comes to following through on foreclosures.

“There’s too much of a bureaucratic mess to really throw these things out on the streets so they’re coming in at a rather absorbable rate, which is keeping that low end, under $300,000,” said Lyon. “It’s becoming a seller’s market. I didn’t think I would be saying this for years.”

Lyon predicts that instead of seeing a wave of foreclosures sweep in over the next few months, it will likely now be a steady stream over the next few years.

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