Judge backdates fine for violation in mortgage case

Second Circuit Judge Rhonda Loo last week imposed a $1,000 per day fine on a Big Island woman going back to July 2012 for violating court orders in a pending mortgage rescue fraud case against Maui residents and others last year.

Edna A. Franco, owner of Francha Services LLC, was issued the fine for continuing mortgage rescue services despite being ordered to cease operations and communications with clients. The state Department of Commerce and Consumer Affairs’ Office of Consumer Protection filed the injunction in July 2012. As of this month, fines ordered by Loo have risen to $400,000.

“Judge Loo’s order finding Franco in contempt reflects the severity of Franco’s irresponsible conduct and recognizes that charging at-risk homeowners illegal advance fees to save their house from foreclosure can inflict severe economic and emotional harm upon these vulnerable families,” Bruce B. Kim, the Office of Consumer Protection’s executive director, said in a news release Friday.

Franco was originally sued for violating Hawaii’s Mortgage Rescue Fraud Prevention Act. The law “prohibits collection of fees before services are performed and requires a written contract spelling out the services and fees to be charged for such services,” according to the release.

“Homeowners were asked to pay Franco a substantial advance fee before she would help them and then she did little, if anything, to complete any of the services promised,” the release said.

Kim said about 20 homeowners from Oahu, the Big Island and Maui filed complaints against Franco. He said 14 were from the Valley Isle – some of whom testified at the injunction hearing.

Franco has approximately 480 clients that she still reportedly contacts despite the court orders, state officials said.

“The original amount from the complainants that we had was $78,000, and that’s just the limited number of (people) that we’re aware of,” Kim said. “If she’s claiming she has 400 clients, you can take the 78-plus and extrapolate up.”

Franco has maintained her innocence with respect to allegations of violating mortgage rescue laws and upfront fees, with her attorney Melodie Aduja referring to her as a “certified mortgage forensic loan auditor.”

“She’s never represented herself as being within the definition of a ‘distressed property consultant,’ ” Aduja said on behalf of Franco in a phone interview Monday. “She’s always maintained she is a certified forensic loan auditor, and that title is not considered within the (Hawaii Revised Statutes, Chapter 480). . . . If you look at those statutes, they’re targeting those that are either distressed property owners or those that work with loan modifications.

“What she does is offer an audit which is more of a litigation type service.”

When Kim was asked if that were true, he said: “It’s true in the sense that she believes what she’s doing is legal.”

“They have little twists on everything,” he said about forensic loan auditors. “They’re essentially offering to review loan documents and mortgage documents to find violations. The cruel joke is even if you find the violations you still owe the money and it does not save your home from foreclosure . . . and of course, all these services require an upfront fee.”

Aduja said the department is “mischaracterizing” Franco’s service and that what she is providing is “quite necessary.” She said Franco looks at suspicious documents that may have been fraudulently obtained, which can be used against lenders in court.

Aduja added that the office’s accusations rely on Honolulu resident Merlina Tabuyo, whose house was going through a foreclosure and paid $3,500 upfront for Franco’s services in October 2012. She said Tabuyo was “mislead and tricked” by an investigator with the office into testifying against Franco at the injunction.

However, when Aduja was asked why Franco spoke with Tabuyo about the foreclosure, she said: “I’m not sure.”

Tabuyo reportedly recanted her statements in court. And, at a news conference Sunday, she stood in support of Franco.

Kim responded to the news with: “The only thing I have to say about that is Tabuyo testified under oath in April.”

According to court documents, Tabuyo had foreclosure actions on her home filed as far back as 2009. She testified that Franco “specifically stated that she could save (her) home from foreclosure with (an) audit” and that the process would begin once she paid the $3,500.

Loo found Franco in contempt of court Oct. 1 for not following the injunction. A hearing on Franco’s compliance with the injunction is set for Jan. 9.

* Chris Sugidono can be reached at csugidono@mauinews.com.